Speech
Notes for an address by Françoise Bertrand, Chairperson
Canadian Radio-television and Telecommunications Commission
before the Standing Senate Committee on Transport and Communications
Ottawa, Ontario
April 8, 1997
(CHECK AGAINST DELIVERY)
Madame Chairwoman. Honourable Senators. Thank you for your invitation to
discuss with you Bill C-216. I will make an opening statement, and then will be
pleased to take your questions.
I am accompanied today by Mr. Wayne Charman, Director General Broadcast
Distribution and Technology; Ms. Anne-Marie Des Roches, Manager French Language
Broadcasting; and by Mr. Alastair Stewart, our legal counsel.
This afternoon, I would like to take the opportunity to provide an overview of
the current state of television distribution, and the developments in this area
which are now underway, to provide you with a context, and a perspective against
which the Bill should be understood.
Let me say at the outset, and state clearly for the record, that on the issues
being debated here, the CRTC supports the interests of consumers and their right
to make enlightened choices among affordable and diversified programming and
distribution alternatives. And, as I will explain, the CRTC believes that
competition among a variety of distribution alternatives is the essential
condition for ensuring that consumers have choices among distribution services,
choices of programming services, and choice in competitive, fair market pricing
for services.
Technological developments and alternative modes of distribution are evolving
so rapidly that it is accurate to say that events have overtaken most of the
concerns addressed by the Bill, and that the period that we have now entered
calls for an entirely different approach to controlling unwanted marketing
practices.
The rhythm and velocity of change in broadcasting and other technology
dependent industries, has brought about a fundamental shift away from
technologically driven choices, to the new more potent consumer driven demand for
choices. This new reality, the empowered consumer, forces established and new
service providers to respond positively, or perish in the marketplace.
Yes, it is true that for the last three decades, cable has been the monopoly
provider for distribution of television signals. It happened this way because the
development of the infrastructure of the cable industry was pursued as an
instrument of national policy by successive governments as a means of achieving
the objectives of the Broadcasting Act.
Charged with the mandate of implementing the Act, the CRTC has encouraged the
development of a home grown industry providing production of Canadian programming
and content on television screens with the intent of giving Canadians common
sources of news and information, and distinctive broadcasting services that weave
and reflect Canadian values.
The fostering of Canadian content is the cornerstone of the Broadcasting
Act. That objective remains the same. But, the dramatic change, the new
period we are in which I just referred to, concerns the means of getting that
Canadian programming to Canadian homes. The government has decided that with the
technological choices now available, the key objectives of the
Broadcasting Act can better be achieved by way of competitive distribution
of programming services.
The Commission has responded. Alternatives to cable, as the sole source of
distribution, have already been introduced, and over the next twenty-four months,
the available options to the consumer for the reception of television signals
will change significantly, as companies compete with each other to provide the
services consumers want, at prices that they are ready to pay.
The monopoly in programming distribution has come to an end with alternatives
now available through direct-to-home satellite, and multipoint distribution in
some parts of the country. And, in the foreseeable future, the likely
introduction of local multipoint communications system (LMCS) technology will
have numerous applications, possibly including broadcast distribution. As well,
the telephone industry has expressed an interest in the distribution of
broadcasting services. I will elaborate on alternative modes of distribution in
just a few moments.
In a competitive environment like this, cable companies, like new service
providers, know that it is not in their business interests - bottom line
interests - to use marketing and pricing practices that will alienate their
customers. Because, in a competitive environment, customers can and will shop
around.
These developments are consistent with the emphasis which the government is
now placing on competition as a means of providing consumers with affordable,
diversified choices, encouraging technological development, and promoting
economic development.
It is for these reasons that we hold to the view that the legislation is not
necessary. Moreover, we are concerned that the Bill, in spite of its aim, is not
consumer friendly and that in fact its possible effect may be to adversely affect
consumer choice, programming diversity and affordability.
In other words, we are concerned that the Bill, if enacted, while intended to
deal with one issue, will create difficulties in a wide range of other areas,
that are not now problematic.
Launching new services
When the Commission called for applications for the new specialty services
which were granted licences last September, it was made clear by us that we were
predisposed to consider applications for English-language programming services
that would be generally offered on a discretionary basis. Producers and
distributors clearly understood this underlying premise that any new services
would be offered as discretionary. The business plans of both the producers and
distributors who intend to offer any of these new services are based on this
assumption.
To reach the largest number of subscribers, at affordable prices, and to
appeal to the widest range of tastes, the new services will in most instances be
grouped together into packages that have the greatest appeal and the greatest
likelihood of financial success.
The Honourable Senators are aware that the current technology - analog
technology - places a definite limit on the number of channels a cable
distributor can offer.
Moreover it is not now economically feasible for most cable firms to add and
delete individual specialty channels to suit the needs of each customer. To put
it simply, you either take a whole package and pay for it, or you don't take the
package at all.
Allow me to give an example of the advantages to consumers of flexible
packaging of programming options. Let's say, the cable company has an existing
optional package of services and believes that there is sufficient widespread
interest to add one or two, or three of the new specialty services.
Some customers may want the new, additional channels, and be ready to pay for
them. Others no. The ones who say yes, get to keep the existing channels they
know and like, plus some new ones. The customer who says no, does not get the new
services, and loses the package he already enjoys. This, for the reasons I have
just explained. Packages cannot be tailored to individual subscribers.
A useful analogy is the daily newspaper. A daily contains numerous sections -
political news, editorials, sports, business reports, fashion, want ads, and so
forth - in order to serve the reading and information interests of the greatest
number of subscribers. But, if the newspaper were compelled to produce individual
sections on a stand-alone basis for a limited number of customers, this obviously
would not be feasible. It wouldn't be practical from the manufacturing,
marketing, advertising, distribution, nor cost points of view. The cost to
produce each section of the newspaper as a stand-alone tabloid would be
prohibitive for the newspaper, and it would be for the subscriber also.
In other words, the cost for each subscriber goes down if the paper is bought
as a complete package. The very same basic rule of economies of scale applies to
television distribution. To keep the per service cost down, services are grouped
into packages, and the higher the penetration of the services, the lower the unit
cost to the consumer.
Here are two examples that illustrate this point. The recently licensed
specialty service ROBTV - Report on Business TV, on a stand-alone basis, would
cost subscribers $2.95 a month. As part of a package with a medium penetration
(45%-70%) the cost tumbles to 32 cents. With high penetration (70%-100%) the cost
falls to 25 cents a month for subscribers.
This example illustrates the clear advantages to everyone - producers,
distributors, consumers - of the availability of services that reach a high
penetration level.
In sharp contrast, a stand-alone, low penetration service is significantly
more expensive. An example of this is South Asian, a newly licensed, stand-alone
pay television service, which will cost subscribers $19.95 a month.
French-language services
Our concern is the potential impact that the Bill could have on the entire
Canadian market. However, there is no doubt that the Bill would create particular
problems for French-language services. It is a simple fact that the Canadian
market, either English or French, is small. The viability of Canadian services in
both markets is precarious. We believe that the lack of flexibility for marketing
that the Bill would impose generally would have a particularly limiting effect on
the ability to market and sustain financially viable French-language services in
Quebec and across the country.
As I've illustrated with the Report on Business service, high penetration
levels are a prerequisite to lowering costs to subscribers and the financial
strength of a particular service. Given that the French-language market is
smaller, penetration levels with a critical mass of subscribers take on an even
greater importance.
In Quebec, as Committee members know, the availability of broadcast services
has evolved in its own way in response to the unique characteristics and needs of
this small market. The success of new offerings has relied heavily on their
availability as part of the basic package, which permits them a higher
penetration level.
We believe that it is an accurate assumption by the industry in the province
that some new services, to reach acceptable levels of penetration would have to
be offered as a minimum, as part of a high penetration tier.
As for the availability of new French specialty services elsewhere across the
country, they must first attain a critical mass of subscribers in Quebec to make
it financial feasible to offer the services to smaller French speaking markets
spread thinly across the country. Otherwise, unless they are part of a package of
diversified, competitively priced services, they will have to be offered in some
instances on a stand alone basis. The example I gave above of South Asian
television, illustrates how prohibitive this could be to subscribers.
Affecting existing services
It has been our understanding from the start that the intent of the Bill was
meant to address possible problems associated with the marketing of new specialty
services that will eventually be offered to consumers. The services that were
licensed last September 4th.
One of our concerns is that the current wording of the Bill will go beyond new
services and also capture the marketing of existing services. If, as we believe,
existing services are likely captured by the legislation, it could cause some
cable firms to move services that they are currently carrying as part of a high
penetration tier, to separate, possibly higher priced packages.
We believe that this may be more, and may go further, than the original intent
of the legislation.
Licensed service providers, and others, as you know, have also raised these
concerns about this effect of the Bill.
A competitive world
Allow me to return now to the importance of competition and the alternatives
to cable which I referred to at the opening of my remarks.
Safeguards against possible pricing and marketing abuses, we agree, are indeed
sometimes necessary in a monopoly market. And for many years, the cable industry
was such a market. But this is no longer the case.
Alternative distribution technologies for programming services are now being
introduced throughout the country. A competitive market that relies on giving
consumers alternative choices of distributors and competitively priced,
attractive packages of services is emerging today.
The Commission has approved optional delivery services that are in
head-to-head competition with cable. AlphaStar is already offering direct to home
satellite service, and other licensed DTH services will be launched this year.
Multipoint distribution services (MDS) are currently offering an option to cable
in Manitoba and licences for similar services have also been granted in
Saskatchewan. The Commission has scheduled hearings to consider MDS applications
for most of southern Ontario, and we will schedule additional hearings in the
near future for similar applications in other parts of the country. As well,
Industry Canada has granted three LMCS licences which are ready to offer yet
another alternative distribution service across the country.
In addition, the Commission has also licensed competing cable licences in
single markets - for example at B.C's Concord Pacific Place in downtown
Vancouver. As well the telephone industry has indicated its interest to get into
the broadcast distribution business. And most likely, additional programming
services such as video on demand could one day be available.
It is inevitable, with this growing list of distribution alternatives, that
choices in the marketplace will impose fair, competitive marketing and pricing of
services.
I would like to remind the members of the Committee, that the
telecommunications and broadcast industries are sectors of the economy that are
being opened up to new entrants with the aim of increasing the number of
alternative services and a competitive marketplace. The members are familiar with
the most recent agreements at the World Trade negotiations that have moved Canada
and other countries extremely far down the road to allowing greater access to new
entrants in the telecommunications sector.
The members also know that the Commission will soon announce the new framework
for competition in local phone services, following competition for long-distance
services, established by the Commission in 1992.
This telecommunications framework is consistent with a similar broad framework
announced last month by the Commission, which sets the course for full TV program
distribution competition. These new policies, we said, are "designed to foster
fair competition in the broadcast distribution market in a way that will benefit
consumers and strengthen the presence of high-quality Canadian programming." As
well, we said, "competition in broadcast distribution will allow consumers to
choose their supplier of broadcasting services from among different competing
distributors. This should result in better service, new product offerings and
price competition."
Madame Chairwoman, given that this is the current state of play, and the
environment that we are headed for, we feel that the imposition of any new
regulations on distributors, which by ricochet would adversely affect programming
services, are contrary to policies intended precisely to foster choice,
competition and fair pricing.
If the legislation was aimed at rectifying an ongoing, broad and persistent
problem, it would suit the purpose. Two years ago, the monopoly of cable and
marketing practices used by some operators caused a great deal of concern to
subscribers of English-language services. I would remind members of the Committee
that the industry took immediate action to rectify the problem and did this in
response to consumer demands, and not because it was compelled to by legislation.
Many in the industry went further and publicly committed themselves to never
again approach marketing in this way. Is legislation in response to a one-time
exceptional situation which, as I have mentioned, has corrected itself,
necessary?
In conclusion, we believe that the developments in the marketplace which I
have described here today, are the developments that consumers have been asking
for: alternatives in distribution, diversity in programming, and competitive
prices that they are ready to pay for.
Thank you for your attention. We will be pleased to answer any of your
questions.
- 30 -
Contact: CRTC Public Affairs, Ottawa, Ontario K1A 0N2
Tel.:
(819) 997-0313, TDD: (819) 994-0423, Fax: (819) 994-0218
Date Modified: 1997-04-08 |
