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Raising the Broadcast White Flag: What Lies Behind Bell's Radical Plan to Raise TV Fees, Block Content, Violate Net Neutrality and Fight Netflix

03/09/2015 05:09 EDT | Updated 05/10/2015 05:59 EDT
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Signage is displayed outside of a BCE Inc. Bell Canada store in Toronto, Ontario, Canada, on Wednesday, Aug. 8, 2012. BCE Inc., Canada?s second-largest wireless carrier, topped second-quarter profit estimates and increased its annual forecast after adding more smartphone subscribers on lucrative long-term contracts. Photographer: Brent Lewin/Bloomberg via Getty Images

Kevin Crull, Bell Media's President delivered a much-anticipated keynote speech at the Prime Time in Ottawa conference on Friday. Titled "The New Reality: Broadcasting in Canada", Crull's claim was that the new reality for broadcasting in Canada is unsustainable and requires massive regulatory change. While Crull argued that Bell doesn't want protection (in fact, incredibly claimed that a company that has benefited from foreign investment restrictions, genre protection, and simultaneous substitution has never had protection), he proceeded to outline a series of radical reforms that would raise television fees, block access to U.S. channels, violate net neutrality rules, and make Netflix less attractive to consumers. Couched in terms of "level playing fields" and "secure rights markets", the speech was fundamentally an admission that given the competitive challenges, Bell's hope is for a regulatory overhaul.

The key slide within the presentation can be found here. Crull certainly spoke about creating great content, though on the previous day Bell executives cautioned against programs that are "too Canadian." The major focus of Crull's talk wasn't on content creation - the overwhelming majority of Bell Media's leading programs are licensed from U.S. broadcasters -- but rather on proposed changes to the regulatory framework.

Bell Calls for New TV Fees and Less Consumer Choice

Crull's talk renewed a call for payments for over-the-air television channels. This is an old issue that the conventional broadcasters regularly raise, only to lose time and again. Many will recall the battle several years ago pitting the "TVTax" vs. "Local TV Matters" over whether there should be an additional fee paid by cable and satellite subscribers for conventional channels. The issue ended up at the Supreme Court of Canada, which ruled against the payments in 2012. If Crull and Bell Media get their way, the debate will start again with lobbying pressure to enact legislative changes to allow for a new TV tax.

Crull and Bell Media also want U.S. broadcasters blocked from Canadian cable and satellite packages. Note that Bell Media is not alone in this regard as Shaw (Global) raised similar concerns at a conference a week earlier, where an executive argued that if we really cared about the Canadian system, we would have blocked U.S. signals years ago (Note: this line has been amended to clarify the fact that Shaw does not advocate for content blocking.) Crull framed the issue as critical to creating a secure rights market, since Bell Media licenses U.S. programs and feels that competition from U.S. channels showing the same program is unfair. Crull acknowledged that simultaneous substitution (substituting the U.S. feed for the Canadian feed) provides some protection but warned that it is an insufficient solution (plus the CRTC has ordered a ban on simsub for the Super Bowl starting in 2017). I've argued that simsub is becoming less important and Crull seems to confirm it, seeking to do away with it altogether by blocking access to U.S. content.

The Bell position is remarkable since blocking access to channels to which Canadians have had access for decades (and which was the foundation of building Canada's cable systems) is an obvious political and policy non-starter. Bell is arguing for less choice for consumers, claiming that Canadians should be satisfied with access to the programs it (and other Canadian broadcasters) licence. If anything, the Internet is leading to greater choice and options for Canadians that want access to U.S. programs. Blocking content feels like the last refuge of a company that simply cannot compete with greater consumer choice, particularly with the imminent arrival of pick-and-pay channels. Consumers will soon be able to pick the channels they want to purchase alongside new ways (Internet streaming, over-the-top video services, iTunes downloads) of accessing U.S. programming. Bell somehow thinks the solution to these options is to create less choice by blocking access to popular U.S. channels on cable and satellite services.

Defending Net Neutrality Violations

Bell wants to overturn the CRTC decision on its Mobile TV service, arguing that it can't offer it unless it has a competitive advantage by offering access that does not count against consumers' monthly data caps. In other words, it can't compete with the Internet, which offers a far richer and broader array of content than licensed mobile TV services. The CRTC's concern was that disadvantaging competitive services would reduce innovation and consumer choice:

the Commission finds that the preference given in relation to the transport of Bell Mobility's and Videotron's mobile TV services to subscribers' mobile devices, and the corresponding disadvantage in relation to the transport of other audiovisual content services available over the Internet, will grow and will have a material impact on consumers, and other audiovisual content services in particular. As an example, it may end up inhibiting the introduction and growth of other mobile TV services accessed over the Internet, which reduces innovation and consumer choice.

This is net neutrality 101 and countries such as the Netherlands have experienced the benefits of net neutrality rules with respect to online video. In fact, researchers have found that countries with restrictive data caps are particularly vulnerable to "zero-rating" plans such as that offered by Bell. Crull made it clear that Bell will withdraw the service if cannot discriminate against competing services with respect to data charges.

Fighting a Losing Battle with Netflix

Crull's talk made it readily apparent that Bell is desperate to counter the popularity of Netflix. Crull also framed this concern as a rights market issue, stating earlier in the conference that Netflix had an artificial business model with one-third of its business based on piracy. The claims of piracy refer to Canadians that access U.S. Netflix using a virtual private network. Leaving aside the fact that this hardly constitutes piracy, the real concern for Bell surely isn't that some Canadians access U.S. Netflix. It is that Bell is struggling to compete with Netflix. Indeed, Crull also stated that "$8 or $9 a month doesn't pay for the content that people are enjoying today. It just doesn't pay for it." That may be true in Bell's business model, but it is not true for Netflix, which operates globally and generates far larger revenues and spends far more on content than Bell possibly could.

The claim that access to U.S. Netflix is a major problem for Bell just doesn't add up. First, everyone agrees that Netflix has millions of Canadian subscribers who do not access U.S. Netflix. This is a big business that will steadily lead to more cord-cutting regardless of access to some additional titles through the U.S. Further, there are many programs that Netflix licenses that are accessible on both the U.S. and Canadian services with VPN use irrelevant for the purposes of rights.

Second, the content on Netflix - whether Canadian or U.S. - rarely competes directly with CTV or other Bell channels. Netflix offers original content, movies, and television shows that have already aired on conventional television. That is not the Bell model for its broadcast services. The two may compete for viewers, but they are watching different things. Even if there were Canadians who watched only U.S. Netflix and only programs not available in Canada, they still would have little to no overlap with CTV or Bell's specialty services.

Third, Bell now offers CraveTV and it is true that it may obtain exclusive licenses for content in Canada. Yet Crull admitted during the conference that CraveTV will never make money. It is not designed as a standalone service to compete with Netflix. Rather, it is designed to encourage viewers to maintain their satellite packages by adding an online video component for a few dollars per month. In fact, CraveTV has positioned itself by promoting content such as Seinfeld or HBO programs, shows that cannot be found on U.S. Netflix.

Since Bell struggles to compete with Netflix, it is left to find ways to make the service less attractive to Canadian consumers. Crull was careful not to call for blocking VPN use (as a Rogers executive did), instead calling on Netflix to use different mechanisms such as credit card address to identify non-U.S. subscribers. This suggestion is reminiscent of the failed attempts to stop Canadians from accessing U.S. satellite services many years ago. Netflix will have no interest in making the change nor should they. It will stop those that access U.S. Netflix once rights holders stop licensing content on that condition, something that has presumably yet to happen.

Bell announced that it completed its $3.2 billion acquisition of CTV on April 1, 2011. Less than four years later, company executives say that their business is unsustainable and effectively admit that they cannot compete. In most sectors, that would be grounds for unhappy shareholders and corporate change. In the Bell world, it means intense lobbying for radical regulatory reform to raise television fees, block content, violate net neutrality, and fight Netflix.

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