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THE FUTURE ENVIRONMENT FACING THE CANADIAN BROADCASTING SYSTEM

a report prepared pursuant to
section 15
of the
Broadcasting Act

14 December 2006

For additional copies of the report, please contact:

Documentation Centre

Canadian Radio-television and
Telecommunications Commission (CRTC)
Les Terrasses de la Chaudière
Central Building
1 Promenade du Portage
Gatineau, Quebec

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CRTC
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Canada
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This publication is available electronically: http://www.crtc.gc.ca

This publication can be made available in alternative format upon request.

Ce document est également disponible en français.

ISBN 978-0-662-4906-6
Catalogue No. BC92-60/2006

  Table of content

Paragraph

  Introduction 1
  Section I: Evolution of technologies 11
  A. Broadcasting services' current state and predicted evolution 11
 

1. Audio

12
 

a) Licensed radio services

12
 

b) Financial data

16
 

i. Advertising revenue by media ($ million)

16
 

ii. Revenues of private commercial radio - 2000 to 2005

17
 

c) Transition to digital radio

23
 

d) Other than over-the-air

26
 

i. Specialty audio services

26
 

ii. Pay audio programming services

26
 

iii. Satellite subscription radio programming undertakings

28
 

2. Video

29
 

a) Licensed television services

29
 

b. Financial data

31
 

c) Transition to digital over-the-air television

33
 

d) High Definition Television

38
 

e) Distribution technologies

43
 

i. Over-the-air (OTA)

46
 

ii. Cable distribution

49
 

iii. Direct-to-home distribution (DTH)

55
 

iv. Internet Protocol Television (IPTV)

59
 

f) On-demand technologies

60
 

i. Video-on-demand (VOD)

60
 

ii. Personal video recorders (PVRs)

64
 

g) Other Technologies

67
 

i. Broadband Internet

67
 

ii. Audio over the Internet

69
 

iii. Enabling technology

70
 

iv. Mobile wireless

73
 

v. Mobile television

75
 

3. Audio-visual technologies' predicted evolution over the coming years

77
 

Section II: Usage of audio-visual technologies by Canadians

81
 

A. Changes in the usage of audio-visual technologies by Canadians since 1 January 2000

81
 

1. Changes to audience tuning to radio and television

93
 

a) Audience tuning data - radio

93
 

i. Decline for the 12-34-year-old demographic

94
 

ii. AM to FM

96
 

b) Audience tuning date - television

102
 

2. Change in usage of other audio-visual technologies

106
 

a) Personal computers and Internet

106
 

b) Personal digital devices

116
 

B. Changes in the demand for various types of programming and programming services since 1 January 2000

123
 

1. Radio

123
 

2. Television

127
 

C. How Canadians of different generations use various audio-visual technologies, and the impact that these different uses will have on the broadcasting system

139
 

1. Audio

139
 

a) Radio

139
 

b) Music players

145
 

c) Music downloads

146
 

d) Music buying

147
 

e) Podcasts

148
 

2. Video

149
 

a) Television

149
 

b) Other television-related technologies

155
 

3. Other audio-visual technologies

158
 

a) Personal computers and the Internet

158
 

b) Laptop computers (laptops)

166
 

c) Cellular telephones (cell phones)

168
 

d) Video (television) downloads

171
 

e) Adaptation to technology

173
 

D. A comparison between Canada and other countries of adoption rates for technologies

186
 

1. Digital Audio Broadcasting (DAB)

186
 

2. Broadband/Internet

212
 

3. Digital TV (DTV)

218
 

4. Television viewing

225
 

5. Internet Protocol Television (IPTV)

226
 

6. Online music

227
 

7. Satellite Radio

228
 

8. Wireless/Cellular telephone

229
 

9. Personal Video Recorders (PVRs)

232
 

10. Digital consumer technologies

233
 

E. Demand for various types of programming and programming services by the Canadian population, taking into account the full diversity of Canadian society

234
 

F. How future generations will consume or access content, programming, and programming services

247
 

G. Impact of the evolution of audio-visual technologies on content and programming choices available to Canadians

253
  Section III: Impact on the broadcasting system 260
 

A. Adoption of technologies by broadcasting undertakings since 1 January 2000

260
 

B. The economic and regulatory impact of new technologies on the broadcasting system

267
 

1. Fragmentation and the erosion of borders

269
 

2. Copyright challenges

272
 

3. Downward pressure on unit costs in fragmented markets

273
 

4. Changes in audience measurement and media buying

274
 

5. Pressure on traditional concepts of scheduling and bundling

276
 

C. The types of content delivered through the regulated and non-regulated systems, and how they are delivered

281
 

D. Methods by which local, regional and national programming can continue to be provided

293
 

1. Community channels

296
 

E. The predicted economic impact of new technologies on broadcasting undertakings

303
 

F. Adoption of new technologies by the independent production sector and the impact of them

319
  Section IV - Concluding observations 328
  A. Introduction 328
  B. Appropriateness of current legislation 332
 

C. The impact of new audio-visual technologies on the objectives of the Broadcasting Act

338
  D. The evolution and impact of new audio-visual technologies 358
 

E. Monitoring the impact and contribution of audio-visual technologies

369
 

F. Addressing the impact of new audio-visual technologies on existing broadcasting undertakings

376
  G. Regulatory oversight of new audio-visual technologies 385
  H. The need for non-regulatory public policy action 400
  I. Timing and choices 404
 

J. The Commission's perspective on the policy issues raised by parties to this process

408
 

i. The Broadcasting Act and its objectives

410
 

ii. Regulatory symmetry

417
 

iii. Choosing between conflicting policy objectives

421
 

iv. Monitoring

429
 

v. When to act

432
 

vi. Approaches and/or legislative reform outside the Broadcasting Act

435
  K. The Commission's approach 437
  Appendix 1 - An overview of the various technologies used for the transmission and distribution of broadcast services  
  Appendix 2 - Order in Council by the Governor in Council  
  Appendix 3 - List of parties that responded to the call for comments - Broadcasting Public Notice CRTC 2006-72, 12 June 2006  

 

Introduction

1.

On 8 June 2006, the Governor in Council issued Order in Council P.C. 2006-519 (the OIC), pursuant to section 15 of the Broadcasting Act (the Act). The OIC, a copy of which is appended in Appendix II of this report, requested that the Commission provide a factual report on the future environment facing the whole broadcasting system.

2.

In the OIC, the Governor in Council:
 
  • noted that the evolution of audio-visual technologies is profoundly changing how Canadians communicate, express themselves and interact with various media, bringing with it important economic and social implications and leading to a new communications and media environment;
 
  • stated that the Government is of the view that the Canadian broadcasting system, using various audio-visual technologies, must remain relevant in a global digital environment; and
 
  • stated that Canada should continue to play a leading role in the development and usage of world class communications technologies while fostering Canadian cultural choices and broadening public access to local, regional, national and international information and programming.

3.

For these reasons, the Governor in Council requested that the Commission provide a factual report on the future environment facing the Canadian broadcasting system.

4.

To fulfil the request set out in the OIC, the Commission issued Call for comments on a request by the Governor in Council pursuant to section 15 of the Broadcasting Act to prepare a report examining the future environment facing the Canadian broadcasting system, Broadcasting Public Notice CRTC 2006-72, 12 June 2006 (Public Notice 2006-72). The purpose of the call for comments was to gather information from the public addressing the points set out in the OIC. This information would then be used to inform the Government of Canada's policy determinations with respect to the future of broadcasting in Canada, as well as the Commission's review of certain aspects of its regulatory framework for over-the-air television.

5.

The Commission received 52 submissions from individuals, consumer groups, broadcasters, distributors and industry associations, all of which form part of this proceeding's public record. The Commission reviewed the submissions in detail and considers them an integral part of this report. The Commission thanks all of the parties of record for their valuable contribution to this process.

6.

To assist in the process, the Commission also commissioned the following three independent research studies:
 
  • a report prepared by Solutions Research Group Consultants Inc. (SRG), which provides a custom analysis of technology and media trends based on SRG's ongoing Fast ForwardT trend study (the SRG report);
 
  • a report prepared by Michael McEwen entitled A Report to the CRTC on Digital Transition Strategies in a Number of Different Countries, which examines various countries' broadcast digital transition, including high definition television, regulations, policies and experiences that are relevant to the Canadian experience (the McEwen report); and
 
  • a report prepared by Canadian Media Research Inc. (CMRI) entitled How Many Canadians Subscribe to Cable TV and Satellite TV, which provides cable and direct-to-home subscriber estimates, profiles of non-subscribers and special survey results (the CMRI report).

7.

All three reports form part of this proceeding's public record. The Commission also used in-house information that it acquires in the normal course of its regulatory mandate including its Broadcasting Policy Monitoring Reports and the Statistics Canada financial and operational annual returns that licensees file with the Commission.

8.

All of the submissions by the parties of record and the three studies commissioned by the Commission for this proceeding may be found at the following Internet site: www.crtc.gc.ca.

9.

In structuring the report, the Commission followed the order of the points as set out in the OIC.
 
  • Section I addresses the current state of audio-visual technologies and their evolution over the coming years.
 
  • Section II discusses how Canadians use the various technologies and the impact this usage will have on programming content and services.
 
  • Section III addresses the impact that the adoption of these technologies will have on the Canadian broadcasting system in terms of consumers, broadcasters, distributors, independent producers and the provision of local, regional and national programming.
  Section IV contains the Concluding Observations.

10.

In preparing the report, the Commission focused on the information in the submissions that specifically addressed the points set out in the OIC and attempted to include as many different positions of parties as possible. However, given the volume of material received, the Commission, in the interest of brevity, consolidated common points-of-view amongst the various interested parties.
 

Section I: Evolution of technologies

 

A. Broadcasting services' current state and predicted evolution

11.

This section examines the current state of the audio, video and distribution broadcasting services available to Canadians, including the number of services, advertising revenues and profitability, technical features and the predicted evolution of those broadcasting technologies in the coming years.
 

1. Audio

 

a) Licensed radio services

12.

The number of each type of licensed Canadian radio and audio service, as of 21 November 2006, is set out in the following table. The numbers in brackets indicate the number of each corresponding undertaking in the 2002 broadcast year.

Table 1 Canadian radio and audio services
 

English language (1)

French language (2)

Third language

Total

Over-the-air radio services
National public broadcaster        
CBC: Radio One / Première chaîne

36 (36)

20 (20)

- -

56 (56)

CBC: Radio Two / Espace musique

14 (14)

12 (10)

- -

26 (24)

CBC network licences

2 (2)

2 (2)

- -

4 (4)

CBC digital: Radio One / Première chaîne

5 (4)

4 (3)

- -

9 (7)

CBC digital: Radio Two / Espace musique

5 (4)

4 (3)

- -

9 (7)

Private commercial        
AM stations

158 (189)

19 (17)

12 (9)

189 (215)

FM stations

380 (216)

88 (65)

9 (6)

477 (287)

AM and FM network licences

27 (n/a)

9 (n/a)

- -

36 (n/a)

Digital radio (stand-alone and transitional)

42 (35)

9 (4)

7 (3)

58 (42)

Community        
Type A stations (3)

11 (9)

34 (27)

- -

45 (36)

Type B stations

22 (13)

26 (19)

1 -

49 (32)

Developmental

8 (n/a)

- (n/a)

- -

8 (n/a)

Campus
Community-based

36 (33)

5 (5)

- -

41 (38)

Instructional

9 (8)

- (1)

- -

9 (9)

Developmental

1 (n/a)

1 (n/a)

- -

2 (n/a)

Aboriginal - Type B stations (3)

41 (32)

12 (5)

- -

53 (37)

Religious (spoken word and/or music)

41 (4)

25 (20)

1 -

67 (24)

Other (tourist/traffic; Environment Canada. special event, etc.)

96 (n/a)

13 (n/a)

1 -

110 (n/a)

Total number of over-the-air Canadian radio services

934

283

31

1,248

Multi-channel subscription radio services
Satellite

2 -

- -

- -

2 -

Terrestrial (4)

1 -

- -

- -

1 -

Audio services delivered by BDUs
Specialty audio (commercial / Non-profit, regional / national)

5 -

- -

4 -

9 -

Pay audio (English and French national services)

2 -

- -

- -

2 -

Total number of Canadian radio and audio services

944

283

35

1,262

(1) Includes bilingual (English and French) and native services.
(2) Includes French-native services.
(3) Includes network licences.
(4) Authorised not yet licensed.
Excludes rebroadcasters and exempt radio services.
Sources: CRTC APP 1205 report (21 November 2006), CRTC Decisions

13.

Between 1 September 2002 and 21 November 2006, the number of English-language commercial FM radio stations increased to 380 while the number of AM stations declined to 158. The number of French-language FM stations increased to 88 while the number of AM stations declined to 19.

14.

The following table sets out, by language and type of station, the number of radio applications approved by the Commission from 1 January 2003 to 31 December 2005.
Table 2 Number of new over-the-air radio stations approved from 1 January 2003 to 31 December 2005

2003

2004

2005

Total

Total number of new AM & FM stations approved:

68

49

44

161

English-language stations

51

43

38

132

French-language stations

12

5

4

21

Ethnic-language stations

5

1

2

8

Type of radio stations approved:
Commercial

32

25

33

90

Community

11

10

8

29

Campus

4

2

-

6

Native

7

2

-

9

Other

14

10

3

27

Notes: Includes AM to FM conversions (often referred to as flips).
Excludes digital transitional radio.
"Other" includes not for profit, CBC/SRC, tourist, Environment Canada, etc., radio stations
Sources: CRTC APP 1100 report and CRTC Decisions issued from 1 January 2003 to 31 December 2005

15.

Of the 90 commercial radio stations approved, approximately 50% were conversions of AM stations to the FM band. The majority of approvals were for undertakings in Ontario, followed by Alberta. Most of the conversions occurred in Ontario, followed by Quebec.
 

b) Financial data

 

i. Advertising revenue by media ($ million)

16.

As set out in the table below, radio is doing well in comparison to other media. Between 2000 and 2005, radio's share of media advertising rose from 13.9% to 14.7%. Although in their infancy, Internet revenues garnered 1.5% in 2000, increasing to 5.8% in 2005.

Table 3 Advertising revenue by media ($ millions)
Media

2000

2001

2002

2003

2004

2005

Television

2,454

2,547

2,595

2,821

2,939

3,013

Daily Newspaper

1,731

1,678

1,684

1,696

1,751

1,784

Radio

1,001

1,048

1,080

1,171

1,209

1,310

Magazine

805

845

900

950

994

1,028

Weekly Newspaper

820

836

849

862

875

883

Billboard

293

310

321

338

356

404

Internet

110

97

117

237

364

519

Total

7,214

7,361

7,546

8,075

8,488

8,941

% Radio

13.9%

14.2%

14.3%

14.5%

14.2%

14.7%


Note: Daily newspaper revenues exclude classified ads
Source: Carat Expert, May 2006

 

ii. Revenues of private commercial radio - 2000 to 2005

17.

As shown in Table 4, the revenues of conventional AM and FM stations, including those of ethnic stations, grew by 30% between 2000 and 2005. Of this, combined English- and French-language AM revenues dropped by 5.0%. Individually, English-language AM dropped by 2.2% and French-language AM dropped by 33.4%, the latter to a five-year low of $17.8 million.

Table 4 Revenues - Private commercial radio ($ 000) - Broadcast year ending 31 August

Radio type

2000

2001

2002

2003

2004

2005

English AM

270,599

263,608

253,029

259,804

259,506

264,730

English FM

563,274

607,066

641,676

701,416

740,698

825,222

Total - English

873,872

870,674

894,705

961,220

1,000,204

1,089,952

French AM

26,721

24,899

24,996

26,067

22,668

17,784

French FM

137,691

146,123

155,042

172,882

172,577

191,219

Total - French

164,412

171,022

180,038

198,949

195,245

209,003

Ethnic AM

17,798

18,280

18,705

19,602

20,321

21,326

Ethnic FM

9,418

9,629

9,284

9,834

10,551

13,085

Total - Ethnic

27,216

27,909

27,989

29,436

30,872

34,411

Total AM

315,118

306,787

296,730

305,473

302,495

303,840

Total FM

710,383

762,818

806,002

884,132

923,826

1,029,526

Total Canada

1,025,501

1,069,605

1,102,732

1,189,605

1,226,321

1,333,366


Note: Includes network results
Source: CRTC Financial database

18.

The combined revenues of English- and French-language FM stations increased by 45% between 2002 and 2005. Individually, English-language FM revenues increased by 46.5% while French-language FM revenues increased by 38.9%. This growth in the FM segment more than offset the contraction in the AM industry segment during this same period. Revenues for both AM and FM ethnic radio stations rose by 19.8% and 38.9%, respectively, over the same period. Currently, there are 21 private commercial, over-the-air ethnic radio stations authorised to serve the following markets: Vancouver (5), Edmonton, Calgary and Winnipeg (1 each), Toronto (8), Montreal (4) and Ottawa (1).

19.

In considering these statistics, it should be noted that, as shown in Table 2, between 2002 and May 2006, the number of AM stations declined by 29 to 186 as some licensees converted their AM stations to FM. However, as over 80% of these conversions involved English-language stations, this would suggest that French-language AM radio is experiencing some difficulty. English-language AM stations are faring slightly better; while their revenues fell by 5% over the period, they showed a modest gain of 2.0% in 2005.

20.

Table 5 below, illustrates that, overall, English-language AM stations reported negative to marginally positive profit before interest and taxes (PBIT) margins between 2000 and 2004. While reporting a PBIT increase to 6.5% in 2005, this figure represents only one year and cannot be considered an indication of a turn-around as yet. French-language AM stations have reported negative PBIT's in all years, culminating in a low of -37.4% in 2005.

Table 5 Profit before interest and taxes (PBIT) margins - Private commercial radio
Radio type

2000

2001

2002

2003

2004

2005

English AM

-4.8 %

-6.1 %

-7.7 %

1.08%

1.9 %

6.5 %

English FM

27.3 %

26.7 %

25.9 %

27.6 %

25.9 %

28.2 %

Total - English

16.9 %

16.80 %

16.4 %

20.4 %

19.7 %

22.9 %

French AM

-12.6 %

-8.2 %

-7.5 %

-9.9 %

-20.9 %

-37.4 %

French FM

20.1 %

17.6 %

18.9 %

19.5 %

16.2 %

15.7 %

Total - French

14.7 %

13.8 %

15.3 %

15.6 %

11.8 %

11.14 %

Ethnic AM

7.8 %

5.9 %

7.6 %

9.5 %

15.6 %

12.8 %

Ethnic FM

4.1 %

2.08 %

-3.1 %

3.4 %

4.3 %

7.0 %

Total - Ethnic

6.5 %

4.6 %

4.0 %

7.4 %

11.7 %

10.6 %

Total AM

-4.8 %

-5.5 %

-6.7 %

0.7 %

1.1 %

4.4 %

Total FM

25.6 %

24.7 %

24.2 %

25.7 %

23.9 %

25.6 %

Total - Canada

16.3 %

16.0 %

15.9 %

19.3 %

18.3 %

20.8 %


Source: CRTC Financial database

21.

In comparison, both English- and French-language FM stations are doing considerably better than AM, although the PBIT margins for French-language FM declined annually from a high of 20.1% in 2000 to a low of 15.7% in 2005. English-language FM PBIT margins basically remained steady, fluctuating within the 26% to 28% range and closing at a high of 28.2% in 2005.

22.

Contrary to English- and French-language AM/FM performance, ethnic AM radio is doing noticeably better than ethnic FM radio. The PBIT margins for AM and FM ethnic stations are up by 5 and 2.9 percentage points, respectively.
 

c) Transition to digital radio

23.

As of 1 October 2006, the Commission has authorised 76 transitional digital radio programming undertakings. Of these, 57 are authorised to operate in association with existing commercial radio stations, 18 are authorised to operate in association with existing Canadian Broadcasting Corporation (CBC) radio stations, and one is authorised to operate as a stand-alone ethnic radio station. The table below sets out, by location, the number of transitional digital radio stations that have been approved by the Commission.

Table 6 Markets in Canada(1) with transitional digital radio stations (2)
Market/Province

Commercial

CBC English

CBC French

Total
English Franch Ethnic

Radio One

Radio Two

Première chaîne Espace musique
Montréal

2

6

-

1

1

1

1

12

Ottawa/Gatineau

8

3

-

1

1

1

1

15

Toronto

17

-

7

1

1

1

1

28

Vancouver

9

-

-

1

1

1

1

13

Victoria

2

-

-

-

-

-

-

2

Windsor

4

-

-

1

1

-

-

6

All Canada

42 9 7 5 5 4 4 76
58 18 76

Based on BBM Radio Markets
Number of stations approved but not necessarily on-air
Source: CRTC Decisions

24.

Digital radio's roll-out has apparently stalled. According to the CBC, consumers do not want to buy receivers until they are convinced that there is unique new content available to justify the purchase while, broadcasters have been unwilling to create the required content until there are adequate audiences to justify the programming expenditures.

25.

Moreover, because digital radio has as yet to take hold while other services such as Internet audio streaming, downloading of music and subscription-based satellite radio have since come to the market, some parties in the industry are of the opinion that, it is doubtful whether digital radio, as originally conceived and planned, will become an integral part of the Canadian radio broadcasting system in the foreseeable future. Instead, the industry is considering different uses of the existing digital radio spectrum, technology and infrastructure for new and innovative multimedia mobile wireless services.
 

d) Other than over-the-air

26.

Over the last five to ten years, consumers have been able to choose new platforms to access audio content including satellite radio, specialty audio services and pay audio, as well as unlicensed platforms such as Internet radio, podcasting and downloading of music files from the Internet. These new technologies give consumers access to a much greater variety of music, more choice in the medium they choose to access that music from, and flexibility and control over when they listen to it. The unlicensed platforms are discussed later in this report while the licensed technologies are discussed below.
 

i. Specialty audio services

 
  • Specialty audio services are radio programming undertakings, other than licensed over-the-air services, that are delivered by broadcasting distribution undertakings (BDUs) and are specialised with respect to their content and target audience.
 
  • The Commission has approved eight specialty audio services: one is regional and seven are national. Of those services, three target ethnic communities and four target Christian communities.
 

ii. Pay audio programming services

 
  • In 1995, the Commission approved two national pay audio programming undertakings, namely, Galaxie and Max Trax. These services offer 30 channels of commercial-free music. Each channel is devoted to a specific type of music, including classical, contemporary Christian, jazz, rap and rock.
 
  • Galaxie and Max Trax are distributed across Canada on a discretionary basis by the major cable distributors and by the satellite distributor, Star Choice Television Network Incorporated (Star Choice). Subscriber revenue is the only source of revenue for these services.
 
  • The following table sets out the tuning to pay audio in Canada according to an annual survey conducted by Media Technology Monitor (MTM) for the CBC.

Table 7 Usage of Pay Audio Services in Canada
 

Anglophones 18+

Francophones 18+

2004

2005

2004

2005

Past Month Usage

19%

21%

16%

21%


Source: MTM (CBC / Radio-Canada, page 14)

27.

Because they rely on BDU distribution for delivery of their programming, the pay audio services lack the portability and convenience of wireless services and would face significant challenges in the future if satellite subscription radio (SSR) programming services sought to expand their reach through new channels, such as mobile wireless services. In addition, if the SSR programming services were successful in obtaining carriage on BDUs, they would certainly provide direct competition to pay audio for its target audience.

28.

The CBC predicts that the pay audio service providers may need to partner with wireless operators in the future in order to provide their niche-type programming over the latter's wireless networks and retain their subscribers in a "mobile" world.
 

iii. Satellite subscription radio programming undertakings

 
  • The programming of Canadian Satellite Radio Inc. (CSR) and SIRIUS Canada Inc. (Sirius) is distributed primarily by satellite, with terrestrial transmitters as required to fill the gaps in coverage. Each of these North American satellite-based services provides a mix of Canadian and non-Canadian produced channels. CSR and Sirius services were launched in December 2005. As of 31 August 2006, CSR reported that it had 120,000 subscribers, and as of 22 November 2006, Sirius reported that it had over 200,000 subscribers.
 
  • The programming of a third authorised service, an undertaking to be operated by CHUM Limited (CHUM), will be delivered entirely by terrestrial transmitters and all channels will be Canadian-produced. At the time of the writing of this report, CHUM had not yet launched this service.
 
  • Currently, satellite radio's primary target market is the automobile. CSR and Sirius have concluded agreements with various Canadian automotive partners to have satellite radios installed in their vehicles. The latest figures in the press indicate that GM installed 50,000 units in its vehicles in 2005 and expects to install an equal number in 2006. Sirius anticipates that, by the end of 2007, there will be more than 150 vehicle models available with Sirius radios installed at the factory or dealer level. Both CSR and Sirius are also actively seeking to expand their market through carriage on cable, direct-to-home (DTH) and mobile wireless carriers. As noted above, such carriage would put SSR in direct competition with pay audio.
 

2. Video

 

a) Licensed television services

29.

The number of each type of licensed Canadian television service, as of 21 November 2006, is set out in the following table. The numbers in brackets indicate the number of each corresponding undertaking in the 2002 broadcast year.

Table 8 Diversity of television services available in Canada

English
language(1)

French language

Third language

Total

Canadian conventional (over-the-air) (2)
National public broadcaster (CBC)
- Owned and operated

15 (15)

8 (8)

-

23 (23)

- Transitional digital (3)

4 (-)

4 (-)

-

8 (-)

Private commercial (4)

77 (60)

23 (18)

4 (3)

104 (81)

Religious

5 (5)

- (-)

-

5 (5)

Educational

4 (4)

3 (3)

-

7 (7)

Aboriginal

9 (10)

- (-)

-

9 (10)

Transitional digital (3)

10 (-)

3 (-)

2 (-)

15 (14)

Canadian specialty, pay, pay-per-view (PPV) and video-on-demand (VOD)
Analog specialty services

30 (30)

14 (16)

5 (5)

49 (51)

Category 1 digital specialty services (5)

15 (16)

3 (-)

-

18 (19)

Category 2 digital specialty services (5)

49 (31)

3 (-)

26 (10)

78 (41)

Pay television services (6)

5 (6)

2 (1)

5 (-)

12 (7)

PPV services (direct-to-home (DTH) and terrestrial) (6)

9 (10)

2 (2)

- (1)

11 (13)

VOD services (6)

14 (3)

- (1)

-

14 (4)

Other Canadian services
Community channels (7)

133 (197)

33 (47)

-

166 (244)

Community programming services

11 (-)

1 (-)

-

12 (12)

House of Commons - Cable Public
Affairs Channel (CPAC)

1 (1)

1 (1)

-

2 (2)

Non-Canadian services (8)
Non-Canadian satellite services
authorised for distribution in Canada

83 (77)

6 (8)

45 (8)

134 (93)

Total number of television services

474 (484)

106 (109)

87 (27)

667 (603)

Excludes rebroadcasters and exempt television services. Also excludes some network licences.
(1) Includes bilingual (English and French) and native services.

(2) Includes satellite to cable services.
(3) Number of over-the-air transitional digital television approved as of 21 November 2006.
(4) Excludes private commercial religious stations.
(5) Includes only Category 1 & 2 services launched prior to 3 May 2006.
(6) Number of services licensed as of 21 November 2006.
(7) Excludes class 2 and 3 exempted BDUs.
(8) Carriage of authorised services is at the discretion of the BDU.
Sources: CRTC APP 1205 report dated 21 November 2006, CRTC Decisions and CRTC Financial database system as of 31 August 2005


30.

Currently:
 
  • There are 49 licensed analog specialty programming undertakings: 28 English-language, 14 French-language, five third-language and two bilingual (English- and French-language).
 
  • The Commission has authorised 18 Category 1 digital specialty programming undertakings: 15 English-language services have been in service since Fall 2001 and three French-language services were launched in Fall 2004.
 
  • The analog and Category 1 services were authorised on a one-per-genre basis and have genre protection against other analog and Category 1 services as well as all Category 2 specialty services.
 
  • Over 200 Category 2 specialty programming undertakings had authorization for operation, as of May 2006, including 105 English-language, 13 French-language, 75 ethnic or third-language and eight bilingual (English- and French-language). Approximately 75 of these services have launched: 47 English-language, three French-language and 25 third-language.
 
  • Category 2 services do not have access rights or genre protection.
 
  • The Commission has authorised five English-language and one French-language pay television programming undertakings. In May 2006, the Commission authorised a new national English-language general interest pay television programming undertaking. The Commission has also authorised 24 digital Category 2 pay television programming undertakings.
 
  • There are five terrestrial pay-per-view (PPV) services: three English-language, one French-language and one bilingual (English- and French-language).
 
  • There are six DTH PPV services: four English-language, one French-language and one bilingual (English and French).
 
  • As of May 2006, there were 13 authorized video-on-demand (VOD) programming undertakings.
 

b. Financial data

Table 9 Revenues of English-language and French-language private conventional television and pay, pay-per-view & specialty services, by language ($ 000,000)

2000

2001

2002

2003

2004

2005

English-language
Private Conventional

1,519

1,538

1,515

1,684

1,693

1,764

Pay, PPV and Specialty - Analog

1,006

1,183

1,312

1,399

1,521

1,618

Pay, PPV and Specialty - Digital

48

100

116

143

Pay, PPV and Specialty - Total

1,006

1,183

1,360

1,499

1,637

1,761

French-language
Private Conventional

361

366

378

409

422

434

Pay, PPV and Specialty - Total

230

272

301

338

363

366

Ethnic & Third-language
Pay, PPV and Specialty - Analog

34

36

40

42

48

50

Pay, PPV and Specialty - Digital

1

2

3

7

Pay, PPV and Specialty - Total

34

36

41

44

51

57


Note: English-language private conventional television includes revenues from ethnic conventional television stations as a significant portion of their revenues are derived from English-language programs.
Note: Bilingual services are combined with English-language pay, PPV and specialty services.
Source: Charts 3.12, 3.15 and 3.18 from the 2006 Broadcasting Policy Monitoring Report

31.

From the Statistic Canada financial and operational annual returns (the annual returns) that licensees file with the Commission, and the Commission's financial database:
 
  • Total revenues for private conventional television stations increased 16.1% from 2000 to 2005 for an average increase of approximately 3% per year. National advertising revenues accounted for almost the entire increase as they rose by 18% while local revenues went up by only 0.3%. Of the total advertising revenues, national advertising's share rose 3 percentage points to 81% while local advertising's share fell 3 percentage points to 19%.
 
  • English-language private conventional television revenues rose by 16.1% over the period while French-language revenues increased by 20.2%.
 
  • Large private conventional television ownership groups continue to account for approximately 95% of the total revenues reported by private English-language conventional television stations. This percentage has remained roughly the same since 1998.
 
  • Quebecor inc. (Quebecor) and Cogeco Inc. (Cogeco) accounted for 92% of the total revenues reported by private French-language conventional television in 2005.
 
  • Specialty services' revenues rose by 72% between 2000 and 2005, for an average annual increase of approximately 12% per year.
 
  • Specialty services have a revenue stream from both advertising and subscriptions. In 2000, subscriber revenues contributed 63% of total revenues while 37% came from advertising. By 2005, subscriber revenues declined to 57% of the total while advertising revenues increased to 43%.
 
  • In 2005, 44% of the English-language and 36% of the French-language services' revenues were derived from advertising revenues.
 
  • The shift toward increased advertising revenues for specialty services is consistent with the decline in viewing to conventional television and the increase in viewing to specialty services, as discussed in the next section of this report.
 
  • Pay and PPV services rely entirely on subscription revenues, which rose by 78% between 2000 and 2005, due to increased viewing to these services.
Table 10 Aggregate PBIT(1) margins of English-language and French-language private conventional television & pay, pay-per-view and analog specialty services

2000

2001

2002

2003

2004

2005

English-language
Private Conventional

14%

13%

9%

14%

11%

11%

Pay, PPV and Specialty - Analog

18%

19%

21%

21%

25%

31%

French-language
Private Conventional

12%

10%

11%

14%

12%

11%

Pay, PPV and Specialty - Analog

17%

16%

17%

21%

21%

25%

Ethnic & Third-language
Pay, PPV and Specialty - Analog

16%

14%

17%

17%

26%

24%


Note: English-language private conventional television includes ethnic conventional television stations, as a significant portion of their revenues are derived from English-language programming.
Note: Bilingual services are combined with English-language pay, PPV and specialty services.
Source: Charts 3.14, 3.17 and 3.19 from the 2006 Broadcasting Policy Monitoring Report

32.

From the annual returns that licensees file with the Commission, and the Commission's database:
 
  • Both English- and French-language private conventional television PBIT margins declined from 2000 to 2005, due in part to the shift in advertising revenues to specialty services.
 
  • In comparison, specialty services' PBIT margin increased from 18.5% in 2000 to 24.8% in 2005. Over this period, analog services' PBIT increased from 18.5% to 30.2%. Category 1 and Category 2 services first reported in 2002 and are still reporting negative margins.
 
  • Pay and PPV services reported a PBIT margin of 12.3% in 2000, increasing to 27.3% in 2005.
 
  • From a language perspective, English- and French-language pay and specialty services reported PBIT margins of 25.8% and 23.3%, respectively, in 2005.
 
  • Ethnic pay and specialty services reported PBIT margins of 20.2% in 2005, compared to 11% in 2000.
 

c) Transition to digital over-the-air television

33.

In A licensing policy to oversee the transition from analog to digital, over-the-air television broadcasting, Broadcasting Public Notice CRTC 2002-31, 12 June 2002 (Public Notice 2002-31), the Commission set out a policy framework to oversee the transition of analog over-the-air television services to digital television (DTV) services. The policy framework is based on a voluntary, market-driven transition model, without mandated deadlines.

34.

Transitional DTV licensees are allowed to broadcast a maximum of 14 hours per week of high definition (HD) programming that is not duplicated on the analog version of the service. A minimum of 50% of this unduplicated HD programming must be Canadian and all of the unduplicated programming must be in HD television (HDTV) format. In Public Notice 2002-31, the Commission encouraged transitional DTV licensees to ensure that two-thirds of their schedules would be available in HDTV format by 31 December 2007.

35.

In The regulatory framework for the distribution of digital television signals, Broadcasting Public Notice CRTC 2003-61, 11 November 2003 (Public Notice 2003-61), the Commission determined that a cable BDU may apply to be relieved of the obligation to distribute analog signals, once 85% of its subscribers have the ability to receive digital services by means of DTV receivers or set-top boxes.

36.

Currently, 22 originating television stations and four rebroadcasters are authorised to operate transitional DTV undertakings. The following table lists the transitional DTV undertakings that have been approved, although not all are implemented.

Table 11 Over-the-air transitional digital television(1)
Market  

Language

Source station

Actual or planned
start date

Montréal  

F

CFJP TQS

-

F

CBFT SRC

March 2005

F

CIVM Télé-Québec (educational and cultural service)

September 2007

F

CFTM TVA

-

E

CBMT CBC

March 2005

Québec  

F

CBVT SRC

January 2006

Ottawa  

F

CBOFT SRC

September 2006

   

E

CBOT CBC

September 2006

  R

O/E

OMNI 1 Rogers (ethnic station)

July 2007

  R

O/E

OMNI 2 Rogers (ethnic station)

July 2007

Toronto  

F

CBLFT SRC

March 2005

  R

F

CBOFT SRC (Ottawa station)

September 2006

   

E

CBLT CBC

March 2005

   

E

CFTO CTV

July 2005

   

E

CIII Global

November 2004

   

E

CITS Crossroads (religious programming)

-

   

E

CITY CHUM

January 2003

   

E

CKXT Quebecor

February 2004

   

O/E

OMNI 1 Rogers (ethnic station)

October 2006

   

O/E

OMNI 2 Rogers (ethnic station)

October 2006

Hamilton  

E

CHCH Global

-

  R

E

CKXT Quebecor

February 2004

Vancouver  

E

CBUT CBC

January 2006

   

E

CHAN Global

-

   

E

CIVT CTV

July 2005

   

O/E

CHNM Multivan (ethnic station)

-


(1) Number of stations approved but not necessarily in operation
E: English; F: French; O/E: Multi/English; R: Rebroadcaster
Source: CRTC APP 1205 (3 May 2006) and licensees

37.

As part of this proceeding, Michael McEwen, Broadcast Consultant, was commissioned to provide a report on the digital transition strategies in a number of different countries (the "McEwen Report"). In relation to Canada's transition, Mr. McEwen concludes that:
 
  • Canada's market place approach to the roll out of digital services, and the broadcasting industry's decision that a two-year lag behind the US roll out would save a great deal in the early adoption cost for broadcast, production and consumer equipment, has had some benefits for Canada. Canada has however fallen further and further behind the US and the two-year lag has turned into at least four years and maybe more.
 
  • As the US and other countries focus on analog shutdown as early as 2009 through to 2012, Canada has only transmitted limited digital over-the-air services in Toronto, Montréal and Vancouver, with Ottawa and Québec due for CBC/SRC service this year. Canada's pay and specialty services have made modest beginnings with HD services but nothing in terms of the volume of their US counterparts.
 
  • One of the reasons for this slow roll out is that, as broadcasters have said repeatedly, they do not see the value of building out digital transmission facilities across the country and going through the expense of simultaneous carriage of analog and digital systems, particularly when most of the markets are delivered by cable and to a lesser extent satellite. The CBC seems willing to build out digital transmitted service, but only if it is given additional funding for full coverage. The private sector would probably agree with that view if it applied to them.
 
  • Commissioning of prime time drama programs, made for TV-movies, and, in particular, the production of sporting events has increased a great deal over the last two years and there is a visible effect on the screen. The challenge is to make a definable viewing experience for Canadian HD in the sea of US product ever the Canadian challenge.
 
  • While Canada is challenged by the media colossus to the south, it does have a regulatory framework that protects Canadian broadcasters from competing foreign digital services. This situation may be a disincentive for broadcasters to embrace the digital transition compared to the other countries reviewed in this paper. There also is not the same kind of spectrum challenge in Canada as found in Europe or the same pressing need for analog broadcast spectrum for other services (although this latter point is now being challenged by service providers interested in supplying mobile and convergent services). In short, Canada has not had the same kind of market pressure as other countries to make the transition to digital, whether HD or not, in an efficient and effective manner.
 
  • Digital HD displays have had a take-up in Canada similar to that of the US Close to three million displays will have been sold in Canada by the end of 2006 with growth trends in sales similar to the US. Projected through to 2011, Canadian households should all have HD displays - many of them with built-in over-the-air tuners and the cable plug-and-play capacity (currently not available from cable providers). However, hook ups to available HD services have been slow with only about 400,000 HD hook ups to cable and satellite with virtually no over-the-air viewing. This will change gradually as consumers understand what is available and how to get it. The availability of more Canadian services and better promotion by the broadcast community will drive consumers to these new services. As in the US, there is a hook up lag, and for the most part the better wide screen picture as displayed by digital video discs (DVDs) have pushed the market along.
 

d) High Definition Television

38.

In Regulatory framework for the licensing and distribution of high definition pay and specialty services, Broadcasting Public Notice CRTC 2006-74, 15 June 2006 (Public Notice 2006-74), the Commission announced its regulatory framework for the licensing and distribution of HD pay and specialty services. As of May 2006, the Commission has approved licence amendments for four analog specialty, two pay and ten Category 2 specialty services, authorizing their distribution in the HD format. It is estimated that, as of Spring 2006, there were at least 321,393 subscribers to discretionary HD services(2) in Canada.

39.

The following tables indicate the number of HD services currently available from Canadian BDUs and the average hours of Canadian HD programming they offer in each week.

Table 12 Number of high definition services offered by BDUs
 

Canadian services

Foreign services

Total

Cogeco

10

9

19

Rogers

16

10

26

Shaw

5

5

10

Videotron

8

5

13

Bell ExpressVu

16

11

27

Star Choice

6

8

14


Source: Table 3.12 from the 2006 Broadcasting Policy Monitoring Report

Table 13 High definition offering of Canadian programming
 

Weekly average of HD hours

Original

Conventional television    
CBC

8.25

100%

CHUM

11.5

17%

CTV

2.3

57%

Global

10

55%

SRC

6

100%

Pay and specialty services    
Discovery HD

75

0%

Movie Central

42

7%

Movie Pix

11

9%

Raptors

25

100%

TMN

53

4%

TSN

10

60%


Source: Table 3.13 from the 2006 Broadcasting Policy Monitoring Report

40.

As noted in the Introduction, the Commission commissioned Solutions Research to Group (SRG) to provide a trend analysis on the topics raised by the OIC. With respect of HDTV services, SRG canvassed Canadians' interest in HDTV. The findings in the SRG report are set out below.
 

Chart 1 - Interest in HDTV

This bar chart compares the percentage of Canadians interested in owning HDTV in 2004, 2005 and 2006. The percentage of Canadians who indicated ownership of a HDTV was 2% in 2004, 8% in 2005 and 9% in 2006. The percentage of Canadians indicating that they were very interested in owning a HDTV was 15% in 2004, 18% in 2005 and 15% in 2006. The percentage of Canadians indicating that they were somewhat interested in owning a HDTV was 37% in 2004, 30% in 2005 and 27% in 2006. The percentage of Canadians indicating that they were not very interested in owning a HDTV was 21% in 2004, 22% in 2005 and 23% in 2006. The percentage of Canadians indicating that they were not at all interested in owning a HDTV was 24% in 2004, 22% in 2005 and 25% in 2006. The percentage of Canadians indicating that they did not know or depends was 1% in 2004, 2005 and 2006.

Source: Page 21, Fast Forward TM Trend Analysis prepared by Solutions Research Group for CRTC - August 2006

 
  • Based on its data, SRG concluded that HDTV growth levels in Canada have underperformed in the past two years, primarily due to the following factors:
 
  • until just recently, persistently high price points;
 
  • consumer confusion about HD's features and benefits;
 
  • lack of programming; and
 
  • lack of clear and consistent communication by the consumer electronics and television industries.
 
  • SRG also found that:
 
  • One-in-ten Canadian households, or just over 1.2 million households, currently have an HD-capable television. Other studies have suggested slightly higher penetration rates, in the 14% to 15% range.
 
  • The typical primary television in the Canadian household is about six years old. Just under one-in-ten primary televisions are replaced annually in Canada. SRG anticipated that 40% to 45% of primary televisions in Canadian households will be HD-capable by 2011. It is important to note, however, that this number does not include secondary HD displays such as new personal computer (PC) and laptop screens that are capable of displaying HD content.

41.

High Fidelity HDTV Inc. (High Fidelity), an independent Canadian broadcaster and content producer, concurred that HD penetration in Canada has stalled between television ownership (17%) and HD distribution (3%). In High Fidelity's view, however, the mandate of the US Federal Communications Commission (FCC) will drive the HDTV shift in Canada. Accordingly, HDTV unit sales for Canada are forecast to increase in the coming years. High Fidelity projected that the number of Canadian households with HDTV sets will rise to 22.6% in 2006, 31% in 2007, 40.6% in 2008, 51.7% in 2009 and 63.5% in 2010.

42.

The Canadian Association of Broadcasters' (CAB) research indicated that while HDTV television ownership has reached 15% of Anglophones and 9% of Francophones overall, a minority of these televisions are actually connected to a source of HDTV programming such as a digital set-top box. As a result, only about 6% of Anglophones and just over 2% of Francophones are capable of receiving and viewing HDTV programming.
 

e) Distribution technologies

43.

There are four broadcast distribution technologies available for television programming: conventional over-the-air (OTA) transmission, cable distribution, DTH satellite distribution and Internet Protocol Television (IPTV).

44.

All DTH subscribers receive digital signals whereas cable subscribers may receive either analog or digital signals, or a combination of the two. While a significant portion of cable subscribers continue to rely on analog service, the shift to digital cable has accelerated significantly in recent years and is expected to continue to grow rapidly as analog cable subscribers recognize the benefits of digital service. The CBC predicts almost four of five Canadian households will subscribe to some form of DTV distribution service by 2010.

45.

From the annual returns that licensees file with the Commission:
 
  • The BDU industry as a whole continued to grow as total revenues in 2005 increased by 0.4%, from 2004 to $4.575 billion (7.5% average annual growth rate, 2001-2005).
 
  • DTH, multipoint distribution system (MDS) and subscription television (STV) providers reported increased revenues of 8.1% in 2005.
 
  • Class 1 BDUs' PBIT margins decreased slightly from 23.2% in 2004 to 20.3% in 2005, but still up from 15.2%, 15.4% and 17.5% reported in 2001, 2002 and 2003 respectively.
 
  • Correspondingly, the industry's return on net fixed assets declined from 20.4% in 2004 to 14.4% in 2005 on account of a significant increase in capital expenditures. This 14.4% is comparable to the 14.2% the industry reported in 2003, and up from the 11.3% and 11.5% reported in 2001 and 2002 respectively.
 

i. Over-the-air (OTA)

46.

SRG estimated that, of the just over 12 million households in Canada in 2006:
 
  • 44% were "digital homes" (20% subscribed to digital cable and 24% subscribed to DTH, which offers only digital service);
  • 43% subscribe to analog cable; and
  • 13% do not subscribe to cable or DTH.

47.

SRG's figure of 13% of higher than the figure contained in the report entitled A Review of research data on the Canadian television industry, prepared by the Canadian Media Research Inc. (CMRI) and included in the submission by Bell Canada (Bell), MTS Allstream Inc. (Allstream), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Inc. (TELUS). The CMRI report indicated that the combined penetration of cable and DTH was 89.8% in 2005, meaning that only 10.2% of Canadians depend on OTA reception for their television programming. In 2000, the number that depended on OTA reception was 16.4%. In comparison, according to the annual returns filed with the Commission by BDUs, two million of the 12 million Canadians (16%) receive their television signals OTA (see table 14 below) while Nielsen Media Research (Nielsen) reports that approximately 13% receive their signals OTA. Given these differences in estimates, it would appear that anywhere between 10% and 16% of Canadians receive their television signals OTA. What is key however is that the percentage is declining.

48.

As part of its ongoing initiative to implement more efficient network technologies, the Aboriginal Peoples Television Network (APTN) engaged Environics Research Groups to canvas participants in APTN's annual North of 60° study regarding their preferred method for receiving their broadcast services. The results of the 2006 survey, which was conducted in May and June of that year, showed that 48% of respondents preferred satellite, 25% preferred analog cable and 13% preferred digital cable. Only 6% of respondents with televisions indicated OTA as their preferred method for receiving television programming.
 

ii. Cable distribution

49.

According to the annual returns filed with the Commission by BDUs, over 10 million of the approximately 12 million Canadian households receive their television signals from a licensed BDU, either a cable undertaking or a satellite DTH undertaking. The two million or so remaining households receive their television signals either from OTA television undertakings or from non-Canadian black and grey market satellite services.

Table 14 Number of basic subscribers (000)

 

Cable, class 1 (1)

DTH

MDS & STV

Total

2001

6,857

81.0%

1,520

18.0%

87

1.0%

8,465

100%

2005

6,617

72.4%

2,486

27.2%

32

0.4%

9,135

100%


(1) Class 1 cable BDUs include Digital Subscriber Line (DSL) results. As part of the Commission's streamlining process, a few Class 1 cable systems have been exempted from reporting requirements. Total results also exclude the approximately one million cable subscribers of systems, other than Class 1s, that are not required to report their results to the Commission ie. exempt cable systems.
Source: CRTC financial database

 
  • Competition, primarily from DTH, has reduced Class 1 cable licensees' overall share of subscribers, from 81% in 2001 to 73% in 2005.
 
  • Statistics Canada figures for 2005 indicate that there were a total of 7.6 million cable subscribers in that year including approximately one million subscribers to cable systems that the Commission considers exempt.

50.

According to Rogers Cable Communications Inc. (Rogers), the shift from analog to digital technology has been one of the most significant changes for distribution networks. Most cable operators have launched digital services and are near completing their transition to an all-digital platform. DTH providers have always offered all-digital services as have telephone companies. Also according to Rogers:
 
  • The approximately 5.3 million subscribers to digital cable and DTH in the second quarter of 2006 are expected to reach 6.9 million by 2010.
 
  • Cable distributors have invested more than $7.5 billion since 2000 to upgrade their networks to digital, switched, and two-way capable. Digital cable services are available to all households in the service areas of the four largest cable companies, or to more than 10.5 million households.
 
  • Cable operators are aggressively encouraging their customers to upgrade to digital so that the operator can reclaim the bandwidth consumed by analog television channels. While each cable operator's plans will be different, it is likely that analog cable could be phased out by as early as 2010 and almost four in five Canadian households will be subscribing to some form of d DTV distribution service by that time.

 

Chart 2 - Digital subscribers in Canada

This column chart was part of Rogers' submission (located on page 19 of Rogers' submission) and shows the number of subscribers in Canada with at least one digital set top box from 1999 to 2005. It also provides a forecast for the period 2006 to 2010. The chart does not show the actual subscriber numbers. The following is a best estimate based on our reading of the chart. Number of subscribers in millions: 0.9 in 1999, 1.8 in 2000, 2.8 in 2001, 3.4 in 2002, 3.8 in 2003, 4.3 in 2004, 5.2 and 2005; Number of projected subscribers in millions: 5.7 in 2006, 6.1 in 2007, 6.4 in 2008, 6.7 in 2009 and 6.9 in 2010.

Source: p. 19 of Rogers' submission

51.

In its submission, the Ontario Media Development Corporation (OMDC) stated that Pricewaterhouse Coopers (PWC) predicts there will be 9.3 million digital households by 2010, representing nearly three-quarters of all Canadian households that have televisions.

52.

Quebecor stated that, in 2006, nearly one-half of Videotron Ltd.'s (Videotron) subscribers will be served by digital and nearly 70% will have a digital terminal in their home within three years. Televisions will incorporate a digital terminal and a cable modem will permit the Internet to be provided by the distributor's private network, resulting in the convergence of television and computer screens.

53.

SRG's research suggested that most of the consumers who have the greatest interest in digital television have already switched. Accordingly, SRG is projecting that the combined penetration rate of Canadian households by digital cable and DTH will reach a ceiling of 58% to 60% by 2011.

54.

The CAB's research indicated that, while 90% of Anglophones and 83% of Francophones subscribe to a licensed BDU, those who subscribe to a digital BDU service are still in the minority. Specifically, 44% of Anglophones and 42% of Francophones subscribe to digital cable or DTH, while the other digital service providers (telecommunications distributors and "wireless" cable) serve less than 1% each. Thus a majority of Canadian consumers continue to rely on analog BDU and OTA reception.

 

iii. Direct-to-home distribution (DTH)

55.

There are two licensed DTH service providers: Bell ExpressVu Limited Partnership (ExpressVu) and Star Choice.
 
  • DTH is a one-way only platform and does not currently support VOD services.
 
  • Subscribers to DTH increased by 178,000 in 2005, representing an increase of 7.8% for a total market share of 27.0%.
 
  • ExpressVu offers more than 400 channels of programming, including over 20 true HD services. Star Choice reports offering 17 true HD services.
 
  • ExpressVu and Star Choice reported combined total revenues of approximately $1.4 billion and some 2.5 million subscribers in 2005.

56.

With HDTV's increasing popularity, ExpressVu has been testing and investing in a new transport modulation scheme to accommodate the need for more new, true HD signals. According to ExpressVu, however, this testings' results show that, even with the limited deployment of these techniques on satellite transponders used only for HD, there will still be a need for more satellite capacity to accommodate Canadian broadcasters' transition to HD.

57.

ExpressVu also noted that, in June 2006, the Department of Industry (the Department) issued a call for applications for new satellites to employ as-yet unused frequencies at the orbital locations used by both ExpressVu and Star Choice and by Canadian Satellite Communications Inc.'s satellite relay distribution undertaking. One new satellite has an estimated capacity for as many as 150 true HD channels. According to ExpressVu, however, the business risk associated with satellites is high given the significant operating and capital costs of deploying this technology. ExpressVu also submitted that it is unclear when satellite capacity will be required, and whether the HD services will generate sufficient incremental revenue to provide an appropriate financial return. ExpressVu added that the $300 million cost of each new single-frequency-band satellite must be amortized over its life of about 12 years.

58.

The Communications Research Centre (CRC) also referred to the Department's call for applications for 29 satellite licences, of which ten would be for new broadcasting satellite services. The CRC submitted that these satellite licences would provide an impressive increase in Canadian capacity, which could respond to the need for more local television and HDTV programming. The CRC further noted the trend to offer mobile, fixed and broadcast satellite services by satellite in various frequency bands as the technology evolves. The CRC maintained that any review or development of regulatory regimes and policies should take this trend into account.
 

iv. Internet Protocol Television (IPTV)

59.

In their respective submissions, Bell and Rogers addressed the current state of IP / Digital subscriber line (DSL) technology for broadcasting distribution:
 
  • IPTV is a relatively recent innovation in broadcasting distribution technology. Multimedia Research Group Inc. (MRG) predicts worldwide IPTV subscriber penetration to increase from 3.7 million in 2005 to 36.9 million by 2009, with global IPTV service revenues rising from $880 million in 2005 to $9.9 billion in 2009.(3) Europe and Asia are leading the implementation of IPTV at this time, with North America close in third place.
 
  • Bell obtained a licence to operate regional Class 1 terrestrial BDUs in Ontario and Quebec in 2004. Since that time, Bell has been developing its terrestrial network to allow for the delivery of audio-visual programming using IP over a DSL platform.(4)
 
  • As of this writing, Bell Aliant (Aliant), Bell, SaskTel and TELUS are licensed as Class 1 BDUs to provide IPTV service using DSL technology. In August 2006, Allstream announced that it had begun to offer subscribers seven HD channels. Allstream reported that its BDU service is now available to more than 93% of homes in Winnipeg.(5) SaskTel offers 27 HD channels. Bell's IPTV service is expected to be available to approximately 4.2 million households by 2008.(6) It is estimated that, as of 2005, there were approximately 100,000 subscribers to IPTV services in Canada. This is higher than the 77,000 subscribers forecast referred to by The Canadian Coalition of Audio Visual Unions (CCAU). The number of Canadian subscribers is forecast to increase to more than 800,000 by 2010.(7) As a comparison, Verizon, a telephone company in the US, offers up to 25 HD channels over its fibre optical video distribution network.
 
  • The evolution of IPTV will occur in an expanded broadcasting context that features conventional and on-demand HD content being delivered to a multiplicity of receiving devices at any time and any place.
 
  • This new broadcasting context will likely feature IPTV as just one of many applications covered by an umbrella brand for all of the services provided by a telco over its broadband network. Consumers are well-accustomed to "pulling" content from the Internet as their needs and wants warrant. This growing willingness, indeed preference, to control the scheduling of content consumption will ultimately translate into a critical mass of television subscribers who will increasingly welcome and exploit the interactivity of IPTV. In the future,
 

more flexibility and more applications are sure to come, from more suppliers. But a day is coming when the capabilities we call IPTV today become a feature-set of something bigger and hopefully, able to fulfill the broader needs of subscribers and service providers alike.(8)

 
  • It is clear that the network model of tomorrow will be consumer-centric in its ability to deliver personalized services:
 

Whether it is channel programming, language selection, presentation customization, automating content selection for "my-channel" delivery, mixing personal content for delivery in a close community, or gaming or sharing within groups, these services illustrate the key benefits of IPTV: interactivity and communications capabilities available through the NGN (Next Generation Network) application plane. IPTV would benefit from open application-level standards for content management, application creation, and user control of their IPTV experience.(9)

 
  • These personalized services will undoubtedly terminate on not only set-top boxes, which will characterize the initial IPTV implementation, but also other terminals such as cell phones, personal digital assistants (PDA), portable media players such as iPods, and gaming devices such as PlayStation and Xbox.
 
  • IPTV will benefit the broadcasting system by facilitating competition in multiple dwelling units, residents of which are not always able to avail themselves of a competitive service because of line-of-sight constraints. It will also allow BDUs and programmers to work together on innovative, more effective targeted advertising.(10) As well, IPTV technology may evolve to marry traditional linear services with the content available on the Internet on the same receiving apparatus (subject to viable business models and developing the technology and operating system support Operation Support System (OSS) to support it).
 

f) On-demand technologies

 

i. Video-on-demand (VOD)

60.

VOD is similar to PPV but differs in that subscribers choose their selections from a content library as opposed to a broadcasting schedule. The selection is played at the time of the subscriber's choosing rather than being broadcast according to a predetermined schedule.

61.

According to the OMDC, digital cable's increased penetration has also led to an increase in VOD's popularity. OMDC stated that the percentage of digital cable subscribers that use VOD has grown from less than 10% in 2002 to nearly 36% in 2005, and that these subscribers spent $83 million on VOD services. Based on these take-up rates and the experience of video cassete recorder (VCR) and DVD penetration, PWC predicts that total VOD spending will reach $356 million by 2010, representing 61% of digital cable households.

62.

Rogers reported that approximately 50% of its digital cable subscribers use VOD at some time each month.

63.

In its research, SRG noted that:
 
  • 44% of digital cable households, or 9% of Canadian households, used paid or free VOD at least once in 2006, up from 36% in 2005; and
 
  • on-demand use via the cable or DTH platform will increase in the next five years to approximately 30% of all Canadian households. This growth will occur gradually, year-by-year, and will not be similar to the explosive growth in DVD penetration or Internet use over the last five to six years.
 

ii. Personal video recorders (PVRs)

64.

Personal video recorders (PVRs), or digital video recorders as they are also known, record video content in a digitized format to a hard disk storage medium such as a PC's hard disk. PVRs perform many of the same functions as a VCR but have a number of advantages over them, including the following:
 
  • automatic recording of live programming at the time it is being watched. This feature allows the viewer to pause or rewind live programming at any time. Once viewing resumes, the fast forward button can be used to catch up to the live version by skipping through commercials; and
 
  • viewers of recorded programs can also skip commercials, using the fast forward command or, on some PVRs, a 30-second skip-ahead feature. The ability to skip commercials has given rise to concerns on the part of advertisers and broadcasters that the revenue model for advertiser supported television may be in jeopardy.

65.

In its research, SRG found the following with regard to PVRs' penetration rate and consumer attitudes toward these devices:
 
  • PVR penetration in Canada is behind that in the US In 2006, 6% of Canadian households, or just over 700,000 households, had a PVR, up from 4% in 2005. Eight percent (8%) of US households had a PVR in 2005.
 
  • Interest in PVRs is high with over 50% of subscribers to digital cable or DTH expressing an interest in obtaining one in the future.
 
  • Households with teenagers indicated the greatest interest in obtaining a PVR.

66.

Submissions to this proceeding provided the following additional comments:
 
  • Currently, an estimated three-quarter of a million Canadian households have a PVR, a relatively low amount compared to the 11 million plus households that have VCRs However, given how rapidly VCRs became ubiquitous in Canadian households, PVRs' penetration levels should rise over time as they become more affordable.
 
  • According to Forrester Research, Inc., the Canadian market is lagging the US market somewhat, but is expected to follow the trend in the US market, which is forecasted to achieve 45% penetration by 2009.(11)
 
  • Projected growth in PVR penetration is further supported by survey results indicating that PVR owners expressed high levels of satisfaction with the service and have found that it substantially improves their viewing experience. An In-Stat survey in the US found very high satisfaction levels, with 86% of users reporting that they were very or extremely satisfied with their PVR.(12) In Canada, SRG found that 62% of PVR users considered the device increased their viewing enjoyment.(13)
 
  • According to Rogers, the forecasts and surveys indicate that a majority of consumers will acquire a PVR within the next five to seven years. With services such as VOD and PVR at their disposal, more consumers will adopt on-demand habits, creating a culture of convenience among television viewers. Consumers accustomed to on-demand convenience from the broadband platform are seeking the same convenience from their televisions. In response, television manufacturers like LG, Mitsubishi and Sony are beginning to market televisions with built-in PVRs. This behavioural change will displace viewing of linear scheduled programs on television channels, even while it stimulates overall viewing of audio-visual content on traditional media platforms. At the same time, this change will impact the traditional linear advertising model potentially causing advertisers to seek other vehicles for advertising placement.
 
  • In its submission, Bell stated that some parties in the industry are concerned about the time-shifting opportunities offered by PVRs. Nevertheless, as Bell pointed out, PVRs are the next generation of VCRs, which have been used by cable subscribers for decades. Bell also submitted that it is generally acknowledged that digital set-top boxes incorporating a PVR will be the future norm in the industry. Because of the current niche market acceptance and the premium prices attached to these set-top boxes, PVRs currently have a relatively low penetration rate.(14) According to Bell, however, the research indicates that PVRs users are generally pleased with these devices and the on-demand capability they offer. Some studies also report that PVR users increase their television viewing and are more likely to subscribe to additional optional services.
 

g) Other Technologies

 

i. Broadband Internet

67.

As activities such as streaming video over the Internet or downloading audio files require more bandwidth, consumer demand for high speed broadband Internet continues to increase in Canada. The following chart compares the growth in high-speed Internet access to the decline in dial-up access over the last five years. As of 2006, 81% of homes with Internet access employed high-speed while only 19% used dial-up.
Table 15 Dial-up vs. high-speed Internet access at home

CyberTRENDS

SRG

High-speed

Dial-up

High-speed

Dial-up

2001

30%

70%

-

 

2002

40%

60%

-

-

2003

50%

50%