‘Collateral damage’ to hit broadcasters through vertical integration, Stursberg says

OTTAWA—Broadcasters will bear significant “collateral damage” in the move to vertically integrated communications companies that will inevitably fail, Richard Stursberg, Telus Corp.'s new senior advisor on media and entertainment strategy, said Thursday. “The track record so far is that they don't make sense and will get unwound. The danger is that in the process of them falling apart, there will be a huge amount of collateral damage,” Stursberg said during a panel on vertical integration at the Prime Time in Ottawa conference Thursday, organized annually by the Canadian Media Production Association (CMPA). Stursberg, who recently departed from the CBC as the head of English-language services, suggested that money will be invested in the best revenue-generating divisions of vertically integrated companies--which won’t be the broadcasting assets. “If you're one of these companies, your wireless revenues, your BDU revenues are going to be between five and seven times ... the size of your content revenues. Well, if push comes to shove, which one is going to get the butter? The answer is, it ain't going to be the content companies.” Stursberg, now an adviser to Telus, which does not own content assets, said vertical integration strikes him as non-nonsensical. “The first thing that strikes me is, why on earth would you do this?” he said. He said vertically integrated companies are bound to fail because of fundamental differences between the distribution and content businesses. Distribution is a capital-intensive business, while content is not, and distributors want to offer exclusive content while broadcasters seek the largest audiences possible, he said. “They've failed, and they've failed in the past, and they will fail in the future,” he said. “We'll see a lot of collateral damage, and the damage will fall on the content side.” But fellow panellist Pamela Dinsmore, vice-president of regulatory affairs at vertically integrated company Rogers Communications Inc., took a different position, arguing that vertical integration has proven successful and helps contribute to innovation. Dinsmore said vertical integration has allowed Rogers to innovate because it has the content and distribution platforms necessary to experiment with new services. She provided the example of video-on-demand, noting that broadcasters were hesitant to join the venture until Rogers' Citytv stations stepped in to offer content. “That's the first real advantage I would say. It solves the chicken and egg problem of incubating and launching new platforms, which today obviously are not only good for us, but also for everybody in this room because they allow content to be spread across multiple platforms, therefore monetizing that content in a much more robust way,” she said. Dinsmore said vertical integration helps Rogers compete against American over-the-top television services like Netflix, because it can offer content on multiple platforms, including online. “If our customers leave us, obviously it hurts our cable business, but it also hurts everybody in the value chain of the broadcasting system. It's in nobody's interest that Rogers customers defect to Netflix and cut the cord,” she said. Scott Cuthbertson, vice-president and director of TD Newcrest, also defended vertical integration. Cuthbertson said content producers should feel more secure partnering with large distribution companies that can draw interest from capital markets. “We need big, strong, tall Canadian companies to be able to defend against some of the threats we have,” he said. “I think what we've got to do is ... increase the resources that these new, big, strong companies have ... and we've got to encourage risk-taking such that, if somebody is willing to take a bet on a Canadian producer producing a show, they should be able to profit from it. They should be able to sell it for more money to somebody else. They should be able to make a profit from it, because that's the only way these shows are going to get made.” But Stursberg said he thinks it’s unlikely that vertically integrated companies will use their profits to gamble on content. Vertical integration has came to the fore last year after Shaw Communications Inc. acquired the Global broadcasting assets and BCE Inc. reached a deal to purchase CTVglobemedia Inc. The CRTC is holding a consultation on the effects of vertical integration in the broadcasting system. A public hearing will be held in Gatineau on June 20. Michael Hennessy, Telus' senior vice-president of government and regulatory affairs, who also sat on the panel, said vertical integration will have a negative impact on open access to content, competition, consumer choice, and contributions to the Canadian broadcasting system. Hennessy said vertically integrated companies tend to direct money towards their most profitable divisions, such as wireless and distribution, leaving content production behind. He said the Canadian broadcasting framework should ensure that producers are not restricted from selling content into the system and that independent broadcasters have access to distribution windows. kfournier@thewirereport.ca

‘Collateral damage’ to hit broadcasters through vertical integration, Stursberg says

Broadcast | February 18, 2011

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