The television business is about to undergo a transformation as radical as the metamorphosis of the telecommunications business over the past 15 years; a period that saw the business model of the entire industry dissolve, shift and change.
Accepted truths, common wisdom and economic assumptions all crumbled before the paradigm-shifting onslaught wrought by Internet Protocol technologies, the same technologies that have challenged models in the music and motion picture industries. Next to feel the hot breath of disruptive forces: television.
This article looks at how the Internet will change tele- vision, and touches on how various players in the current television distribution business will fare. We also consider the role of government. What should public policy-makers do? Broadcasting business models are largely creatures of regulation " the gift of a license comes with a series of obli- gations that govern most facets of the business. What hap- pens when that license to broadcast or distribute is worthless? What happens when content is no longer chan- nelized or regionalized?
We suggest that the proceedings before the Canadian Radio-television Telecommunications Commission, the CRTC, cannot possibly wrestle with the complexity of issues that Internet Protocol (IP) technologies represent to the business models of industry participants or to the current policy framework. Policy, we argue, is the province of Heritage Canada, and Heritage Canada has some significant work ahead to ensure that our broad- casting industry (broadcasting distribution undertakings, producers, writers, actors and supporting industries) survives the coming catharsis such that Canadians will con- tinue to have access to Canadian voices and perspectives in the years ahead.
Paradise lost? The serpent brings the fruit of knowledge to Eve, the walls are sundered, the protected garden is no more. An interesting parallel to the walled garden that was the Canadian broadcasting paradigm. The serpent of knowl- edge, the Internet, is upon us. The walls are crumbling, the industry is under siege.
Anyone looking for thoughts on the future of television will find a wealth of comment. ”œTV is dead,” ”œIs the future of TV the Web?” and ”œChannel TV to Me TV” are exemplars of common themes. A. Google search of ”œfuture” and ”œTV” together will get you 130 million hits. There are papers, con- ferences, television programs, news documentaries " much discussion exists about the future of television.
The consensus? Change is afoot and the impacts will be profound. Foremost among those changes: the days of the broadcaster, and the idea of a TV ”œnetwork” as a string of transmitters across a country, are ending.
However, we argue that television isn’t dead. Rather, it has a bright future. We suggest that this ”œsurvivor televi- sion” isn’t TV as we know it now. That is, programs made available for viewing at a specific time and ”œplace on a dial” and sponsored by an advertiser confident that its message will reach out to targeted living rooms simultane- ously, wrapped around content that bears some relation to the advertiser’s message, or at least conforming to its moral code.
When we suggest that television has a future, we are not referring to the full current television distribution model " as we do think that is doomed " but instead to the product of that model, the television program. Television content will persist, but it won’t be delivered in the same way.
Indeed, the near century-old Twainian refrain, ”œRumours of [its] death have been greatly exaggerated,” could have been written for TV.
We will look at some examples of how television is changing, some current examples of what the televi- sion-of-tomorrow might look like, and consider some of the frustrations of trying to capture the next wave of Canadian television. We will also look to the challenge of the neces- sary metamorphosis of an industry, and given that the industry is defined largely by licensing and reg- ulation, we will examine the chal- lenges faced by the regulator and other guardians of the public weal " in this case, the department of Canadian Heritage.
Upon releasing its decision on the revised regulatory frameworks for broadcasting distribution undertak- ings (BDUs) and discretionary pro- gramming services, the CRTC addressed many issues that the indus- try had been asking for. It adjusted, for example, some of the rules governing over-the-air (OTA) and broadcast dis- tribution under-taking (BDU) entities and exempted small BDUs from some of the obligations that need to be shouldered by larger multiple system operators (MSOs). The commission is now embarking on a quest to address two more important issues; its pro- ceedings on video on demand (VOD) and broadcasting in the new media environment are its current focus.
While the commission has made commendable efforts to grapple with the evolution of what ”œtelevision” means to its users, we suspect that the future may well be closer than the commission expects. Because the changes it intends to effect will not come into effect until 2011 at the ear- liest, we believe that the future of tel- evision may well be upon us before the CRTC and the industry partici- pants (especially those waiting for commission-mandated relief from the shocks of technical and market change) are ready.
Marshall McLuhan observed that the medium was more important than the content " that messages weren’t what changed the world but the impact of the medium itself shifted mass behaviour. Like radio before it, television broke down barriers to class and geography; it became the new national glue. Adoption was rapid; from a 9 percent penetration rate in 1950 to 98 percent in Canadian house- holds by 1980.
Our broadcast industry grew to serve the new demand. It did so in a reg- ulatory hothouse " a government licensing and policy environment designed to meet Canadian needs and to balance cultural concerns, artists’ and program producers’ needs and the indus- try’s own financial requirements. Our ”œbroadcasting paradise” served us well. Broadcasters delivered a channel of pro- gramming to the viewer by finding sup- pliers of program material, negotiating rights to distribute material in a given market, promoting and scheduling material into the broadcast plan and soliciting advertising monies to pay for the entire enterprise. Consumers were offered choice in programming " they could choose from a number of different channels of programming that had been assembled by the broadcaster.
The first harbinger of change was cable television (initially known as community antenna television, now referred to as BDUs and later, direct-to- home satellite). Canadian broadcasters had to compete not only with each other and snowy pictures from US bor- der stations, but also with high quality signals that were the equal of the Canadian broadcast product.
The Canadian TV industry survived the cable challenge thanks to the benign regulatory environ- ment that disallowed tax deductions on US stations, and through the practice of simulcasting Canadian advertisements the industry survived, indeed prospered.
This simple broadcasting distribution model is changing. The position of the broadcaster is being eroded as new technologies turn McLuhan’s theory on its head, with the import of the medium being usurped by the message.
Technologies, particularly IP based technologie that liberate the viewer from the shackles of set programming schedules, have fragmented audiences and eroded the advertising-dependent business model that worked so well for decades.
The Internet represents a major shift in how programming con- tent is disseminated. Producer and consumer are dis-intermediated in the Internet delivery model. In an IPTV world, anyone can be an aggregator.
Everyone is their own programmer. IPTV is a network connection that lets you place any content you wish on any playback device. Some forms of Internet-based television exist today, the vast inventory of eclectic content that can be found on YouTube is an example " not a complete example " of what content IPTV can offer. (The amateur production values are part of YouTube’s charm, but few people older than 15 are likely to find that it would substitute for more professionally pro- duced fare.)
IPTV in its current, nascent, form is largely a replication of the cable/satellite model of bringing cur- rent channels to consumers, but using a new delivery technology. As IPTV evolves, however, we see the concept of the channel becoming peripheral and the main thrust of IPTV shifting to à la carte selection of program content.
Examples of how the program- centric IPTV model may evolve include these services:
- Retail Programme rental/sales portals " Apple TV, Amazon Video- on-Demand, NetFlicks Streaming, Blockbuster OnDemand (and Blockbuster/TiVo) and the very successful joint venture of US Broadcasters (except CBS) known as Hulu. In the UK, the BBC has led the way with internet-based distribution with its iPlayer service (which alone accounted for as much as 5 percent of all UK inter- net traffic in 2008)
Social network-oriented aggrega- tion/recommendation sites " YouTube, Blip.tv, Veoh, and Joost.
Cable/BDU sites " Bell TV, various VOD offerings now available from Canada’s cable companies
Broadcast Network sites " CBC.ca, Fox.com, CTV.ca, Glob- alTV.com, and CNN.com;
The future of television will include streaming, where the content is sent to the device in a continuous stream, meant to be viewed in ”œreal time,” as well as downloads (where the entire program is sent to be stored and played locally).
Hulu is possibly the best view we have of the near-future of television and its lifeblood, the advertising that makes it possible.
Hulu, a joint-venture between Fox, NBC Universal and (as of April 2009) ABC (part of Disney), was announced in 2007 and went live at the end of 2008.
Hulu carries content from its venture-owners, and also from Comedy Central, PBS, USA Network, Bravo, and others. Importantly, Hulu offers viewers a choice: watch with the original advertisement that accompanied with the program, or watch a ”œclean” version, stripped of ad content, if you agree to watch a longer, tailored, message.
Hulu carries content from its ven- ture-owners, and also from Comedy Central, PBS, USA Network, Bravo, and others. Importantly, Hulu offers view- ers a choice, watch with the original advertisement that accompanied with the program, or watch a ”œclean” ver- sion, stripped of ad content, if the viewer agrees to watch a longer, tai- lored, message.
Hulu has become one of the most- visited video sites in the US. According to comScore, US Internet users viewed 14.5 billion on-line videos during April 2009. Hulu was third (behind Google and Hulu parent, Fox Interactive Media). Interestingly, the average on- line viewer watched 327 minutes of video (nearly 5.5 hours), and over 75 percent of the total US Internet audi- ence watched on-line video in the month. Clearly a shift in behaviour, and a shift in how ”œtelevision” content is consumed, is underway.
The time of ”œthe broadcaster” is passed. Only those companies that combine distribution with content cre- ation will likely survive the inevitable shakeout. It is the content creation function that will enable them to tran- sition to the new IPTV paradigm. Broadcasters that have other channels- to-market and can integrate messages, promotions and content assemblage across platforms will also, likely, make the transition.
Included among Canadian broad- cast companies that also serve as con- tent providers are CBC/Radio Canada and Quebecor Media’s TVA. The future seems less certain for those firms that are dependent solely on pur- chasing the ”œright” mix of US television programming for Canadian consumption, because the skill of aggregating that right mix matters little in an Internet pay-per-view world.
Cable companies will still have a role to play, though they will have to evolve. They will have to augment their past role as passive broadcast dis- tributers to include program content development. Ideally, this would occur with less externally imposed structural separation between the programming and distribution arms, because in the infinite channel universe that is IPTV, one’s place on the dial is meaningless. Indeed, in a world where infinite choice is the norm, aggregation and curation, beyond what today’s distrib- utors can achieve by streaming a single channel, can become a key differentia- tor (there is a lot of dross out there) and should be a significant value for the customer.
Cable companies will continue to offer fat Internet pipes to the home, and IPTV content may be cached for faster, less latency-inhibited transmis- sion, and distributed through a cable- co store. The cable company advantage will be caching and network management, which might enrich its own offerings " presumably, it might also offer those same services to pro- prietors of other content stores. We believe that cable companies will also expand their role to conclude editing of the infinity of content: they will aggregate what they see as best, maintain the collection, and sell their mediated version to their customers. Their options are to suck from the fire- hose that is the Internet, or choose to see the highlights from the box seats.
The independent producer should be a big winner " the costs of distributing digital content are insignificant. The appetite for info- tainment has never been stronger. Marketing and promotion costs remain " the best feature/show/short in the world will never attract an audience if nobody knows about it. Those costs should fall, but creating buzz will remain a challenge. Independent producers in Canada will struggle to find the market power to harvest the fruit of potential con- sumption, given that Canada’s industry has failed to create a well-capitalized production eco-system like that in the US.
It may be that the marketing and promotion role may well be what is left for the current ”œbroadcasters.” It will help that evolution if the broadcaster is part of a larger multimedia family.
The key question isn’t what the endgame is. It is quite clear that the endgame in IPTV is a disintermediation between producers and consumers, where the latter may well make their deal with producers without the filter of a traditional broadcast entity along the way. Why would I need to buy my copy of ”œHouse” from Global TV or even from Fox? Why wouldn’t I buy it from Heel & Toe or Some Bad Hat Harry Productions, the companies that produced the series, or from an advertiser, in a sort of 1950s model, which might sponsor a production house to create a series for them to distribute?
No, the end of the IPTV evolution is clear " the real questions are how we get there from here and how fast will it happen. That we are talking of Apple TVs, Hulu and the glories of IPTV-based video on demand suggests that we think that the end of TV as we know it is imminent. When is imminent? Not today certainly, and not tomorrow. The leading edge is there now, but the mass adoption of Apple TVs and similar devices is still a while off.
So, how long is a while? This is where we depart from the time- lines suggested by the current CRTC fact-finding process. We believe there is an urgency that the CRTC does not feel. Internet users are turning to Internet-based delivery in increasingly significant numbers. A rip tide it isn’t, yet. But we see an inflection point in the near future " the next 24 months " where a considerable number of consumers will move to nontradition- al program content delivery. Given that over 77 percent of the total US Internet audience is already watching video on-line " presumably on the computer screens; as home media cen- tres become more common that num- ber will rise, and each user’s consumption will also rise. As the user moves, the lifeblood of the industry " advertising dollars " will shift too.
IPTV is great for getting content into the hands (devices) of individuals. Every consumer will have access to all the programming s/he can afford. Yet IPTV isn’t really an effective way to deliver broadcast messages. Event- or time-specific content, such as the Stanley Cup playoffs or national news- casts, is more effectively delivered through the existing broadcast model.
Rather than millions of individually tailored content streams, the idea that one broadcast stream can be accessed by all is an elegant model that has served us well. We see that there is a future for broadcast networks, even if the advertising-driven prime-time episodic drama that has been a main- stay of broadcasting in the past migrates to the VOD model that IPTV typifies. The future of general interest TV will probably be well-promoted live events and other mass rendez-vous. Yet Canada will not be able to sustain three hours per evening of such expensive and event-driven pro- gramming. The current quota of 50 percent for Canadian prime time programming will soon be outdated and unsustainable.
Moving from a 200 to 500-channel universe to an IPTV universe, which that may include some broadcast channels, means that an enor- mous amount of bandwidth can be freed up and repur- posed. Bandwidth in cable plant, like useful bandwidth in terrestrial radio, is finite. Moving to an IPTV model would impact domestic Internet bandwidth utiliza- tion significantly, but the additional capacity in the dis- tribution pipeline, coupled with more aggressive caching tech- niques, would mitigate the addition- al demand.
The traditional role of the broadcast- er is ending. As the focus shifts to VOD and IPTV, so too will advertising dollars. As advertising dollars shift, the present broadcasting model will need to be adjusted. The existing broadcast model cannot be sustained in the face of advertising-support erosion.
Of course the obligations that were part of the broadcast license would also need to change. As a ”œbroadcast” license becomes less valuable, many of the obligations imposed on the broad- caster should also atrophy. This bal- anced approach may well assist broadcasters to survive the transition and morph themselves into companies that can persist in the new model.
As viewership shifts from tradi- tional broadcasting to IPTV, the power of the television medium to deliver audiences to advertisers diminishes " certainly its temporal character will shift. Advertisers may still reach audi- ences, but the audience will not all be there on a Tuesday night at 9 o’clock. The audience might build over days, weeks and months. The BBC, for example, explains much of the attrac- tion of its on-line catalogue to ”œthe long tail,” that is, the enormous back catalogue of programming for which there is still a keen audience.
Product placement has been put forward as a means whereby national brands will try to position their product, but such embedded promotions are dif- ficult to constrain to geographies or to timeframes. The positioning of Coca Cola in the 1982 Ridley Scott film, Blade Runner, is still tickling retinas 26 years later. That might work for national ads and for international brands, but what of the local advertiser? How would Toronto’s Honest Ed or Bad Boy, enterprises that made a significant invest- ment in local TV and companies and became very successful merchandisers (partly at least) as a result have made it in the IPTV age?
Advertisers will no longer back a program based on just number of eye- ball ratings, or supposed target audi- ence. The money will flow to those that can deliver specific audiences. Audiences will be segmented by inter- est, by past purchases, by demograph- ic, psychographic, and geographic profile (down to the postal code or neighbourhood).
Advertisers will have other options as part of the migration to new technologies. In a ”œBack to the Future” way, one model might be a metaphor borrowed from both radio and the early days of television where whole programs were ”œbrought to you by” a single advertiser. The networks effectively wrested control of the pro- gramming from the advertisers by the early 1960s, but in the 1950s the advertisers ruled the television roost. We have yet to see the advertising world find THE model to attract the eyeballs and wallets of of the IPTV generation, although Hulu and prod- uct placement movements suggest that ways to reach these eyeballs are actively being sought.
Knowing where you are going is an aid to getting there, but it doesn’t help in surmounting the various barri- ers along the way.
In the path to an IPTV world, some thought needs to be given to the existing layers and economic models. Some thought too needs to be given to the key question of how to continue our quest to ensure that Canadians are able to maintain access to content that reflects our Canadian identity. The fact that ”œCSI” is a Canadian-produced program does not mean that method- ologies used in solving Las Vegas mur- ders reflect our country’s legal or cultural milieux.
Some commentators have sug- gested that perhaps an ISP-tax could be imposed " rather like the BDU tax that funds the Canadian Television Fund at present. We suspect that any tax on current distribution modes will have limited applicability. The role and importance of the broadcaster is going to diminish. The role of the BDU will continue to be strong, as those companies learn to exploit their IP abilities (and as they shift their resources from the tiering of yester- day’s programming to the caching and promotion of the new). But to finance our social commitment to the creation of Canadian content with an ”œInternet tax” seems an odd way to promote our cultural identity.
Surely, if it is important to Canadians to see more of their neigh- bours and their values represented in the universe of content that will be available on the Internet, there are bet- ter ways of accomplishing that goal than by taxing Internet connections. If it is a question of money, then make money available to encourage content creation. The public policy goal would best be encouraged through general revenues " we don’t finance the Canada Council through taxes on paint or art gallery admissions or sheaves of Staples printer paper!
To return to the public policy questions " that the CRTC recog- nizes that change is afoot in the broadcasting business is good. Certainly the broadcasting brood over which it has oversight is struggling at present, and our forecast is that those struggles will continue; indeed, they will be exacerbated by the continued erosion of the advertising base and the shift to Internet-based viewing. Unfortunately, the underlying malaise effecting the broadcast busi- ness cannot be ameliorated or miti- gated by tinkering with the regulatory tool that are within the CRTC’s province.
The broadcast industry is an arti- fact of public policy and regulation. It is not a free market phenomenon, but rather a creation developed to solve the challenges and opportunities of an earlier age, an age when spectral scarcity was a prime consid- eration (only so much room on a tel- evision dial that ran from channel 2 to channel 13).
Spectral scarcity is no longer of import. The role of the broadcaster does include transmission of pro- gramming over frequencies assigned by the Crown, but that is no longer the key element in the equation. Most Canadians rely on BDUs to deliver their television sig- nals today, and tomorrow? Internet-based program- ming dissemination is inevitable. Home media centres will bridge various dissemina- tion modalies that may well include over the air and BDU services, but it will also include cable-modems, fibre- drops, DSL and wireless data services as well.
The real job that needs to be done isn’t the CRTC’s to do. The Canadian television distribution model, and the Canadian television production model upon which it relies, is cracked, and is about to break com- pletely. It is not a question of issues like how many commercials will be permitted per hour, or what propor- tion of programming must be ”œCanadian” between the hours of 19h00 and 22h00, questions that the CRTC is focused upon. The questions that need to be addressed are broader and deeper than those that have been in the remit of the commission. The real task belongs to Heritage Canada. Heritage Canada needs to convene a review of the entire industry, its eco- nomics, its regulatory structure and the production eco-system. We need a new paradigm for a new century.