Ottawa’s support of Can Con in need of an overhaul: Sean Speer in Inside Policy

Sean Speer, US deficit, deficit reduction

Sean SpeerThe CRTC was born in the 1960s, an era of cultural nationalism, limited competition, and airwave scarcity. It needs a rethink, beginning with outdated Can Con rules.

By Sean Speer, Oct. 31, 2016

US scholar Yuval Levin’s recent book, The Fractured Republic, describes the idiosyncrasies of the 1960s and the limits of applying the era’s institutions, ideas, and rules in the modern age. Levin’s argument is that this time period represented a unique moment of large, centralized institutions and that this historical experience has been eclipsed by a new context of fragmentation and decentralization as a result of individualism, diversity, dynamism, and liberalization. As he puts it: “… we don’t have three television networks and a few major newspapers and a few key universities and a few big corporations and so on setting the national agenda. The mainstream has been divided into a huge number of tributaries.”

The world has changed and our thinking needs to change accordingly.

Levin’s call for new thinking and new ideas in the age of fracture certainly applies to the Canadian Radio-television and Telecommunications Commission (CRTC)’s mandate. The CRTC was established in 1968 at the height of this trend of centralization and bigness described in his book. Its mandate was conceived in an era of cultural nationalism, limited competition, and airwave scarcity. The commission’s focus came to be the “orderly development” of Canada’s broadcasting and telecommunications sectors “in the public interest.”

The world has changed and our thinking needs to change accordingly.

Top-down regulation was possible (and even necessary) in the communications sector at the time. The limited availability of radio frequencies necessitated rationing through government-managed licensing and other regulatory interventions. The 13-channel television system could be easily overseen and managed by a central regulator. Political sensitivities about culture only served to further exacerbate this tendency to centralization and micromanagement. The CRTC thus came to play a critical role in the evolution of Canada’s broadcasting and telecommunications industries.

But much has changed in the nearly half century since the commission was established. The explosion of new technologies, market structures, and consumer expectations has disrupted the communications landscape. The CRTC’s capacity to manage the “orderly development” of Canada’s broadcasting and telecommunications sectors has been undermined by market dynamism and technology-enabled disorder. The world has changed. Yet our thinking has failed to keep up.

A terrific array of services, content, and applications are now available to customers as a result of technological advances, including regulated services such as specialty channels delivered by cable or satellite, and unregulated or exempt services such as programming delivered over the Internet. We are no longer captive to a smaller number of broadcasters. We can essentially watch whatever we want at any time that we want, on whatever device we want. It is a new, dynamic, and consumer-driven marketplace.

Some facts:

  • A recent survey of American teenagers found that they spend more than half their viewing time – 55 percent – on mobile devices, including tablets, laptops, and smartphones. Less than a quarter of their viewing took place on traditional television screens.
  • Canadians aged 18 years and older saw their Internet-based TV viewing climb by nearly 40 percent in 2014 relative to the previous year. Their traditional television viewing fell by roughly 20 percent over the same period.
  • A 2015 Telefilm Canada survey found that 41 percent of Canadians (up from 33 percent in 2014) watched films on Netflix and nearly 60 percent of millennials.
  • Netflix now accounts for close to 40 percent of all bandwidth used in Canada.
  • Canadian broadcasting revenues have fallen by an annual average of 4.75 percent over the past 4 years.

These changes in digital technology and consumer behaviour have shifted the broadcasting industry from the centralized and oligopolistic model of the 1960s to a new decentralized and fragmented one. Our traditional conception of broadcasting and television is dead.

Yet the CRTC’s top-down regulatory model is still very much alive. Its failure to heed Levin’s warning about the risks of nostalgic thinking has produced an unlevel playing field between Canadian-based broadcasting firms and foreign-based “over-the-top” players such as Netflix and YouTube. This growing asymmetry is neither sustainable nor advisable. The time has come to modernize the CRTC’s mandate.

Our traditional conception of broadcasting and television is dead.

How has the current model produced an unlevel playing field? The principle (yet hardly only) source is the application of mandated requirements with regards to the financing and production of Canadian content. So-called “CanCon” rules must be followed as a condition of one’s broadcasting licence, and can represent a significant financial cost. Canadian broadcasters contributed between $460 million and nearly $500 million per year toward Canadian content between 2010 and 2014.

Foreign-based, over-the-top competitors are not subjected to these requirements. The CRTC exempted these “new media” services from the Broadcasting Act in 1999 in order to encourage innovation and growth in this new medium. But as these exempted players have grown and assumed a greater market share, we are seeing a significant government-imposed market distortion. Virtually no one believes that it is sound public policy to exempt some services from Canadian content rules (including certain financial obligations) and not others.

Canadian Heritage Minister Mélanie Joly seems to recognize this inherent problem with the present application of CanCon rules and is presently conducting national consultations on the future of Canadian broadcasting and digital policy. She has said that the “current model is broken” and emphasized that “everything is on the table” with regards to reform.

The first step is to come to terms with how the market has changed and rendered old thinking about broadcasting and television essentially obsolete. This dynamic combination of technological change, diffused creativity, and evolving consumer preferences means that policymakers and regulators cannot possibly anticipate what comes next. Regulatory decisions that assume a static marketplace will at best prove ineffectual and at worst counterproductive. Any reforms ought to therefore start from a position that understands the changing dynamics of telecommunications and broadcasting in the 21st century.

There is a major opportunity to promote and sell our content around the world.

The second step is to consider whether we should care about Canadian content. There is a compelling case that such content is a “public good” to the extent that it connects Canadians through common information, a common identity, and a common expression of citizenship, experience, and culture. There is room therefore for public policy to support the financing, production, and dissemination of Canadian content.

The next is to consider options to address the unlevel playing field between Canadian-based firms and exempted competitors. Some – including the Ontario government – have argued that the solution is to extend CanCon rules to foreign-based over-the-top broadcasters such as Netflix. Minister Joly has ruled it out and for good reason. Not only are there real questions about whether the CRTC has the legal authority to regulate them, such a solution would involve doubling down on old thinking and continue to substitute bureaucratic preferences for consumer choice.

So, how do we modernize the CRTC’s role in the digital marketplace in a way that levels the playing field between Canadian-based firms and foreign-based over-the-top competitors and create the conditions for Canadian content to still thrive?

Our new MLI study recommends that Ottawa eliminate CanCon rules altogether to recognize the changes in the digital landscape. It is not to say that Canadian broadcasters would not produce or disseminate Canadian content, but it would mean it is based on consumer demands rather than bureaucratic diktats.

Broadcasting rules must shift from a narrow protectionism to an ambitious, export-oriented strategy. Canadian content can compete on the global stage.

This is not an empty point: indeed, it is consistent with the CRTC’s own assessment in 1999 of how online content providers were positively responding to demands for Canadian content. As its New Media Directive put it then: “market forces are providing a Canadian Internet presence that is also supported by a strong demand for Canadian product.” There is no reason that the same demands would not apply to traditional broadcasting absent top-down subsidies and quotas.

Such a reform would involve a completely new approach to cultural policy – what Minister Joly has described as a “paradigm shift.” New broadband technologies allow for Canadian cultural content to reach a much larger audience outside of our borders. There is thus a major opportunity to promote and sell our content around the world. Broadcasting rules must shift from a narrow protectionism to an ambitious, export-oriented strategy. Canadian content can compete on the global stage. Just ask the makers of Rookie Blue or Continuum.

And to fulfill the “public good” aspect of Canadian content objectives in the domestic market, the CBC’s mandate could be refocused as the sole vehicle for producing and delivering mandated Canadian content. If a public broadcaster is to have an ongoing place in the 21st century, its role should be filling a potential market gap (as recommended by a 2012 Senate committee report) rather than simply being just another option in an otherwise dynamic market. Becoming a dedicated source of Canadian content is the right mandate in the digital age.

This may mean that the CBC’s parliamentary appropriation would need to increase in the short term to account for a mandated shift to solely Canadian content. But internalizing the cost of Canadian content production and dissemination in the CBC will give Canadians a clearer sense of the true price of Canadian content subsidies than the present model, and may ultimately give us a better understanding of how much Canadian taxpayers value this “public good” and are prepared to pay for it.

Becoming a dedicated source of Canadian content is the right mandate in the digital age.

Early signs suggest that Minister Joly and the government are not hindered by nostalgia and instead have a confident, positive vision for Canada’s creative industries. This appreciation of the realities that Yuval Levin so clearly identifies will serve her well. A new broadcasting policy, including the bold reforms outlined here, will be critical to fulfilling that vision.

Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute and co-author of the recent study, “A New Digital Policy for the Digital Age: A Mandate Review of the CRTC.”