Speech by Tom Pentefountas, Vice-Chairman, Broadcasting, Canadian Radio-television and Telecommunications Commission

To the 7th International Regulatory Workshop

Cartagena de Indias, Colombia
September 3, 2012

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It was fascinating to hear my Portuguese and Brazilian co-panelists outline their countries’ approach to regulating the television industry. We share many things in common, but Canada’s regulatory environment is different in numerous ways.

One noteworthy difference is the fact that we live next door to an information and entertainment giant. Canada’s proximity to the United States—and the strong economic, social and cultural ties between our two countries—influence the way our television industry is governed.

Most Canadians speak English, as do many Americans. A majority of us also share a common heritage, values, interests and tastes. But we are not identical and it’s important that our broadcasting system reflect that. While we love American culture as much as the rest of the world, we don’t want it to overshadow our own.

More significant, Canada is officially a bilingual and bicultural country, where French enjoys equal legal status with English. Canada was founded on the contributions of both French and English settlers, along with those of the original inhabitants, Aboriginal peoples. This is recognized in our country’s constitution and reinforced in our Broadcasting Act.

It is long-standing government policy that Canada’s broadcasting system must reflect our country and its people. One of the Act’s key objectives is the promotion of Canada’s cultural identity. It encourages the development of Canadian expression, and the use of Canadian talent and creative resources.

TV regulation

While broadcasters can air non-Canadian programming, the Canadian Radio-television and Telecommunications Commission, or CRTC, has established regulations to ensure Canadian content is widely available on television and the radio.

In exchange for a licence, we require conventional television broadcasters to spend defined amounts on Canadian programming. During prime time, at least half of their programming hours are devoted to Canadian content. These broadcasters also must spend a percentage of their revenues producing Canadian programming, including drama series, documentaries and local news.

We impose similar requirements on cable specialty and pay channels. They, too, have Canadian content expenditures and exhibition requirements to meet.

Licensed cable and satellite distributors have to carry local channels and offer predominantly Canadian channels. They also have to contribute a portion of their revenue to funds devoted to the creation and promotion of Canadian content.

And broadcasters and distributors must be controlled by Canadians. There are limits on the number of voting shares non-Canadians may own.

That said, the CRTC welcomes non-Canadian TV services and investment in Canadian services. They are authorized for distribution as long as the programming is not in direct competition with Canadian services. It goes without saying, of course, that non-Canadian interests must respect our laws and regulations.

Regulatory refocus

Most of the rules I’ve outlined were established in the analog era. With the emergence of the digital revolution, regulation is now shifting to a more flexible and market-driven model.

The CRTC is not in the business of micromanaging broadcasters. We do not intrude into the commercial arena unless absolutely necessary to achieve the objectives of the Broadcasting Act.

We allow market forces to drive change, while protecting the public interest. We understand that a less dogmatic approach to regulation enables both the business and creative communities to take advantage of innovation.

In today’s highly-competitive environment, we believe our job as regulators is to facilitate, not impede, broadcasters. We want to liberate the marketplace so they can come up with creative solutions that make the system flourish. After all, those creating, producing, broadcasting and distributing programs are in the best position to know what their markets demand.

In the digital age, broadcasters must focus on the creation and promotion of Canadian content for all platforms. Because the migration to digital media is inevitable in our multichannel, multiplatform universe.

Consumers now have real-time access to entertainment and information through wireless and wireline connections to the Internet, both through their computers at home and mobile devices everywhere. This digital content comes from both domestic and international sources.

The CRTC has been monitoring this phenomenon. We conducted a fact-finding study last year to assess what effect it’s having on conventional broadcasters and on Canadian content generally. The results were interesting: digital content appears to be complementary to traditional broadcasting. There's no evidence that Canadians are reducing or cancelling their TV subscriptions.

Rather than fighting this trend or trying to regulate it, we want to focus on its potential for both Canadian viewers and broadcasters. New technologies and service providers are creating unprecedented opportunities for Canadian content creators and businesses—far beyond our own borders. At the same time, they are forcing Canadian companies to adapt their business plans to the benefit of consumers.

The CRTC is committed to clear, simplified regulations that empower broadcasters to capitalize on these business opportunities and seize new revenue sources. It’s up to them to go after these opportunities.

This same philosophy applies to our recent decision to phase out a Local Programming Improvement Fund that supports broadcasters in non-metropolitan areas.

The CRTC set up the initiative following the 2008 global economic slowdown to help local stations in small markets who were struggling as their advertising revenues plummeted. It enabled them to maintain local programming during the recession. The money for the fund is provided by cable and satellite companies, which contribute 1.5% of their gross broadcasting revenues.

As Canada’s economy has rebounded—and advertising revenues have stabilized—the fund is no longer needed. So we are phasing it out over the next two years. This will reduce costs for consumer, since many cable and satellite companies have passed on the charge to their customers. We have directed the companies to remove it from their bills.

This decision sends a clear signal that the broadcast industry will need to evolve and innovate in order to continue to provide high-quality local programming—whether through the traditional types of programming offered by local stations or by other means.

Consolidation

The other major trend resulting from digital technologies is the consolidation of the industry into a few big communications firms.

In Canada, the industry is now dominated by four large integrated companies. In their capacity as broadcasters, they control program rights—including the rights to the most popular programs. In their capacity as distributors, they can deliver this content to consumers on all the available platforms: the TV set, Internet websites and all sorts of mobile devices.

Not surprisingly, the ‘big four’ firms account for 67% of all communications revenues in the country. They also claim 75% of all viewing to Canadian services in the English-language market.

Ownership consolidation is a fact of life, for both economic and technological reasons. Our media companies must be able to compete in the digital environment, where content can come from anywhere. And, given the small size of the Canadian market, there are benefits to integrating television programming and distribution services under the same corporate umbrella.

However, as regulators, we recognize that safeguards are needed to prevent anti-competitive behaviour or restrictions on consumer choice.

So we have established a policy framework on vertical integration that protects the right of consumers to watch programming on the platform of their choice. We prohibit exclusivity of television content for digital platforms.

The only exception is if a company creates programming specifically designed for an Internet portal or a mobile device; it may offer that programming on an exclusive basis to its own Internet or mobile customers.

We also prevent a vertically integrated company from launching a new programming service on its own affiliated distribution platform before making it available to competing distributors.

And we’ve established a standstill rule so programming will not be taken hostage during a re-negotiation. We would not like to see in Canada the kind of things that have happened in the U.S., such as blackouts in major markets of popular events like the World Series and the Academy Awards.

Finally, we’ve created a code of conduct to ensure integrated companies do not engage in anti-competitive behaviour.

This policy has already been put to good use. It served as the basis for the CRTC’s involvement in a recent dispute between one of our largest conglomerates, Bell Canada Enterprises, and the Canadian Independent Distributors Group.

Both sides were at an impasse in their negotiations regarding the distribution of almost 30 specialty channels owned by Bell. The CRTC intervened at the request of the parties, who were unable to reach an agreement on their own.

We first held an expedited hearing with interested parties in attendance and provided guidance on some of the issues. We hoped that would be sufficient and they would hammer out an agreement. That proved to be wishful thinking. Ultimately, the parties chose final-offer arbitration—where each side puts forward its final offer and the CRTC picks one in its entirety.

We recently issued our decision, which puts the interests of the public first. We chose the offer that provided consumers with more choice and greater flexibility, in keeping with our policy.

Later this month, our Commission will be tackling another challenging case involving vertical integration.

Aside from offering telecom services, last year Bell spent $3.2 billion to acquire Canada’s largest private TV network. In doing so, the company secured the rights to programming, which it is making available on smartphones and the Internet. Today, Bell operates 28 conventional stations and 30 specialty channels as well as 32 radio stations.

It is now proposing to spend $3.3 billion to buy Astral Media. Astral owns some of the best-known premium specialty and pay channels in the country, along with 84 radio stations in 50 markets.

Starting next Monday, the CRTC will hold an oral public hearing to review the transaction. We will examine the deal to ensure that it is in the public interest and consistent with our policy on ownership of media outlets.

Several years ago, we established a policy to maintain a diversity of voices within the broadcasting system. The policy limits the share of the national audience that a single broadcasting entity controls as a result of a transaction. We will not approve any transaction that would result in a company controlling more than 45% of the national audience.

It is premature to speculate on the outcome of this upcoming review. However, the diversity of voices, as expressed in our common ownership policy, is important and must be upheld. In particular, it sets limits on the number of AM and FM radio stations a company can own in the same market.

Bell has voluntarily offered to divest itself of numerous radio properties to be in compliance with our policy. This would not be the first time companies involved in a transaction have had to sell stations. The CRTC has not shied away from ordering firms to do so in the past to maintain a diversity of voices in the broadcasting system.

Role of public broadcaster

While I’ve focused my remarks primarily on the private sector, it is important to note we have a national public broadcaster operating in both official languages in Canada. It is financed mostly by taxpayers, but its programming is not controlled by the federal government even though its funding comes from Parliament.

The Canadian Broadcasting Corporation (CBC) serves communities big and small in all regions of the country, providing a range of TV, radio and online programming. Its mandate is to “be predominantly and distinctively Canadian, reflecting Canada and its regions to national and regional audiences, while serving the special needs of those regions.” Its role is to promote the multicultural and multiracial nature of Canada and to contribute to a shared national consciousness and identity—providing Canadians with a sense of unity.

We will hold a two-week oral hearing in November on the renewal of the CBC’s licences for its English- and French-language TV and radio services. This will enable the Canadian public and other interested parties to express their views about the CBC and any conditions we should attach to its licence renewal.

The hearing comes at a critical time for the public broadcaster, which recently saw a 10% cut to its budget from Parliament. The CBC will also bear the brunt of our decision to phase out the Local Programming Improvement Fund, as it receives roughly 40% of the money.

Conclusion

As my presentation this afternoon—like those of my colleagues earlier—reinforces, these are challenging times both for broadcasters and regulators.

Yet, over the years, the television industry, like legislators and regulators, has been remarkably adept at finding solutions to the challenges it faces.

Whatever our countries’ specific circumstances, no matter which part of the world we represent, I am confident the television sector will continue to succeed in addressing both the challenges and opportunities I’ve outlined today.

Thank you for allowing me to share the Canadian experience with you.

 

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