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Speech

Notes for an address

by Namir Anani

Associate Executive Director, Policy Development & Research
Canadian Radio-television and Telecommunications Commission

at the Entertainment Industries Summit

Toronto, Ontario

October 23, 2007

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We live in an era of digital media. Our world is increasingly connected and global due to new technologies, including both mobile and fixed devices. The evolving landscape of “everything over IP” (voice, video and data over Internet Protocol), changing audience habits and expectations, and converged distribution channels are all rapidly changing how the public relates to media and entertainment.

Canada's media and entertainment industries find themselves at a crossroad. They have to position themselves nationally, while at the same time competing with international players in the borderless world of the Internet and New Media. Canadian programming is also competing in a global environment where content is becoming richer and more abundant. Faced with tight financing and low profit margins, Canada's media and entertainment companies have responded with a series of mergers and acquisitions in the hope of creating synergies, benefiting from economies of scale, and gaining access to larger markets.

Today, I will discuss the various trends in the media and entertainment world and highlight the changing value chain – particularly as it relates to content producers, consumers and advertisers. Moreover, the value chain holds a special significance for Canadian programming, which I will also touch upon.

Specifically, I will address:

  • the four drivers transforming the media and entertainment world;
  • the New Media environment and specific trends related to New Media broadcasting;
  • some of the emerging questions related to the new environment; and
  • Canada's share of the global media and entertainment market and the growing challenge posed by the Internet and New Media.

The transformation of the media and entertainment world

There are four main drivers transforming the media and entertainment world: media consolidation, New Media, social and cultural change, and the converged landscape.

1. Media consolidation

There has been a sharp increase in media consolidation in Canada and abroad in the last few years. This is a clear response to an increasingly competitive environment. Consolidation strategies are generally adopted to create synergies, benefit from economies of scale, and gain access to larger markets. We have recently witnessed several mega-mergers in Canada, including the CanWest/Alliance Atlantis, CTV/CHUM, Rogers/Citytv and Astral/Standard transactions.

In looking at the media mergers and acquisitions valued at more than US$1 billion, it is interesting to note that the trend accelerated during 2006-2007 and far surpassed, in size and number of transactions, any other period in the last 15 years. The lone exception was the unprecedented US$166 billion AOL/Time Warner merger that took place in 2000.1

Is this a growing trend on the part of companies that want to ensure their survival in an environment that is becoming more interactive and participative? No doubt time will tell.

2. New Media

The evolution of the Internet and New Media has brought about a closed-loop value chain between broadcasters, content producers, consumers and advertisers. This new model is dramatically changing how the public relates to media and entertainment.

Media consumption is evolving into a profoundly social process. Consumers are now able to rate shows, endorse products, participate in the creation of storylines and interact with media across many channels. Through these activities, they are expanding their awareness of both content and brands.

3. Social and cultural change

In the last few years, audiences have become active participants in the creation and exchange of media properties. However, a more significant shift is now taking shape between media producers and various online communities. Online communities allow individuals to meet others who share similar cultural interests, a phenomenon referred to as the one-to-many cultures. A few examples of these cultures would be the brand cultures, fan cultures or political cultures. 

Online communities are best described as participative knowledge networks that augment learning through social interaction (consumers) and dialogue with experts (media producers). We are seeing such participative spaces beginning to appear in several New Media broadcasting services, including Internet TV.

4. The converged landscape

Finally, the converged landscape of the distribution channels and devices are now making it possible to listen to digital radio, send e-mails, watch TV, chat, play games and make phone calls. And all this can potentially be done on the same device, regardless of whether it is fixed or mobile.

This is all to say that the audience engagement factor is changing dramatically.

New Media value chain

This brings us to how value is created in the media world in general. Whether focused on large or niche markets, the media value chain is based on the producer's ability to develop content that attracts consumers, which in turn brings in advertising dollars.

Traditional media enabled a relationship between the three pillars of the value chain: broadcasters and content producers, consumers and advertisers. As such, the engagement factor remained for the most part a passive experience, with the exception of the recent advent of video-on-demand (VOD). The level of interactivity, and hence the engagement factor, in the New Media environment is being taken to an entirely new level thanks to:

  • targeted and measurable advertising and audience satisfaction, combined with e-commerce (buying directly online);
  • content that is easy to search and retrieve through search engines, Google being one of the leaders in that domain;
  • social spaces that facilitate the development of relationships with audiences; and
  • an intuitive environment that offers audiences learning opportunities, as well as services that suit their likes and needs.

What makes this environment interesting for the media and entertainment industries is that an enhanced cultural participation deepens consumers' emotional engagement in media properties, expanding their awareness of both content and brands. The delivery infrastructures are also important factors in the success of the New Media value chain. The effectiveness of distribution channels (cable, DSL, wireless, etc.) and devices (mobile and fixed) translate into realistic and interactive viewing experiences for audiences.

The push toward this New Media value chain was noticed in a significant way as a result of the AOL/Time Warner merger in the United States. Time Inc. and Warner Brothers first merged in 1989, creating the world's largest media and entertainment company. That deal brought together under one roof complementary properties in magazine publishing, music recording and film production and distribution. In January 2001, AOL bought Time Warner in an attempt to expand its synergies to the Internet and to leverage its enhanced value chain model.

Whether Canadian broadcasters and creators are able to take advantage of this value chain will be an important element in determining how successful Canadian programming will be in this environment.

New Media broadcasting

Let's look specifically at the New Media environment from the perspective of broadcasting.

The delivery of professional content online is divided into two main categories. The first is what we have become accustomed to in the last number of years: professional programming from broadcasters and content providers. While viewers could access a large base of national and international programming, the image quality left much to be desired.

A new breed of media enablers, known as media aggregators, makes up the second category. Media aggregators distinguish themselves by distributing video content online in its original format, rather than decoding it to a lower-quality version to accommodate lower bandwidth. The combination of peer-to-peer technology and the widespread availability of broadband access are now enabling TV-like experiences. Media aggregators hold a competitive advantage over conventional TV on several fronts. Notably, they:

  • are free for the most part, recouping their investments by selling advertising;
  • offer a large array of premium and long-tail content;
  • bundle media and communication services together (TV, chat, radio, e-mail, etc.); and
  • leverage all the other attributes of the New Media value chain (social spaces, targeted and measurable advertising, etc.).

Internet advertising

Advertising is considered one of the keys to success in the era of digital media. New advertising business models are emerging, giving the industry the confidence to begin changing its more traditional models. However, a sense of entitlement to free content on the Internet has grown among consumers and this will also have some bearing on online business models.

In Canada, the economics of the Internet have shifted dramatically in the last few years. Spending on Internet advertising grew 80 per cent in 2006 to reach $1.01 billion. It is not surprising that the economics driving the Internet and New Media are changing rapidly when we look at the potential benefits, including improved means of measuring audience satisfaction, and targeted and measurable advertising combined with e-commerce.

Classified ads and directories were the fastest areas of Internet advertising growth in 2006, increasing by 120 per cent to $273 million. E-mail marketing grew 82 per cent to $20 million, while search marketing rose 79 per cent to $353 million. Traditional display ads grew 58 per cent to $364 million. This growth in spending on Internet advertising is expected to increase by leaps and bounds.

Internet TV and social and cultural changes

As I mentioned earlier, New Media broadcasting is allowing content producers, advertisers and consumers to interact in innovative ways.

For instance, TV-like websites are beginning to attract audiences in Canada. The most prominent of these sites, Veoh TV, offers audiences premium and long-tail content, either pre-recorded or live, from NBC, CBS, CNN and others. Early indications are that sites with high-quality content attract the largest audiences. The quality of the experience provided by video browsers and distribution channels are also paramount.

The participative environment, referred to as Web 2.0, is also transforming the online cultural experience from an individual to a collective experience.

These social and participative spaces are finding their way into the TV-like sites and enabling the public to rate shows, endorse products, participate in the creation of storylines, and interact with media across many channels, including radio, TV and the Internet. This enhanced cultural participation deepens consumers' emotional engagement with media properties and expands their awareness of content and brands.

Facebook.com is a good example of this phenomenon's rapid success in Canada.

According to the Pew Internet & American Life Project, the growing adoption of broadband combined with a dramatic push by content providers to promote online video have helped pave the way for mainstream audiences to embrace online video viewing.

The majority of adult Internet users in the U.S. (57 per cent) report watching or downloading some type of online video content and 19 per cent do so on a typical day. Young adults (ages 18-29) are among the most voracious video viewers. Three in four young adult Internet users (76 per cent) report that they watch video online, compared with 57 per cent of online adults ages 30-49. Forty-six per cent of Internet users ages 50-64 watch or download video and just 39 per cent of those ages 65 and older do so.

In Canada the picture is very similar. Our media and entertainment industries are also capitalizing on the “media multitasking” generation (18-29 year olds). This generation is not content to watch or listen to one media channel at a time, such as a TV or a radio channel. The majority prefer to simultaneously absorb some other media "most of the time" while watching TV, listening to music and Instant Messaging.

Access and distribution channels

Distribution channels are moving toward the mobile arena, rapidly enabling anywhere, anytime consumption of media. This is the most fundamental shift in recent years.

Broadband and wireless technologies are the backbone of the future media and entertainment industries. Telecommunications companies in the U.S. are going head-to-head with Google, Yahoo and Microsoft to acquire what is referred to as the “last beachfront property” – the 700 MHz frequency being freed up by the transition from analog to digital TV in 2009. Frequencies that can carry broadband content, such as the 700 MHz frequency, are hard to find.

Adding another dimension to this development, Google has advocated before the Federal Communications Commission for open access. In particular, it has identified what it calls the “four opens” required for open access to be successful. They are:

  • Open applications: Consumers should be able to download and utilize any software applications, content or services they desire.
  • Open devices: Consumers should be able to use a handheld communications device with whatever wireless network they prefer.
  • Open services: Third parties, such as resellers, should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis and on reasonably non-discriminatory commercial terms.
  • Open networks: Third parties, such as Internet service providers, should be able to interconnect at any technically feasible point in a 700 MHz licensee's wireless network.

Whether or not the telecommunications companies would be willing to let one of these online players be a Mobile Virtual Network Operator (MVNO) remains to be seen.

Now I will address some of the emerging issues as they pertain to New Media broadcasting. This is by no means an exhaustive list, but it highlights those issues that are deemed important in this area.

Canadian content

The Internet is a creative and a very innovative environment, and is fast becoming a powerful medium of global outreach, choice and engagement. Emerging New Media broadcasting services are not only enabling experiences that are similar to TV, but they are also coming up with new ways to engage audiences and developing innovative business models. The current value chain involving developers, programmers, broadcasters and distributors is also changing. Direct relationships between content developers and distributors are bypassing the regulated system.

Given these issues, what will be the impact on the program rights market in Canada? What solutions could be conceived to fuel further creativity on the Internet and allow Canadians to participate and see themselves reflected in this environment?

Internet traffic

The capacity of networks across the globe is being strained due to Internet traffic and the recent increase in bandwidth consumption attributed to video streaming, gaming, peer-to-peer file sharing and others services. Despite the advent of innovative traffic-management and deep-packet inspection technologies that can differentiate between games, video streaming, voice and other traffic, networks are nearing their maximum capacity.

The debate on this issue, commonly referred to as net neutrality, is widespread. Network providers argue that prioritizing traffic from preferred or paying content providers would help alleviate traffic congestion, fund network improvements and boost innovation.

On the other hand, content creators and broadcasters assert that the pipes should remain neutral irrespective of the demand, and the cost of network upgrades should be borne by the network providers.

Consumers argue that they should be entitled to access Internet content of their choice and run applications over the network, so long as the content and applications remain within the limits of the bandwidth and quality of service terms in their plan.

Given these issues, several questions come to the forefront. Notably, will market forces suffice to deal with net neutrality? Or should other solutions be explored to meet the needs of Canadians and to advance Canada's social, cultural and economic objectives?

Legal issues

The Internet offers access to a wealth of information that can be personally, professionally and culturally enriching. Online audiences are now active participants in the creation and exchange of content through blogs, personal websites and online communities. Its open nature makes for a creative environment and gives rise to tremendous opportunities for growth and education.

However, it also poses questions in relation to copyrighted material, privacy, confidentiality and offensive material.

Should these means of expression and learning be left to self-regulation? Or should regulatory policies be developed to address them? Many online communities have developed their own codes of conduct and participating members are banished if they are found to have breached them.

Conclusion

If we look at the revenue created by the global media and entertainment industries in 2006, we see that Canada occupies a small place. Our share accounts for approximately 3 per cent, or US$36 billion, of the total revenue.2

While this small percentage represents a potential opportunity for growth, the reality is that Canada's media and entertainment industries are facing fierce competition. The dominance of prominent players is being compounded by the borderless world of the Internet where geographical distances no longer matter, and content can be accessed from anywhere.

According to data obtained from ComScore, this dominance is also being felt in the New Media landscape. Using the average of unique visitors over a 12-month period, the data tells us that only one site among the 20 most visited by Canadians can truly be considered as being Canadian. This would be the Weather Network's website (theweathernetwork.com).

Broadcasting plays a critical role in enlightening, entertaining and informing Canadians. It has done so as television and radio have evolved over the past 90 years, always providing Canadians with a greater choice of content from around the world. Broadcast regulation has evolved with each technological step, embracing greater consumer choice, while always mindful of the unique challenges faced by Canadian creators.

According to the Broadcasting Act, our broadcasting system provides a “public service essential to the maintenance and enhancement of national identity and cultural sovereignty.” Given the level of competition from foreign content producers and the emergence of platforms that bypass the regulated system, this policy is as important in the borderless world of New Media as in the traditional world of radio and television.

Canadians should be able to see themselves and their stories online. Their ability to do so lies, in large part, with Canadian broadcasters and creators who must learn how to compete in the global environment, and become links in the value chain between consumers and advertisers.

I look forward to hearing the other presentations and to discussing these issues in greater detail with you.

Thank you.

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Notes:

1 Thomson Financial, 2006. [back]

2 Price Waterhouse Cooper, PwC Global Entertainment and Media Outlook: 2007-2011. [back]

Date Modified: 2007-10-23

 

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