Astral Media Submission in Observance to Digital Economy Consultation
Submitted by Sophie Emond 2010–07–13 15:39:14 EDT
Theme(s): Canada's Digital Content
Astral believes that digital content must be given a very high priority. Innovation and infrastructure are important, but without attractive domestically–produced content, our smart pipes will be no more than a conduit for foreign material. Canada would then be a net importer of content, and an exporter of revenue, jobs, and investment in the worldwide digital economy.
The biggest challenge in the content area is finding a successful business model. No country has yet solved this problem; and the problem in Canada is more acute because the domestic markets, both anglophone and francophone, are still too small for commercial revenue to provide a return on the considerable investment required to be competitive. Both to meet our own cultural and social goals, and to export, we must have a strong domestic marketplace.
Therefore the digital strategy must start with creating the conditions in which a successful content business model can develop. These are:
- A fair, flexible, and coordinated policy framework to encourage companies to innovate in the content area.
- Broadcasting policy must be reviewed: to achieve our cultural and social goals — and indeed, to ensure a truly competitive market — market forces must be supplemented by flexible and updated rules.
- We need a fair, market–based and significantly simpler approach to copyright. Piracy must be addressed in order to create a viable marketplace, and obsolete approaches to rights must be replaced. Copyright decisions must be faster, and rights management simplified if we are to succeed in a rapidly–changing environment.
- An inclusive approach to government support that recognizes the need to support the entire value chain, and both new media and traditional players.
- We must support the role of content aggregators and recognize the power of traditional media in creating successful new content business and promoting new media. The public's attachment to traditional television and radio, which continue to be dominant in usage, means that linear platforms also have a digital future. We must be careful not to weaken their contribution and therefore not force change — for example, requiring all funded television programs to have an interactive component — where change is not appropriate.
- Digital broadcasting is an effective way to serve the public, and a much more efficient use of spectrum than on–demand wireless connections when it comes to providing audio and video. Sufficient spectrum to allow broadcasting to expand and develop must be preserved, separate from the telecommunications auction process.
In order to move the strategy forward with respect to the media and broadcasting sector, Astral proposes the creation of a Communications Policy Review Panel with the expertise to address all of the areas bearing on the digital strategy — taxation, copyright, privacy, spectrum, regulation, financing, support for production etc. Government must also review roles and responsibilities to ensure consistency and coordination of implementation across all the Departments and agencies involved in the creation of the digital economy.
1. Astral Media Inc. ("Astral") is a leading Canadian media company that is fully engaged in the development of a thriving digital economy for our country. Astral's new media ventures are complementary to its diversified French and English traditional media properties. Astral owns and operates 83 radio stations in over 50 markets in all regions of Canada, 17 pay and specialty television services — including some of the country's most popular services such as The Movie Network, TELETOON, Canal D and VRAK.TV, as well as over 8,000 out–of–home advertising faces in key markets of Québec, Ontario and British Columbia — including Canada's first and only national digital outdoor advertising network.
2. Astral runs over 100 consumer websites attracting millions of Canadian visitors each month. The Company also distributes its services over the Internet and mobile networks — Family.ca, attracts nearly one million visitors per month and is the most popular TV website for kids 2–17.
3. We therefore have both a traditional and a new perspective, and from that dual perspective, we are in full agreement with the objective of this consultation exercise — to build a strong framework from which Canada can grow the successful businesses that will make up its digital economy. The world is moving forward — if Canada is to maintain its strong economic showing, we must be full participants in the digital economy, and benefit from the investment, jobs, and wealth creation that go with it.
The Challenges Ahead
4. At the same time, Astral is well aware of how challenging it is to build this new economy. In our view, there are three major challenges that must be overcome if we are to move forward.
5. First, we must understand the importance of Canadian digital content. Canada will not succeed in the new digital economy if it concentrates its efforts on infrastructure alone. Of course, it is essential to build the networks that will bring digital content to all Canadians, and invite their interactive participation. And it is equally important that we encourage technical innovation, so that Canada's economy can benefit from new invention.
6. If, however, we focus on these elements at the expense of support for content development, we will find that our fast, smart pipes serve only to allow Canadians to consume content developed elsewhere. We will be sending revenue abroad, and thereby exporting jobs and investment. There is no shortage of Canadian talent in all aspects of content creation, but if we cannot employ that talent here, it will go elsewhere to find work, and the benefits of our creativity will be felt in other nations' economies instead of ours.
7. Once the importance of content is recognized, we face the second challenge, which is to develop a successful content–based business model. This is a problem around the world, not just in Canada. Entrepreneurs world–wide have attempted to generate revenue and profit from distributing content — both linear and interactive — on the Internet and mobile, but in spite of a few individual successes, no model has arisen yet that has anything like the success of traditional media.
8. The third challenge is creating a successful domestic marketplace in digital content. If it is difficult to successfully generate profit, or even cover the costs of digital content on a global basis, it is yet more difficult in the smaller Canadian market, and more difficult again in the francophone market.
9. The size of our markets is the first concern. To attract Canadians, our content must have a level of quality, and consequently investment, that can compete with imported content. But the smaller market limits the revenue available to create a return on that investment. Export is one answer, but we also want and need content that is specifically of interest to Canadians, and may not travel well.
10. In the past, we have used regulation to protect our market, create a model in which aggregators can profit from imported programming, and thereby create great Canadian content. The digital world will necessarily reduce — though not eliminate — the effectiveness of current regulation in strengthening domestic production. And yet, all experience leads one to believe that — for all countries, not just Canada — success in the domestic marketplace is a necessary forerunner to success in the export marketplace. Without a successful domestic content–based business model, there will be no content businesses here, and without them Canada will be a net importer in the world–wide digital economy.
11. Moreover, without a strong domestic marketplace, none of the cultural and social goals that traditionally have been delivered through Canadian electronic media can hope to be realized. The global marketplace will not take care of our local concerns, of Canadian regional reflection, of cultural support for minorities of any kind, of the expression of our shared values, and certainly not of the "shared national consciousness" which is the underpinning of our strength as a nation.
12. Addressing the three challenges — understanding content, developing a content–based business model, and using it to create a strong domestic digital marketplace — is the key to developing a strategy for the digital media economy.
Canada's Digital Strategy — The Role of Government
The Government of Canada's role is to put in place a marketplace framework in which you as creators, inventors and entrepreneurs have the incentives to innovate, the confidence to take risks and the tools to succeed. The Government of Canada has made an important start to its work — it has revamped its cultural programs to reflect the digital reality.
… Policies and programs must be adjusted, where appropriate, to maximize Canadian success in the digital economy.
James Moore: "Creating Canada's Digital Content Advantage" from the Consultation Paper on Creating a Digital Economy Strategy for Canada, 2010.
13. Canada has always understood the importance of government–industry collaboration in the creation of a successful economy. Nowhere has this philosophy been better implemented than in broadcasting, with many examples ranging from the government's early investment in communications satellite research and infrastructure to the development of a variety of support systems for Canadian content creation.
14. The digital economy also requires a collaborative approach, but it demands new tools. In Astral's view, our digital strategy must encompass two primary objectives whose achievement will require a coordinated approach from all sectors and levels of government. The objectives are:
- The creation of a coordinated, fair and, flexible business framework in which successful digital content business models can develop, encompassing both a flexible approach to regulation and a fair copyright regime.
- The creation of a set of policies that recognizes the importance of the full value chain, and does not privilege certain players over others. Content must have an equal place with infrastructure; aggregation and promotion an equal place with creation and distribution. The importance of the domestic marketplace must be seen together with the export marketplace, and the contribution of traditional players encouraged equally with that of new entrants.
15. If the industry is to discover successful new business models, government can assist by encouraging innovation and risk–taking. To succeed, we need business structures that let us compete and explore new business models while addressing the issues created by our relatively small domestic marketplace through broad–based inclusive support from government.
A. A Working Business Model in a Coordinated, Fair and Flexible Framework
Regulatory agencies, such as the CRTC, are being challenged to find ways to transform their approach, away from complex and micro rules, put in place when access could be controlled, roles were well defined and interdependencies could be managed, to devising simpler rules to reward success and require innovation. ("Improving Canada's Digital Advantage," Page 27)
New Forms of Regulation: a Coherent and Coordinated Approach
16. The first objective of the digital strategy is a successful business model for content–based industries, and the first element necessary to that model is a framework to encourage innovation and risk–taking among private companies.
17. The current media environment is characterized by the detailed and strict regulation that pervades traditional Canadian television and radio. Such regulation may have been appropriate in traditional media businesses where risk was moderate and some degree of market protection could be maintained through the barriers to entry raised by regulation. In such cases, the regulatory bargain could include policies that obligated the private firm to devote a percentage of schedule and a percentage of revenue to activities that served a social and cultural purpose but were not commercially viable in themselves.
18. As noted in the consultation paper, the regulator should now be turning its attention to "simpler rules". However, relaxing rules may be as complex a process as imposing them, and may produce unintended consequences. Rules cannot simply be eliminated. The size of our market makes it impossible for domestic players to succeed if there are no rules governing market entry and competitive behaviour among players. It is one thing to espouse greater reliance on competitive forces; it is another to achieve real competition in a marketplace where some players retain gatekeeper power.
19. Broadcast Distribution Undertakings (BDUs) have not found that the digital age has reduced their control over their customer base. On the contrary, more complex digital receivers, coupled with the detailed customer relationships brought about through bundling of telecom and broadcast services, have made it more difficult, not less, for Canadians to switch providers. Technology has put distributors in a position to control other players' access to their subscribers in ever more complex ways. Even the important broadband ISP market is a duopoly where the regional incumbent cable company and the regional incumbent telephone company split 93% of the market.
20. In such circumstances, creating the kind of competition that rewards success requires that the regulator control the potential anti–competitive behaviour of companies that control access to the consumer — BDUs and, potentially, ISPs. Otherwise, content–based firms will simply find that the barriers to market access are now in the hands of distributors, rather than the regulator.
21. Furthermore, in order to set the new rules, we strongly believe that a piecemeal approach will not serve; all of the policy areas that bear on the digital media strategy — taxation, copyright, privacy, spectrum, regulation, financing, support for research and support for production — all of these are interrelated and warrant a comprehensive approach at federal and provincial levels. All too often, the industry experiences disruption as one body or another changes its policies without fully considering its impact in the complex environment surrounding Canadian media.
22. This is why we submit that the next steps in moving this strategy forward for the broadcasting and media industry could include a "Communications Policy Review Panel" — not unlike the 2006 Telecommunications Policy Review Panel — with the expertise and the mandate to make policy recommendations in all the areas related to the digital media strategy.
23. The earlier Telecommunications Review Panel was asked to make recommendations in several areas, including:
1. how to implement an efficient, fair, functional and forward–looking regulatory framework that serves Canadian consumers and businesses, and that can adapt to a changing technological landscape.1
24. Later in the Introduction, the panel report notes:
This will only be possible if Canada's telecommunications policy and regulatory framework is continuously reformed — so Canadians can reap the full economic and social benefits provided by the increasingly competitive telecommunications markets — while protecting the interests of consumers and contributing to the achievement of important Canadian social values.
25. A similar mandate focused on the digital media economy, including digital content, would be appropriate for a Communications Policy Review Panel.
26. Finally, it will be key for government to ensure that the new appropriate policies are implemented in a coordinated and, mutually supportive way across Departments and agencies. This would include a review of the scope and powers of the Departments, bodies and agencies involved, to ensure that the government's policy objectives are achieved consistently across all policy areas in an efficient way.
Fair Copyright Rules
27. Clearly, it is impossible for a digital content model to be developed unless rights owners have control of the distribution and monetization of their content. Current models for Internet distribution of professional content are constantly faced with competition from pirated material, and with its consequence — the unwillingness of consumers to pay for something that they perceive as available for free, and which, in some cases, they even believe ought to be free. Even advertising–supported models are more difficult on new platforms, because of the perception of users that advertising is less acceptable on new media.
28. As a result, the models that currently make sense for rights holders are those which drive revenue back to the traditional value chain, where usage can be more easily monetized. For example, Astral has Internet on–demand services that are only available to those who subscribe to the traditional pay or specialty service. Or one sees models where a small amount of content is made available for "catch–up" viewing, again with the intention of drawing viewers back to the traditional linear television service.
29. But as long as these are the models for rights holders, the digital world will not develop to its full potential.
30. Hulu, the American online service backed by television providers, is now attempting to expand its business model to include a subscription price for premium content. Whether this will be successful — or whether current users will simply resume their use of pirated material — is anyone's guess.
31. Again and again, one comes back to piracy as a major problem in the development of a business model, and therefore in the creation of a marketplace in which the value of rights can be understood by all parties in the value chain, and appropriate prices set. Without such a clear marketplace, some players are reluctant even to experiment by making their content available for Internet and mobile distribution. Not only must the copyright laws be appropriate, but effective means of education and enforcement must also be found, if we are to develop new business models and a working marketplace.
Complexity of Rights Regimes
32. Piracy is not, however, the only problem in the rights area. Copyright is also burdened with complex layers of legacy rules that no longer make sense in the marketplace.
33. The gradual accretion of rights, due to a piecemeal approach to copyright, has resulted in a complex rights administration environment that inhibits business. As noted in the Heritage–sponsored study, "The Transformation of Value Chains in the Canadian Arts and Cultural Industries,"
Equally, the pursuit of a variety of revenue models would be greatly aided by a simplification of the administration of copyright, which has become more complex in the digital age. … Individual market solutions are sometimes preferred over collective solutions simply because of their speed. While users must respect the rights held by creators of musical products, some simplification of copyright administration would be of benefit to both users and creators. ("The Transformation of Value Chains in the Canadian Arts and Cultural Industries", page 88)
34. That paper refers to the difficulty of doing business in a changing environment when it may take decades to settle the rights issues. It also notes the obsolete nature of some mechanisms. Some rights, such as the "transfer of medium" right, slated for reform in the bill tabled in June 2010 to amend the Copyright Act (Bill C–32), are simply survivals of an age when physical copies were the best proxy for value received, and payment could logically be based on the making of copies. In the digital economy, this is no longer the case. Physical copying is no longer a proxy for value. End–users resent paying multiple times to have the same material available on several devices. Rights users in the middle of the value chain object to paying for the making of copies in order to facilitate their back–office functions, before they offer the content to the public.
35. A solid and fair copyright regime is essential to the development of any working business model in digital media.
36. The new digital strategy must adopt the principle of fair compensation for usage, but it must also implement a regime in which value is based on usage, and prices set by the real market value of usage. In addition, the administration of layered copyright rules must be simplified. Our rights regime must recognize these realities if the marketplace is to be functional and fair.
B. Government Support through an Inclusive Approach to the Value Chain
37. When the framework for a fair and flexible marketplace framework is in place, the next key to a successful digital strategy is that government support must be inclusive of all the players in the value chain — that is, it must recognize the needs of new and traditional players in all parts of the value network. No single player can make a success happen — the chain itself must be strengthened.
38. It is not enough, after all, to simply create content and make it available on a website. A very small amount of content can "go viral" from such a base, but this is not a business model — it is more like buying a lottery ticket. To succeed consistently, the whole value chain of content creators, content aggregators and distributors must be in place — ultimately seen by the public through trusted local brands in their domestic marketplace. Our digital strategy must support the whole value chain in our domestic marketplaces if we are to succeed in the wider world.
The Need for Content Aggregation
From the individual creator to the multinational company, experimentation and taking risks will be critical, knowing that success is not guaranteed and definitive business models remain elusive. (page 25)
… the digital media sector is shifting away from linear production chains with distinct players and discrete products into three main areas of activity: 1) the creation of content; 2) enabling content creation and distribution; and 3) the aggregation of content. ("Improving Canada's Digital Advantage," page 29 — emphasis added)
39. The consultation paper recognizes the importance of strengthening the chain, and all of the functions within it. This is in contrast to the approach of many stakeholders, who may seek support for the build–out of infrastructure or the creation of content, without recognizing the other functions that contribute to a successful content business model.
40. As a broadcaster, Astral, occupies a middle position in the value chain, where it serves as an aggregator and promoter of content, working through a variety of successful and trusted brands to bring content to the public.
41. One of the myths of the Internet age is that creators can successfully offer their creations directly to the public without the intervention of any aggregator. Of course, they can offer their content, but this model has seldom succeeded — there is so much content available that individual productions are unable to "rise above the noise floor" and attract any attention without serious promotion, often on another platform.
42. To attract attention to new content, it is still necessary in most cases to obtain promotion and packaging from major domestic and international content brands, well known to and trusted by the public, and with the resources to attract attention. Successful aggregation is vital to any content business model — packaging and promotion are the best way to mitigate the high risk of investment in content.
43. A value chain is only as strong as its weakest link. Astral notes that the Canada Media Fund is acknowledging this reality by ensuring that even projects in its Experimental Stream have the means to bring their projects successfully to market.
44. Moreover, the broadcasting platform has great promotional power, and is a natural place to develop and promote Canadian new media content and create an advantage for it in its domestic markets. Outside our borders, the relationships held by traditional media companies, such as Astral's with HBO and Disney, can assist in attracting global attention for those projects with export potential.
45. Clearly, a complete digital strategy must be inclusive: in addition to focusing attention on the building of distribution infrastructure and the creation of digital content, the strategy must foster risk–taking among broadcasters and other aggregators, and support their promotional efforts.
Traditional and New Players
46. With all of the attention being paid to new digital media, it is easy to forget that innovation can come from traditional media companies as well as new entrants. Traditional media companies have established businesses that can furnish some of the resources needed to create new kinds of product. However, if they are to be incented to involve themselves in these high–risk activities, alone or with content partners, it is unwise to create restrictions on their ability to bring new product to market effectively.
47. In addition, one must consider the health of the traditional system along with the growth of the new. As noted in the consultation paper, content is no longer being developed and brought to market through single value chains but rather through complex, multi–platform value networks. The health of all platforms is integrally linked, as each platform must contribute revenue or other benefits to return against the original investment.
When the value of our digital infrastructure depends on the content it carries, when carriers and content creators, applications and services are converging, the way the money flows — the value chain — is undergoing a fundamental shift and multiple value networks are emerging. ("Improving Canada's Digital Advantage," page 25)
48. Astral notes that consumption of audio or video product over the Internet or via mobile is still very much smaller than consumption over traditional platforms. Recent estimates put consumption of video over the Internet at about 1.5% of all video consumption; consumption over mobile is well under 1%.2
49. In this context, any digital strategy must take into consideration that traditional linear media will be with us, and may well be dominant, for a long time, and should be part of Canada's digital strategy. Support for traditional media must be part of the toolkit moving forward.
50. Astral does not believe that we should try to maintain past practices for their own sake — on the contrary, we are enthusiastically pursuing the opportunities brought to us by new platforms, new technology, and new applications. But we are doing so in the context of an understanding of the complete value network, and the interdependence of all platforms, including both the new ventures and the very successful traditional Canadian media. Neither novelty nor tradition is valued for its own sake, but rather for its contribution. Both the strength of existing models and the developments which disrupt them can contribute to the system's growth.
51. In this context, we believe that it is necessary for our digital strategy to reconsider the contribution made by traditional platforms. We are great believers in the new platforms — but at the same time the move to implement support for new media could be too precipitate: it can destabilize a process that depends on transitioning strong brands into the new world. Forcing all supported television programs to be interactive — whether interactivity is appropriate to the content or not — is an example of a "rush to the new" that should be reconsidered as criteria for the Canada Media Fund develop over time.
52. Even in this increasingly digital age, the public still shows a variety of behaviours: sometimes they choose to be engaged, on–demand, interactive; sometimes they choose to be passive — to hear a song or watch a story. This second behaviour continues to be prevalent — Astral contends that this behaviour is not destined to wither away as interactivity becomes more available in media, but will remain a significant part of the public's use of media time.
53. But whether or not this is a permanent condition, it is clearly present now, and thus linear broadcasting continues to be a major way in which the public consumes media. This is particularly important when we consider the use of spectrum as an element in the digital strategy.
54. There are stakeholders that would like to see more spectrum removed from broadcasting and assigned to telecommunications providers, though ironically one of the things they propose to do with this spectrum is use it for on–demand delivery of audio and video. This is doubly ironic since it sometimes appears that the spectrum is much too expensive — having been obtained at auction — to be used for high–bandwidth media consumption. User charges for digital data are high, reflecting that expense, and effectively preclude widespread mobile use of video and audio.
55. The fact is that one–to–one delivery of video over cell networks is an extremely inefficient and expensive way to use of spectrum, whereas traditional one–to–many broadcasting is a very efficient way to serve the public.
56. This is even more true now, because over–the–air digital transmission technology has evolved to permit an even more efficient use of spectrum by broadcasting, both radio and television. Higher quality and greater mobility are also brought into reality by such technologies as DVB–H (Digital Video Broadcasting — Handheld), DMB (Digital Multimedia Broadcasting), and DAB+ (the advanced version of Digital Audio Broadcasting.)
57. These standard technologies have yet to establish themselves in the marketplace, but it would be remarkably shortsighted to re–assign broadcasting spectrum in such quantities that they could not be exploited in the future. Their greater efficiency may be the only way that broadcasting can expand its offering to the public, as the FM band is now too congested in major markets to permit new licensing of — for example — third language, community and minority radio services.
58. Astral commends the three Ministers and their Departments for beginning this digital strategy process as they hopefully mean to continue, i.e. as a coordinated approach among bodies with different but overlapping responsibilities.
59. Astral hopes that this proposed effort, and all efforts toward the realization of a national digital strategy, will be guided by the need to develop a workable digital content business model through a coordinated, fair and flexible policy framework, including:
- Rules appropriate to a more competitive world;
- A fair, market–based and significantly simpler approach to copyright;
- An inclusive approach that recognizes the need to support the entire value chain as the industry moves forward, recognizing the contribution toward the digital economy made by
- Creators, aggregators and distributors,
- Both new media and traditional broadcasters,
60. Finally, Astral proposes that the next steps should include the creation of a Communications Policy Review Panel to review policy in all of the areas that bear on the digital media strategy — taxation, copyright, privacy, spectrum, regulation, financing, support for production etc. And in implementing these policies, government must review its methods, roles and responsibilities, to ensure consistency and coordination across all the Departments, bodies and agencies involved in the creation of the digital economy.
61. Astral welcomes the chance to be part of this consultation and once again thanks the Ministers for driving this process forward.
1 Telecommunications Policy Review Panel; Final Report 2006.
2 The Nielsen "Three–Screen Report" notes year–over–year growth in the use of Internet and mobile video, but in Q4, 2009, this report concluded, "Each week the typical American consumes almost 35 hours of TV, 2 hours of timeshifted [DVR] TV, 4 hours of internet, 22 minutes of online video and 4 minutes of mobile video." The Internet usage noted above is certainly significant, but Internet video usage is only a small part of that, and mobile usage is extremely small.
Nielsen Company (2009) Three Screen Report (Volume 7, 4th Quarter 2009) Television, Internet and Mobile Usage in the United States