Vertical integration hearing should look at unregulated online competitors, Rogers says

OTTAWA—Vertical integration may help Canadian producers and distributors compete against unregulated online providers like Netflix Inc. and Apple Inc., Ken Engelhart, senior vice-president of regulatory affairs at Rogers Communications Inc., said Tuesday. “The competition between the regulated and the unregulated system is getting to be quite important,” he said, speaking before the House of Commons heritage committee. “You’ve got companies like Hulu, Apple and Netflix who are perfectly legally. They are paying for that content. This is a big problem for cable TV companies, and it’s one reason why we have to give our customers the greatest possible diversity of choice, or they’ll abandon the regulated system.” Apple TV launched its new version in Canada in September and Google TV recently launched in the United States. In 2009, the CRTC decided to extend its new media exemption order for an additional five years, leaving the digital media space exempt from regulation. One way to ensure diversity of choice, Engelhart said, is to allow for vertical integration, where large companies own multiple communications properties like broadcasting, telecom, and broadcasting distribution. Engelhart argued that when a vertically integrated company adds its own content to an online viewing platform, such as Rogers on Demand, it encourages other broadcast groups to offer their content on the Rogers' platform to keep up with the competition. “Having that vertical integration can actually increase the choices that consumers have,” he said. In October the CRTC announced a new public proceeding to look at the possible effects of vertical integration in the Canadian broadcasting industry and the commission's existing safeguards to prevent anti-competitive behaviour. The Commons heritage committee is conducting a study on vertical integration in the private television industry and the move to digital, mobile and next-generation broadcasting platforms, also known as “over-the-top” television. Engelhart told the committee vertical integration can also help protect Canadian content. Engelhart suggested that because vertically integrated players are also well-financed broadcasting companies subject to CRTC regulations, they contribute robust Canadian content to the system. “You’ve got Netflix, Hulu, Apple TV, these are all sophisticated television operators coming into Canada with no Canadian content requirements whatsoever,” he said. “One of the things vertical integration can do is to try to keep the regulated Canadian content in the system, with its Canadian content obligations robust.” But Engelhart cautioned that the CRTC shouldn’t unduly regulate Canadian content contributions to the advantage of foreign, unregulated companies. BCE Inc., which is in the process of purchasing broadcaster CTVglobemedia Inc., also told the committee Thursday that vertical integration helps the company compete against over-the-top players. "Our transaction will enable Bell and CTV to achieve a measure of scale and scope that will support further network investment and innovation as well as help ensure the production of more, and even better, Canadian content," Mirko Bibic, executive vice-president of regulatory affairs with Bell, said. Also speaking at the committee meeting, Michael Hennessy, Telus Corp.’s senior vice-president of regulatory and government affairs, said Canada is experiencing a clash between the traditional broadcasting system and the open Internet. He said the key to a healthy regulatory system is ensuring rights holders have the ability to protect and monetize their rights. “To try to regulate the Internet, or to try to block an attack on content in the way consumers are accessing things, I don’t think can be done,” he said. “But at the end of the day, the only way you can have a healthy system is if the people who own the rights are ensured that it’s protected throughout the system, or the system itself falls apart because the over-the-top people today don’t contribute to any part of the system.” Hennessy told the committee that exclusive content arrangements must be prohibited on all distribution platforms for both Canadian and foreign content. “The way to do this is to categorically state that exclusive carriage of foreign and Canadian broadcast content is prohibited over Internet and wireless delivery, just as it is clearly prohibited today on traditional platforms like cable, satellite or VOD ,” he said. “This prohibition on content exclusivity must apply to both foreign and Canadian content because it is the revenues from the most popular content, both foreign and domestic, that create resources to support the system overall.” In a brief interview following the meeting, Engelhart said Telus’ suggestion raises the question of whether CRTC regulations should extend to unregulated over-the-top players. “The CRTC’s going to have to wrestle their way through it at the hearing,” he said. “We don’t have all the answers yet, but will something need to be done? I believe it will.” Engelhart told the committee the question will complicate the CRTC’s hearing next year on vertical integration, which will look at exclusivity of content for online and mobile services. “What if FIFA, who you can’t regulate, sells an exclusive to JumpTV or to Hulu Canada,” he said. “The CRTC has never regulated these people, so you have to worry about a system that regulates the people who are already in the broadcasting system but leaves everyone else unregulated.” In July, Canadian Media Production Association (CMPA) president and CEO Norm Bolen told The Wire Report it would be difficult for the CRTC to regulate companies like Netflix that have already launched operations in Canada. kfournier@thewirereport.ca

Vertical integration hearing should look at unregulated online competitors, Rogers says

Broadcast | November 26, 2010

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