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Background

The Canadian Radio-Television and Telecommunications Commission ("CRTC" or "Commission") regulates and supervises all aspects of the Canadian broadcasting system, and regulates telecommunications common carriers and service providers. New Media both complements and competes with traditional broadcasting and telecommunications systems. Its role in telecommunications and broadcasting, including its impact on traditional providers, is therefore an important area of concern for the Commission, as well as other industry, consumer and government stakeholders.

The Commission’s New Media Project Initiative, of which the October 1 session is an important component, seeks to investigate the social, economic, cultural and technological issues associated with New Media, and what actions, if any, the CRTC should take to ensure that New Media meets the objectives of the Broadcasting and Telecommunications Acts.

Defining New Media

From social and economic perspectives, the Commission’s interest in New Media is largely one of satisfying itself that users, participants and service providers have fair and reasonable access. This includes access in fact, as well as issues of quality, pricing, reasonable commercial practices and "net neutrality". While typically stemming from the Commission’s powers under the Telecommunications Act, access issues may also stem from the Commission’s support of Canadian programming and other objectives of the Broadcasting Act.

From a cultural perspective, the Commission’s New Media mandate stems exclusively from the Broadcasting Act and extends only to content services analogous to broadcasting. This includes predominantly audio or audio-visual information and entertainment content which may or may not be new, linear, interactive or professionally produced, but which is available to the general public on new point-to-point distribution platforms such as the Broadband Internet and Mobile Wireless. It does not however include private communications or predominantly text and graphic content.

The October 1st session provides for moderated panel discussions on the themes of supporting domestic or "national" content, network neutrality, new media business models, and infrastructure access issues.

Each of these themes has, to varying degrees, cultural, economic and social aspects, and therefore potential implications for both broadcasting and telecommunications.

For the purposes of this consultation, the Commission does not intend to invite discussion on the impact of New Media on the regulatory frameworks of existing broadcasting undertakings or the implications of new digital broadcasting platforms or technologies, such as satellite radio, VOD, DVR/PVRs, and HDTV.

Both areas are or have been the subject of a number of CRTC proceedings, including the current Broadcast Distribution Undertaking ("BDU") and Discretionary Programming Service Review.1

Current CRTC oversight of New Media to date

For the most part, the Commission has to date chosen not to exercise its regulatory powers over New Media, whether provided via the Internet or Mobile Wireless platforms.

In 1999, the Commission determined that certain new media content did fall within the scope of Broadcasting Act, but exempted from licensing any new media services that are "delivered and accessed over the Internet", without terms and conditions.2

Among the reasons the Commission chose not to regulate the Internet at that time was its view that:

[T]he circumstances that led to the need for regulation of Canadian content in traditional broadcasting do not currently exist in the Internet environment. Market forces are providing a Canadian presence on the Internet that is also supported by a strong demand for Canadian new media content.

Under the Telecommunications Act, the CRTC has forborne from applying tariff filing and approval obligations to Internet Service Providers ("ISPs") and Mobile operators, while retaining other powers including the ability to prohibit "undue preference". The CRTC has also exempted ISPs from the "common carrier" obligations of the Act with respect to content of a carrier's own Internet Service.

In 2006, the Commission examined current mobile broadcasting services, concluding that they are also "delivered and accessed over the Internet", and therefore fall under the current exemption order.3 In February 2007, the Commission exempted "point-to-point" mobile television broadcasting undertakings, whether or not these services are delivered and accessed over the Internet.4

In June 2006, pursuant to Governor in Council Order, the Commission was directed to conduct a review of the "Future Environment Facing the Canadian Broadcasting System". In its December, 2006 Report, the Commission stated:

While based on the record of this proceeding, the Commission continues to be of the view that current circumstances do not warrant an immediate review of the new media exemption order, the Commission intends to continue to monitor this area closely. Evidence of material impact on existing broadcasting undertakings and/or insufficient or decreasing Canadian presence would be changes in circumstance that would likely warrant a future review.

The Commission also concluded:

In the Commission’s view, given the evidence of this proceeding on the speed of technological change and its acceptance, it would be prudent for policy makers to assume both a potential for material economic impact on broadcasting undertakings and a window of opportunity to take positive action of the next three to seven years.

Accordingly, the Commission considers that it is within the next 3 to 7 year time period that public policy action will need to be taken for it to have its desired effect, as corrective action taken much beyond this time frame could well come too late.

In a June, 2007, the Commission announced its New Media Project Initiative, to comprehensively address the impact of new media on the regulatory regimes of both broadcasting and telecommunications. Having completed base research, this initiative is now entering its validation phase, with consultations such as the October 1st session. The third and final phase includes the release of a report on the regulatory impacts of new media in March 2008 followed by public proceedings, as necessary.

The complementary and competitive role of New Media

Baseline data on Canadians’ use of the Internet and Mobile platforms is tracked annually by the Commission. As noted in the CRTC’s 2007 Telecommunications Monitoring Report:5

  • Among the G8 group of countries in 2006, Canada had the highest broadband subscription rate with 60% of households subscribing to high-speed Internet service, and over 93% of Canadian households able to subscribe to broadband service.
  • By contrast, while over 98% of Canadians have access to wireless services, approximately 66.8% of households currently have wireless services, putting Canada's wireless penetration rates close to last place in comparison to other OECD countries.

Public opinion polling and usage data reveals Canadians’ adoption of the Broadband Internet, and to an increasing extent, Mobile Wireless, for entertainment and information content, including:

  • Content services that are a substitute or replacement for broadcasting (i.e. "free", on demand, and/or not otherwise available); and
  • New forms of entertainment, and a blurring of the entertainment/communications distinction (through social networking sites in particular).

Usage

Recent polling and data confirms high usage of audio and audio-visual content on the Internet:

  • In 2006, 60% of Canadian Internet users accessed News on-line;6
  • 7 of the top 20, and 19 of the top 50, websites visited by Canadians have a large audio-visual component;7
  • Over 50% of Canadians with Internet access are downloading videos from the internet (almost a quarter (23%), at least once a week) and over 40% of Internet users are listening to or obtaining music.8
  • Over 18% of Mobile subscribers claim to have downloaded emails or content, and roughly 2% are known to have accessed streaming mobile TV/video/audio subscription services to date.9

Younger Canadians lead the way in use of New Media platforms, often at the expense of traditional media consumption:

  • In 2006, 91% of 18-34 year olds accessed the Internet, compared to only 69% for Canadians 55 or older;10
  • From 2003 to 2006, the average TV weekly viewing hours for all persons aged 2+ decreased by one hour (from 28.6 to 27.6 hrs.). This decrease is most notable for teens 12 to 17 and adults aged 18 to 34;11
  • While tuning levels in radio’s core 35-54 demographic have remained fairly steady, overall per capita weekly radio listening levels decreased by 1/2 hour from 2005 to 2006 (from 19.1 to 18.6 hrs.), and by almost two hours since 1999 (from 20.5 hrs.). Decreases are most notable in the teen demographics and for adults aged from 18 to 24, where weekly listening levels decreased by approximately one hour in the last year (from 8.6 to 7.6 hrs. and 15.2 to 14.1 hrs., respectively), and over 3 hrs in the last 7 years (from 11.3 hrs. and 17.3 hrs., respectively);12
  • In December 2006, approximately 30% of Canadian adults with Internet access connected for more than ten hours of Internet use per week. This percentage increases to 52% for young Canadian adults aged 18 to 24;13
  • Canadians under 18 now spend roughly the same amount of time online (on email, Facebook, YouTube, MSN messenger etc.) and watching TV (15 to17 hrs).14

While TV remains Canadians’ #1 choice for news, the Internet is playing an increasing role:15

  • Although most Canadians believe that the Internet is a complementary source of information (70%), about one in ten consider it a replacement of traditional media sources;
  • The vast majority (84%) of those who view or download online video consider their use of online video as complementary to traditional sources of viewing videos;
  • For local news, more than two-fifths is obtained through television, and about one-quarter is obtained through newspapers. Canadians receive about one-fifth of their local news by listening to the radio, and 9% is accessed through the Internet. Only 1% of news is obtained through other sources. (For national and international news, over half is obtained through television, 12 -14% from the Internet, and radio and newspapers usage reduced commensurately.)

The CyberTRENDS December 2006 survey indicates that the average Canadian Internet user spends approximately 54% of their time visiting Canadian websites.16 By contrast, comScore Media Matrix data17 reveals that:

  • Only one "mass reach" portal in Canada is Canadian operated and it is a joint venture with MSN.18
  • The top 10 web domains visited by Canadians are operated by 3 U.S. companies: Microsoft, Yahoo!, and Google.
  • The 1st ranked Canadian owned internet site visited by Canadians is the Weather Network, at # 17; which is the only Canadian owned internet site in the top 25.
  • Only one of the top 10 entertainment sites are Canadian owned (CBC), and only 9 sites in the top 50 entertainment sites are Canadian owned; 8 out of 9 of these are owned by broadcasters and/or BDUs.
  • All of the top social networking and video sites – YouTube, MySpace, Facebook – are U.S. owned with increasing engagement by Canadians.

Advertising

Internet advertising in Canada grew to $1.01 billion in 2006, and is estimated to reach $1.337 billion in 2007, a growth rate of 32%.19 Should growth continue at this pace, Internet advertising in Canada would reach $2 billion in 2008 or 2009, and $3 billion by as early as 2010. By that point it would rival or exceed total Canadian TV advertising revenues.

While some of this money can be seen as incremental advertising (e.g. replacing marketing and promotion dollars), the majority appears to be the result of expansion of inventory and options for advertisers without expansion of the advertising pie. In particular, widespread use by Canadians has made the Internet an increasingly desirable advertising vehicle through:

  • The addition of new advertising inventory, and in particularly, expansion of available inventory through the ability to monetize activity historically not available (i.e. placing ads on forms of communication); and
  • New, more targeted and measurable forms of advertising (cross platform direct response; interactive etc.)

Moreover, as advertising typically lags usage, there may be "pent up demand" that effectively understates ultimate impact.

Subscription revenue

Internet Service Provider (ISP) and Broadcasting Distribution Undertaking (BDU) revenues continue to grow, with Canadians spending $5 billion on ISP subscriptions and $4.9 billion on BDU subscriptions in 2006.20

It is a known fact in the industry that the vast majority of Internet subscription revenue goes to infrastructure not content. While some audio-visual content sites have succeeded on a niche subscription model, the majority seek to maximize their usage and rely on advertising revenues.

By contrast, both conventional content providers and distributors participate in BDU subscription revenues, with specialty, pay, pay per view (PPV) and video on demand (VOD) services receiving $1.6 billion in subscription fees plus another $0.8 billion in advertising in 2006. Nevertheless, at $2.2 billion annually, advertising continues to be the only revenue source of conventional broadcasters.

The vast majority of Canadians appear to be prepared to pay for both BDU and ISP subscriptions, but may continue to expect a model of "free" content on the Internet. This raises questions as to the extent to which ISP fees may also contribute to content in the future, and Canadians tolerance for increasing dual subscription fees.

Business model

Among the potential impacts here are:

  • Fundamental changes to the "value chain" of how content moves from the producer to the consumer;
  • Disintermediation and bypass -- i.e. loss of the (domestic) broadcaster’s place as middleman/aggregator; replaced by foreign broadcasters, search engines or other content aggregators;
  • Fundamental changes to the process of production -- cost, equipment, and increasing lack of distinction between "professional" and "amateur" product;
  • Loss of nation’s distinct and separate program rights markets; and
  • The "long tail" effect and niche product access to a global market.21

Of most concern are potentially permanent rather than transitory consumption pattern shifts on the part of consumers that traditional media are not able or in a position to adapt to. For example, it is one thing for young people to chose not to subscribe to a BDU while in university, quite another for younger demographics to abandon radio and TV altogether.

The fundamental public policy questions

For regulators and other public policy makers, the New Media raises two basic questions:

  1. What is the impact?
  • Is there sufficient evidence that the public policy objectives are or will not be met for New Media?
  • Should public policy makers act on leading indicators or trailing indicators, i.e. be ahead of curve or wait for incontrovertible evidence?
  1. What is the appropriate public policy response?
  • Continue to rely on market forces;
  • Continue to primarily let market forces decide, but introduce or increase subsidy for designated policy objectives;
  • Continue to refrain from mandatory regulatory measures, but put in place "opt-in" and "incentive-based" regulatory mechanisms that either invite voluntary participation in regulatory frameworks or incentivize desired new media activity on the part of conventional; and/or
  • Introduce more conventional mandatory regulatory mechanisms, such as priority carriage, content quotas or expenditure obligations for New Media.

The October 1 session moderated panel discussions are designed to elicit comment on these questions with respect to 4 main themes:

1. National content

In its Section 15 Order in Council Report, the Commission identified three broad New Media content categories: (1) User-generated content, (2) Relatively inexpensive, commercial content (e.g. news and information), and (3) High quality, relatively expensive programming, such as drama and documentary. Evidence presented to the Commission in the Section 15 process suggested that only domestic or national new media content in the latter category, which has historically not been produced in Canada without significant subsidy, may potentially require public policy support.

Questions for discussion in this panel include: Are there or will there be inadequate levels of national new media content generally or only in specific categories? How should levels be measured? Are traditional broadcast measures and levels appropriate? How should public policy support national new media content (structural approaches, subsidy)? Should attention be paid to citizens as participants/producers as well as consumers of content?

2. Network neutrality

At the core of the net neutrality debate is the issue of when is an ISP engaged in legitimate traffic management and the offering of different levels of service, and when is it engaged in unduly discriminatory conduct and interference with content.

Questions here include: Is traffic prioritization (i.e. preferential passage) currently taking place? Should content providers and/or consumers pay incrementally for "bandwidth rich" services? Is this an issue for regulators to address, leave to others (such as competition law) or industry self-regulation? If the regulator should explicitly address it, should there be mandatory reporting by ISP’s, should it be done on a complaint based/precedent basis or more explicitly through regulation? Are there circumstances where preference should be permitted or required, for example, in giving "priority carriage" to national content?

3. Business model

As discussed above, at a certain "tipping point", new media’s impact on broadcasting could arguably not just be financial, but fundamentally alter the broadcasting business model.

To what extent is New Media value chain different and/or changing existing content value chains? Overall, is New Media mostly complementary to broadcasting or does/will it have a material impact on the business or business model of incumbent broadcasters and BDUs? What aspects of national broadcasting business models are most at risk? Is mandatory or incentive-based regulation required, or desirable, to foster viable new media platform business models for conventional broadcasters and new media undertakings? Should measures be taken to support a distinct and separate national New Media rights markets?

4. Access to Infrastructure

As the Broadband Internet and Mobile Wireless become ever increasingly integrated into nations’ societies and economies, issues of access and particularly the desirability of universally available and affordable access come to the fore. With limited government funding, such infrastructure concerns must also be balanced with content concerns.

Are there inappropriate access constraints in either Broadband or Wireless? Is there sufficient competition in the access space? Are market forces an acceptable driver of access for consumers? Is there sufficient capacity to manage the growth/volume in video access for content providers to New Media platforms? Are measures required for existing business to ensure funding of the network, continued expansion, and foster innovative solutions?

Notes:

1 Broadcasting Notice of Public Hearing CRTC 2007-10. [back]

2 Pursuant to Broadcasting Public Notice CRTC 1999-84 and Public Notice CRTC 1999-197. [back]

3 Broadcasting Public Notice CRTC 2006-47. [back]

4 Broadcasting Public Notice CRTC 2007-13. [back]

5 http://www.crtc.gc.ca/eng/publications/reports/PolicyMonitoring/ 2007/tmr2007.htm [back]

6 CyberTRENDS December 2006. [back]

7 Alexa.com, April 25, 2007. [back]

8 CRTC commissioned July 2007 Decima study on Access to News Sources; The Canadian Internet Use Survey, Statistics Canada, 2005. [back]

9 PwC Global Entertainment and Media Outlook, 2006-2010; Industry estimate. [back]

10 CyberTRENDS December 2006. [back]

11 CRTC 2007 Broadcast Monitoring Report. [back]

12 Ibid. [back]

13 Ibid. [back]

14 Ibid. [back]

15 CRTC commissioned July 2007 Decima study on Access to News Sources. [back]

16 Referenced in the 2006 Broadcast Monitoring Report. [back]

17 Unique visitors data averaged between July 2006 and July 2007. [back]

18 I.e. Bell-Sympatico’s MSN.ca, the #3 ranked domain in Canada. Sympatico.ca is # 21. MSN.com is #1; Google .ca is #2. [back]

19 Canadian Internet Advertising Bureau (IAB) http://www.iabcanada.com/newsletters/070430.shtml [back]

20 CRTC 2007 Telecom Monitoring Report; CRTC 2007 Broadcasting Policy Monitoring Report [back]

21 Chris Anderson’s oft-cited Internet phenomena. See http://www.longtail.com/the_long_tail/ [back]

Date Modified: 2007-11-13

 

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