The Evolution of TV and New Media in Canada. June 27, 2014

Transcription

1 The Evolution of TV and New Media in Canada June 27, 2014

2 THE EVOLUTION OF TV AND NEW MEDIA IN CANADA This Report is based on publicly available sources of information as well as on independent research and analyses conducted by Lemay- Yates Associates Inc. (LYA). The views expressed herein are solely those of Lemay- Yates Associates Inc. LYA and c- Ahead are registered trademarks of Lemay- Yates Associates Inc. LEMAY- YATES ASSOCIATES INC. LYA International Inc Place du Commerce, Suite 529, Verdun (Quebec) H3E 1T8 CANADA Tel: (1) E- mail: & The Evolution of TV and New Media in Canada LYA, 2014 Page i

3 Table of Contents 1. Summary of Key Findings Introduction and Scope of this Report Canadian Television: Then and Now Technology is Central to the Business of Television Broadcasting technologies Broadband access The role of storage technologies The Internet as the trigger for innovation and diversity in content Canadian Consumers and Media Firms are Fully Engaged in New Technologies Canadian consumers have taken to broadband access and online video Online content availability in Canada Streaming Devices Enhance Content Availability in Canada OTT Services and Applications from Canadian BDUs and Broadcasters OTT Video Provided by Newspapers Distribution Opportunities Within Canada International Distribution Opportunities for Canadian Content What did Canadians say on New Media as part of the CRTC s consultations The Evolution of the Regulatory Framework for New Media in Canada Public Notice CRTC New Media - Call for Comments leading to the 1999 New Media Exemption Order- In- Council P.C and subsequent CRTC report to the GIC As it relates to video signals transmitted over mobile broadband networks The 2009 Policy and Amendment to the Exemption Order From 2011 to the spring of The Development of Canadian Television Content The sources of financing for Canadian television programming Evolution of the audience share of various types of programming LYA, 2014 The Evolution of TV and New Media in Canada Page ii

4 List of Figures Figure 1 Availability of Broadband Service with Download Speed > 25 Mbps across Canada (2012/2011) Figure 2 Canadian Household Penetration of Online Video Services and Applications in Figure 3 Analysis of Comments Provided in the First Phase of CRTC s Let s Talk Consultation Figure 4 Let s Talk TV Phase I Comments that Mention the Internet Figure 5 Timeline of New Media Consultations by CRTC 1998 to Figure 6 Evolution of 2005 to 2010 Audience share from various types of Canadian programs Figure /2012 Evolution of the Share of Average Weekly Viewing Hours for Priority- Programming Categories across Canada for English Language Services, Figure 8 Evolution of the Share of Average Weekly Viewing Hours for Priority- Programming Categories from 2000 to 2012 across Canada for French Language List of Tables Table 1 Evolution of Private French and English Regulated Television Revenues from Table 2 OTT Services Offered as part of Bell TV Anywhere Table 3 OTT Services Offered by TELUS Optik TV Table 4 The Global Go App Table 5 Apps from Specialty Channels History, A&E and Treehouse Table 6 Sources of Funding for Canadian Television Production to CMPA LYA, 2014 The Evolution of TV and New Media in Canada Page iii

5 List of Text Boxes Text Box 1 Impact of Technology, Increased Competition and Deregulation on Fixed Telephony Services 1999 to Text Box 2 Excerpts from CRTC PN Describing Canadian Television Text Box 3 Example of a Companion App for the Drama Show Heartland Text Box 4 The Readership of LaPresse+ Compared to the Paper Newspaper Text Box 5 Radio- Canada s Tou.tv Text Box 6 Excentris and NFB Make Canadian Feature Films Available Online on Same Date as Theater Release Text Box 7 Examples of Canadian Content with Online Distribution Outside of Canada Text Box 8 Comments from Leonard Asper on the Fight Network Text Box 9 Comments from Jay Bennett of Smokebomb LYA, 2014 The Evolution of TV and New Media in Canada Page iv

6 1. Summary of Key Findings This Report discusses the evolution of TV and new media in Canada focusing on four key aspects: How technology and its evolution has always been central to the business of television, How Canadian consumers and firms participate with enthusiasm in new media technologies How the Canadian regulatory framework for new media has evolved in Canada since 1999, and finally How the financing framework for the development of Canadian television content has been operating. In addition, we provide a brief historical review of broadcasting in Canada. This LYA Report and the analyses herein were developed on behalf of Netflix Inc. and Google Inc. in the context of Broadcasting Notice of Consultation CRTC on Let s Talk TV. The analyses, research and discussion presented in this Report, taking into account the evolving consumption behaviour of Canadian consumers as well as their opinions, 1 lead us to conclude that a successful future for Canadian television content can only reside in better fulfillment of consumer needs and expectations and in fostering the increased distribution of compelling Canadian content to all types of distributors worldwide including foreign online distributors such as Netflix, Hulu and others. The Canadian model for television content production has created a closed circuit approach focused on Canadian owned private broadcasters and distribution undertakings. To varying extents, these companies both contribute as well as receive funds from the investments made in Canadian content, which also include direct and indirect government funding. It is a financing model developed well before the advent of the Internet, of high quality broadband services and of their combined impact on consumer behaviour. 1 As expressed in the CRCT Let s Talk TV consultation. The Evolution of TV and New Media in Canada LYA, 2014 Page 1

7 We believe that CRTC got it right in not regulating new media activities over the years and that this approach has fulfilled the objectives of the Canadian Broadcasting Act. Extending the current framework to new media would likely have negative impact on innovation in online content in Canada, potentially stifling the emerging activities of various organizations and initiatives, whether they are active in media now or not. The evolution of audience share results indicates that the current framework for the development of priority Canadian television programming content has experienced declining outcomes in recent years. This is not necessarily a reflection on the quality of the programming developed. Rather, it suggests that this decline may have arisen from deficiencies in the financing framework itself and of its ability to adapt to the evolution in viewing habits and preferences of consumers. The solution is unlikely to reside in increasing regulatory funding obligations for Canadian Broadcasting Distribution Undertakings (BDUs) and broadcasters or in imposing legacy regulations on new media. Indeed, force- fitting participation in a closed circuit funding mechanism designed for a completely different technology and consumer behaviour paradigm (and where, due to foreign ownership, some cannot be full participants) would be ill- advised. The information and analyses presented herein also lead us to conclude that: Significant technological innovations and enhanced performance in broadband, storage and the Internet yield an environment that is not simply an evolution along the continuum of conventional broadcasting technologies but in fact constitutes a major discontinuity. This discontinuity is reflected in the increasing on- demand consumption habits of a growing number of consumers on mobile and fixed technology platforms. We have not yet reached the end of enhancements to broadband technologies. Broadband access at download speeds of gigabits per second (Gbps) and more is on its way and will likely become the norm in Canada within the foreseeable future for fixed broadband access while download speeds in the hundreds of Mbps will characterize mobile networks. This will continue to fuel continued increases in media consumption on demand. Many new players, including individuals, can and do, now participate in the creation of video content. Thus, innovation and opportunities in video content are increasing and no longer driven solely by broadcasters and television or film producers. Although so- called over- the- top (OTT) audiovisual services have drawn regulatory attention, they are not alone in delivering the type of online video content once provided exclusively by broadcasters increasingly LYA, 2014 The Evolution of TV and New Media in Canada Page 2

8 newspapers, magazines and other information services include substantial video content in their apps and online services, some also currently competing directly for advertising revenues. Broadcasters, from conventional channels to specialties, as well as television producers can benefit from the significant opportunities and tools to enhance their linear TV content to increase its appeal to viewers and build stronger ties with their audiences. For example, apps for viewing on the go and companions apps are significant tools for conventional and specialty broadcasters to enhance the attractiveness of their services. Canadian consumers have adopted the Internet and mobile broadband with enthusiasm and are among world leaders in terms of usage of such services. The comments provided in response to the CRTC consultations and other research provided on the public record of this proceeding show that Canadian consumers like OTT services for their convenience to watch programming they want, when and where they want it. One of the major benefits of the Internet and of high quality broadband access is the window it provides on the entire world. Overwhelmingly, Canadians want more. more of international content as well as more content from the US. In research conducted by CRTC, Canadians have expressed that many are not happy with what they are paying for their television services and appear to favour OTT services to lower their costs, in addition to their other benefits. Digital technologies have lowered the barriers to entry to distribute content on a global basis and thus enhance worldwide access for small independent producers. In this context, content developers now focus on developing content for multiple platforms potentially leading to more revenue streams domestically and in international markets. Expanding international distribution of Canadian content online is an increasingly critical element in the mix to financial success for many content providers and producers. LYA, 2014 The Evolution of TV and New Media in Canada Page 3

9 2. Introduction and Scope of this Report This independent LYA Report and the analyses herein were developed on behalf of Netflix Inc. and Google Inc. in the context of Broadcasting Notice of Consultation CRTC on Let s Talk TV. As per CRTC, this specific consultation, Phase 3 of the Let s Talk TV process, is a formal review of the television system that draws on the issues and priorities that Canadians identified in the first two phases of the Let s Talk TV process started earlier in At the same time, CRTC also submitted a Report to the Governor In Council entitled Maximizing the ability of Canadian consumers to subscribe to discretionary services on a service- by- service basis. In this Report, CRTC provides its response to Order- in- Council to increase consumer choice in television programming. CRTC is proposing to mandate the offering of a skinny basic programming service comprised of programming services that have been mandatory carriage status and that all other television programming services be offered on a a la carte or pick and pay basis. This LYA Report provides a discussion of the evolution of Canadian TV and new media in the context of the technology revolution that has changed the paradigm for the business of television and video services over the past 15 years. This Report focuses on the evolution of technologies that have been reshaping the business of television, the usage of these technologies by Canadian consumers as well as the benefits they derive from them. This Report also includes a review of the evolution of the regulatory framework as it pertains to New Media since Finally, the current financing framework for the development of Canadian television content is also discussed. This Report addresses the evolution of the business of television and of the associated regulatory framework and technologies in the 15 years since the CRTC made its first determination regarding New Media. 2 2 Public Notice , in May 1999, and the December 1999 Exemption Order for New Media Broadcasting. LYA, 2014 The Evolution of TV and New Media in Canada Page 4

10 The Report is organized as follows: Section 3 provides an overview of the status of television at the onset of the new millennium compared to the current environment in Section 4 discusses the digital technologies that have spurred the online and mobile television and video consumption that we see today. Section 5 discusses how Canadian consumers and media firms are engaged in new technologies focused on online and mobile television and video. This also includes a discussion of comments submitted by Canadians during the Phase 1 of the Let s Talk TV process and a review of OTT services available in Canada. Section 6 highlights the evolution of the regulatory framework for New Media in Canada since Section 7 discusses the current financing framework for the development of Canadian television content. LYA, 2014 The Evolution of TV and New Media in Canada Page 5

11 3. Canadian Television: Then and Now In June 1999, via Public Notice , Building on Success - A Policy Framework for Canadian Television, 3 CRTC revised its policy framework following a consultation initiated by a Call for Comments launched in May In the Preface to its 1999 Notice, CRTC discussed the successes, from a programming, viewership and financial perspectives, of the Canadian television industry. The financial success of conventional television was highlighted in the context of increasing competition from new conventional, pay and specialty services. CRTC also cited increased competition as the underlying rationale to eliminate expenditures requirements for broadcasting licensees with respect to Canadian television. 4 However, CRTC put in place rules to increase the broadcast of Canadian programming during prime time (the exhibition rules ). At the time, 48 Canadian television services were available in English and 21 in French. Canadians also had access to the four commercial US networks, plus PBS and 41 other television services. Viewership of English language Canadian programs had increased from 27% to 33% from 1992 to 1997 according to BBM, 5 while during the same timeframe, additional foreign channels were made available to Canadian consumers and foreign programming became available on Canadian specialty channels. CRTC also noted improvements in the quality, availability and viewing of English drama programs. The market share of Canadian programming in French television was reported at 76.5%, based on all programming. The CRTC also defined five categories as Priority Programming Categories, namely 1) Canadian drama; 2) Canadian music, dance and variety programs; 3) Canadian long form documentaries; 4) Canadian regionally produced programs, other than news and sports, and; 5) Canadian entertainment magazine programs. 3 Available at 4 CRTC Broadcasting Public Notice , at Par. 78. The Commission is concerned that the existing expenditure requirements are complex and may not provide licensees with the flexibility they require to adapt their programming strategies to a highly competitive marketplace. In addition, concerns regarding the equitable application of expenditure requirements have begun to outweigh the benefits. 5 CRTC noted that viewership had remained constant at 32% according to Nielsen Media. LYA, 2014 The Evolution of TV and New Media in Canada Page 6

12 Since then, there have been many significant changes affecting technology, content and consumer behaviour and thus affecting the business of television. These changes have materially altered the paradigm in which television now operates. We highlight a few key milestones and events below. The declining cost of storage and transport technologies has enabled the offer of Video- On- Demand (VOD) services. The CRTC differentiates non- linear VOD services from conventional, linear, broadcasting in these words VOD services allow viewers to select programs to view at the time of their own choosing. In contrast, traditional broadcasting services such as conventional, pay and specialty television services are often referred to as "linear services" in that they present programs at specific times as part of a program schedule. VOD services are "non- linear" since it is the consumer who selects the program and the viewing time. 6 VOD services were launched in the early part of the new millennium, initially primarily offering feature films and later expanding to include various television programming. In 2001, CRTC licensed many additional Category B digital specialty channels and has continued to do so over the years. Contrary to the conventional over- the- air (OTA) channels, pay and specialty channels also generate revenue directly from subscribers fees negotiated with the various BDUs, for both terrestrial distribution systems and Direct- to- Home satellite distribution systems. The launch of digital specialties has resulted in an explosion of cable television channels licensed, all of which are vying for audiences, subscriber revenues and advertising dollars. As per CRTC, the number of pay, pay- per- view, VOD and specialty channels reporting financial information in 2013 was In parallel developments, Canadian telcos and cablecos continued the deployment of ever faster broadband access technologies bringing fibre access services always closer to the end client. At year- end 2012, 8 broadband access services with download speeds in excess of 50 Mbps were available to 76% of Canadian households while 32% could subscribe to broadband access services with download speeds of 100 Mbps or faster. 9 6 Broadcasting Regulatory Policy CRTC , 29 March 2010, Regulatory framework for video- on- demand undertakings, at par Pay, Pay- Per- View, Video- On- Demand and Specialty Services, Statistical and Financial Summaries, , Published April 30, The year 2012 corresponds to the latest data currently available from CRTC. 9 CRTC, 2013 Communications Monitoring Report, Table LYA, 2014 The Evolution of TV and New Media in Canada Page 7

13 Mobile carriers, often being part of the same entity as wireline carriers, launched a new generation of smartphones and mobile broadband technologies in 2008 starting with the iphone3 and the deployment of High Speed Packet Access (HSPA) wireless access technologies, providing peak downstream speeds of up to 14, 21 or even 42 Mbps. The suitability of mobile or portable devices for watching video and television was further enhanced by the launch of tablets in 2010, and the increased deployment of WiFi networks, even now being planned for deployment in Canada s national parks. 10 These WiFi networks provide widespread access to broadband services in many places where mobile broadband services may not be available, or where the download speeds may be lagging. Since then, Long Term Evolution (LTE) mobile broadband access technologies providing average speeds exceeding 20 Mbps and peak downstream speeds of up to 75 to 150 Mbps, quite capable of supporting very good quality video and television streaming services, have been deployed to 76% of the Canadian population. 11 The end result is a dramatic increase in the consumption of media and television on the go. Analyses released by Ericsson in June 2014 revealed that heavy video users in the US consumed close to 12GB of data on WiFi networks per month and 4 GB on mobile networks, also per month. 12 Video is expected to account for more than 50% of mobile traffic worldwide in These significant changes have impacted revenue generation among broadcasters, both conventional as well as pay and specialties. Table 1 (below) highlights the evolution of regulated revenues generated by private broadcasters, French and English, since 1999, in total as well as split between 1) conventional and 2) Pay, Specialty and VOD. This excludes revenues generated from online and mobile streaming or downloading, services of television content As reported at camping- parks- canada- wants- to- install- wi- fi- hotspots- in- the- wilderness/. 11 As of March 31, 2014, Rogers reached 76% of the Canadian population with its LTE network. Information available at reporting/quarterly- reports. The reach of Bell was reported at 80% of population at year- end Bell information available at 12 Ericsson Mobility Report, June 2014, p. 26. Report available at mobility- report. 13 Ericsson Mobility Report, November 2013, available at mobility- report- november pdf. 14 For example, Bell reported more than 1.2M subscribers to its mobile TV services at year- end 201. AT $5 per month per subscriber, this revenue stream could generate up to $72M Can per year. Information available at LYA, 2014 The Evolution of TV and New Media in Canada Page 8

14 As shown in Table 1, total revenues generated by regulated broadcasting activities increased by 77% from 1999 to 2012, more than twice as fast as the Consumer Price Index (CPI) increase during that time. 15 We also note that the increase in total revenues for these services was $800M, or 18%, from 2009 to 2012, over 3 years, while it was slightly less than $200M, or 5%, over the preceding 5 years, from 2004 to The Table also highlights the distinct evolution paths of conventional TV broadcasting category compared to the Specialties, Pay and VOD category ( Specialties ). While the revenues generated by conventional TV have not kept pace with the CPI over that period, those associated with Specialties have grown much faster and approximately tripled, both in French and in English. This revenue increase has also occurred in parallel with significant increase in the number of programming service offerings in the Specialties category. The CRTC released the 2013 financial summaries of the Specialties category on April 30, These indicate that even amid increased usage of online and mobile video by Canadian consumers, this category of regulated broadcasting services increased its total revenues by 3% from 2012 to The overall pre- tax profit from these services increased to $1.04B in 2013, up 19% from $872M in 2012, while the pre- tax profit margin increased to 25.5%, up from 22% in We note that from 1999 to 2012, based the Canadian Price Index (CPI) developed by Statistic Canada; a service costing $1 in 1999 would have cost $1.31 in Source information is available at tableaux/sum- som/l01/cst01/econ46a- eng.htm LYA, 2014 The Evolution of TV and New Media in Canada Page 9

15 Table 1 Evolution of Private French and English Regulated Television Revenues from Conventional TV, which derives its revenues from advertising, has been under pressure from audience fragmentation as a result of the increasing number of Pay TV, PPV, and VOD program offerings for much of the last 15 years as well as by online and mobile viewership in recent years. However, we note that many if not most broadcasters also now offer a variety of online and mobile video players and applications to tap into the new ways of consumption. 16 Advertising revenues for private conventional TV stood at $2B in 2008 and was reported at $1.932B in Specialties have benefited from both increased advertising revenues as well as from increased subscription revenues. Advertising revenues for Specialties have increased from 1B to $1.26B from 2008 to 2012 of a 25% increase while their subscription revenues increased by 40% during the same period (from close to $1.9B to more than $2.6B in 2012). We highlight that conventional TV is by far not the only service whose dominance been challenged by new technology over the last 15 years. Other communications services have seen their market share erode due to increased competition and technological innovation. A very good example is fixed telephony, both local and long distance, as illustrated in the Text Box below. 16 More details on these offerings are provided in Section 5 of this Report. LYA, 2014 The Evolution of TV and New Media in Canada Page 10

16 Text Box 1 Impact of Technology, Increased Competition and Deregulation on Fixed Telephony Services 1999 to 2012 In 1999, fixed telephony generated revenues of $17.5B in Canada (split with $8.5B for long distance and $9.0B for local). In 2012, the same services generated $11.3 B or a decrease of 35%. While local telephony almost maintained its revenues at the level of $9B, generating $8.6B in 2012, excluding the impact of the CPI, long distance revenues tumbled from $8.5B to only $2.7B in 2012, or a decline of 70%, excluding the impact of inflation. Deregulation, increased competition, technology improvements in alternate technologies and the migration to mobile, reflecting its enhanced value to consumers, have caused this drastic shift in consumer behavior and hence the decline in revenues derived from these services. While we are not suggesting that conventional TV services will evolve similar to local and long distance telephony, this example highlights the need for service providers of any type to always adapt, evolve and ensure that they are fully engaged in the new technologies and services that consumer want. In terms of developments regarding the regulatory framework, new media services were first reviewed by CRTC in Since then, there have been five (5) further reviews and consultations regarding the framework for new media. Each time, CRTC has concluded that regulation of new media was not warranted. 17 In its Public Notice , CRTC made a number of statements describing its perspective on the Canadian television system at it stands now. We have reproduced excerpts of these statements in Text Box 2. CRTC highlighted the rapidly increasing popularity of watching TV online, on fixed broadband access lines and on mobile broadband connections with programming available from wide variety of sources. CRTC highlighted how watching TV has become increasingly personalized and customizable as opposed to the linear TV mass market appointments of prior years that were the only available type of programming services for many years. CRTC also noted that prices for television distribution services have increased faster than inflation, and that prices paid for TV has been a key component of its consultation with Canadian consumers. 17 Additional details on the evolution of the regulatory framework for new media and television are provided in Section 6 of this Report. LYA, 2014 The Evolution of TV and New Media in Canada Page 11

17 Text Box 2 Excerpts from CRTC PN Describing Canadian Television Programming is delivered over a well- developed system, which ensures that programming is available to Canadians no matter where they are in the country. Viewing to the television system, and to Canadian programming specifically, remains stable. (par. 13) Although consumers in both linguistic markets continue to watch programs on their traditional TV sets, a significant number of them have adopted new technologies. (par. 18) Over the past decade, each generation of technological innovation has made watching programming more individual and customizable. More programming is being made available on- demand to Canadians. Licensed BDUs and programmers are launching services that allow viewers to access on- demand content on exempt alternative platforms. These technological innovations have also allowed new types of content aggregators or curators[9] and new means of content distribution to emerge. Canadians have access to an increasing number of exempt Internet video service providers, both Canadian and non- Canadian, which may be affiliated or unaffiliated with licensed programming services and BDUs. These providers offer a significant amount of content, including Canadian programming. (Par. 26) While Canadians increasingly watch video programming online, they also continue to watch television in the traditional way. Currently, online viewing and traditional television viewing complement rather than replace each other. However, Canadians are spending more for their television services. Cable subscription fees have increased faster than the Consumer Price Index in recent years. In 2012, the average amount Canadians spent on cable and satellite TV services increased by 5%, when inflation rose by just 1.5%. Canadian households spend an average of $52 a month on television services before factoring in telephone, Internet and wireless services. Added up together, these services cost on average $185 a month or over $2,200 annually. This represents the sixth largest expense for most families. (par. 27) The next section of this Report focuses on describing in greater details how technology has always been integral to the business of television and how it has evolved and strived to continually enhance consumer benefits derived from watching video and television. LYA, 2014 The Evolution of TV and New Media in Canada Page 12

18 4. Technology is Central to the Business of Television Innovation and technology have always been at the centre of television broadcasting and its distribution since its inception. More than 20 years ago, the 1993 Broadcasting Act recognized the importance of technology in the business of television, specifying that both the broadcasting system as well as the manner with which it is regulated should be readily adaptable to scientific and technological change, while enriching and strengthening the fabric of Canada and encouraging the development of Canadian expression. 18 The introduction of digital technologies across broadcast and telecommunications networks coupled with the Internet have resulted in an explosion of innovative ways to consume any type of content from music to radio to television to books as well as photography, magazines and newspapers. Not a single segment of the communications media industry at large has been left untouched by the digital revolution and the Internet. The evolution of broadband access networks coupled with the Internet have become intertwined with television as video transmitted over the Internet using broadband networks has been reshaping both fixed and mobile telecommunications networks in addition to the broadcasting industry. This section provides an overview of technological developments in broadcasting, in broadband networks, as well as in storage technologies coupled with the Internet that have been key contributors creating the current technology paradigm. Key Findings from our Review of Technologies One of the key findings from this discussion is that the confluence of significant innovations and enhanced performance in broadband, storage and Internet technologies yields an environment that is not simply an evolution along the continuum of conventional broadcasting technologies but in fact constitutes a major discontinuity. This discontinuity is also reflected in the increasing on- demand consumption habits of a growing number of consumers, both on fixed and mobile broadband networks. 18 Broadcasting Act, S.C., 1991, c. 11, s. 3(d), available at lois.justice.gc.ca/eng/acts/b- 9.01/page- 2.html#h- 4 LYA, 2014 The Evolution of TV and New Media in Canada Page 13

19 It is this discontinuity that challenges regulators to, as the Canadian Broadcasting Act states, readily adapt the television regulatory framework to scientific and technological change. We note that adapting the framework to a new paradigm is very different than extending or applying an existing framework to new media forms, of which there are many now and likely many more to come. Adapting the framework could imply significant changes to the Canadian television framework including the financing of Canadian television content to meet the needs expressed by Canadians. 19 In today s technological and competitive environment, a reliance on commercial market forces appears to be the best way to support the future success of Canadian television content and of Canadian broadcasting. Other key findings from this Section are: We have not yet reached the end of enhancements to broadband technologies. Broadband access at download speeds of Gbps and more is on its way and will likely become the norm in Canada over the foreseeable future for fixed while download speed in the hundreds of Mbps will characterize mobile networks. Innovation and opportunities in video content are increasing and no longer only driven solely by broadcasters and television or film producers. Anyone can, and does, now participate in the creation of video content. Innovation in both broadband access as well as in content is beneficial to consumers as well as to all types organizations looking to engage with their communities. Broadcasters, from conventional channels to Specialties, as well as television producers, can benefit from the significant tools to enhance their TV content to enhance its attractiveness and build stronger ties with their audiences. However, the fact that a large proportion of television content is available over broadband does not imply that conventional TV is obsolete now or in the near future for all or even for a segment of consumers. 19 We discuss the financing framework for the development of television content in Section 7 of this Report. LYA, 2014 The Evolution of TV and New Media in Canada Page 14

20 4.1. Broadcasting technologies Broadcasting started out as a service characterized by many consumers watching the same programming live simultaneously, at a specified time. This is often referred to as linear or appointment TV. This type of service still describes many broadcast programming including live sports, live entertainment and many news programming. Canadian broadcast television services and the first cable distribution services launched in the same timeframe in Canada in the early 1950 s. In the early days of television, the main distribution model of linear TV was free, OTA broadcast to consumers. 20 Television services launched in 1952 with two local stations, broadcasting in black and white only. 21 Three years later, television services were available to half of Canada s population and continued to grow to cover most of Canada s population. 22 The Canadian Broadcasting Corporation introduced colour TV in Within the same timeframe as the launch of OTA TV in Canada, an alternate method of distribution of TV signals via cable networks was pioneered. 24 Cable networks provided a number of advantages, notably to be able to provide a better signal quality in many areas as well as extend the reach of OTA broadcasting as the TV signals could be transported to areas without TV stations. The cable model is based on a monthly fee paid for by consumers to get access to the TV signals. 20 OTA services were offered for many years using analog technology in a broadcast model. Signal frequencies used were in the range of Very High Frequencies (VHF) from approximately 50 to 215 MHz, as well as Ultra High Frequencies (UHF), from approximately 470 MHz to frequencies in the 800 MHz range. 21 Over a number of years, OTA stations organized themselves into TV networks. Canada boasts many television networks both in English and in French with local stations across the country. In recent years, the Canadian industry has become increasingly characterized by the vertical integration of broadcasters with distribution undertakings. Thus, CTV is now owned by Bell, Global is owned by Shaw, Rogers owns City and TVA is owned by Quebecor (which also owns Videotron). In light of these developments, CRTC saw fit to implement guidelines to limit industry concentration and ensure a minimum level of diversity of voices in the Canadian broadcasting industry. CRTC has also established rules to prevent undue preference between distributors and content providers. 22 Source information available at history.ca/index2.html 23 Television sets have also been the subject of significant technology enhancements over the years including High- Definition (HD) TVs launched in 1998 followed by many enhancements such as Smart TV (that directly connect to the Internet) as well as TVs providing a three dimensional experience. Enhancements in form factor have also a key driven the evolution of TV from plat panel TVs to now curved TVs being introduced in Indeed, a TV set in 2014 bears little resemblance to that of the 1960 s. 24 The first cable TV system began operation in Montreal in 1952 and community antenna systems began operation in other cities in Canada in the same timeframe. LYA, 2014 The Evolution of TV and New Media in Canada Page 15

21 Cable TV was a huge success story in Canada as it was in the US. In the early 1990 s, before the launch of satellite TV and of telco- backed broadcast distribution wireline networks, the coverage of cable TV networks reached more than 90% of households. 25 As cable coverage increased, so did its capacity to deliver an increasing number of analog TV channels, and later digital TV channels. 26 After suffering from technology related delays and financial difficulties, Direct- To- Home (DTH) satellite TV, based on digital technology, launched in Canada in the second half of the 1990 s and eventually settled with two separate providers, namely Bell Satellite TV (referred to as Bell ExpressVu for many years) and Shaw Direct (previously referred to as Star Choice). In conjunction with the licensing of many new digital Specialties by CRTC and the introduction of digital cable by Canada s cablecos, satellite TV services triggered the era of the 500 TV- channel universe, always providing services to a mass market public (in contrast to being customizable to the needs of an individual consumer as is increasingly the case with today s technologies). In 2011, a portion of the spectrum used by OTA television stations (referred to as the 700 MHz spectrum band) was vacated by broadcasters after the implementation of digital broadcasting technologies. This liberated frequencies in the 700 MHz UHF band to be re- used for other applications, namely mobile broadband 27 and public safety Broadband access Telcos and cablecos have been deploying fibre optic technologies into their local distribution networks, always reaching closer to the end user. This is necessary to provide download speeds that can reach more than 25, 100, 300 Mbps as well as above 1 Gbps. This infrastructure supports all types of Internet application including online television. 25 As per Statistic Canada Catalogue No on the 1991 Census, there were 10,018,265 households in Canada in 1991 (Table 1). As per Statistic Canada Catalogue on Cable Television, Cable TV networks served 9,241,009 households in 1991, or 92% of all Canadian households. 26 The capacity of the cable TV plant has usually been expressed in number of MHz and each TV channel required 6 MHz capacity. Cable systems in the year 2000 typically had a capacity of 450 MHz. Later in that decade, most systems were upgraded to 750 MHz. 27 The frequency blocks assigned to mobile broadband services were awarded to mobile carriers for more than $5B Can in February Additional spectrum in the 600 MHz spectrum band, also currently used for broadcasting, is expected to be repurposed for mobile broadband in the coming years. LYA, 2014 The Evolution of TV and New Media in Canada Page 16

22 The following Figure highlights the availability of broadband services with download speeds of 25 Mbps or more to Canadian households in Canada in 2011 and in 2012, per different types of population centres. As can be seen, this percentage was 80% for large and medium urban centres in 2012 and of the order of 60% for smaller cities while rural areas still lag behind. There was an increase in the availability of these services across all types of population centers in Figure 1 Availability of Broadband Service with Download Speed > 25 Mbps across Canada (2012/2011) % of households Large populason centres Medium populason centres Small populason centres Rural areas In its digital strategy document released in 2014, the Canadian government indicated that one of the five pillars of its strategy was to ensure that over 98% of Canadians will have access to high- speed Internet at 5 Mbps by 2017, the year of the 150 th anniversary of the Confederation. 29 We note that this is consistent with the objective set out by CRTC in 2011 stating that broadband access with a download speed of 5 28 Source data is CRTC Communications Monitoring Report 2013 and 2012, Table See Digital Canada 150, available at EN.pdf/$FILE/DC150- EN.pdf LYA, 2014 The Evolution of TV and New Media in Canada Page 17

23 Mbps and an upload speed of 1 Mbps should be available to all Canadians by the end of In the US, cablecos have recently named a new distribution network technology Gigasphere, 31 a brand name referring to DOCSIS technology that is planned to provide speeds of up to 10 Gbps downstream with up to 2 Gbps upstream. The following post on CableLabs web site highlights the key benefits to be provided by the Gigasphere technology. Customers will be able to enjoy gigabit speed access on the downstream and upstream, allowing them to download 4K video and ultra- high definition movies faster than ever. Reduced network delay will also take the online gaming experience to a new height, increasing responsiveness and allowing higher resolution graphics. Mobile broadband is also keeping pace. Canadians already benefit from LTE technology available to more 72% of the population at year- end And more speed is on the way. Carrier Aggregation or the ability to virtually merge spectrum blocks in different spectrum bands will enable even greater speeds for mobile broadband users, up to hundreds of Mbps The role of storage technologies Lightning fast access speeds combined with the storage technologies available in 2014 are enablers for the personalization and customization of television, as well as gaming, 30 CRTC Telecom Regulatory Policy , May 2011, available at 31 The brand name was unveiled during the NCTA conference. See details available at and- events/media- room/content/cable- industry- announces- gigasphere - new- consumer- facing- name- represent- docsis Canadian cablecos are members of Cablecos and participants in the development of DOCSIS technology. As of February 5, 2014 Canadian members of Cablelabs include Access Communications, Cogeco, Rogers, Shaw, Seaside, Videotron and Westman. Information available at cablelabs/member- companies/ 33 See Table in CRTC s 2013 CMR Report, p HSPA coverage is at 99% of the population, also according to CRTC. 34 In February 2014, Broadcom, Nokia and Finnish operator Elisa announced tests on a live commercial network, reaching peak download speeds of 300 Mbps 34. On May 1 st, 2014, Huawei and Qualcomm announced that they also had achieved speeds of 300 Mbps with LTE- A technology aggregating two 20 MHz channels in the 1800 and 2.6 GHz band, the same spectrum bands as used in Finland. LYA, 2014 The Evolution of TV and New Media in Canada Page 18

24 shopping, listening to music, reading newspapers working, etc. on- the- go, whenever and wherever one wants to. As a matter of fact, between 1956, when television broadcasting and the first cable TV systems were launched in Canada and the 2010 decade, storage technologies have improved so much as to render any comparison unrealistic. 35 In 2014, a simple ipod in anyone s pocket has 12,800 times more storage capacity, for less than 1% of the cost, compared to an IBM 350 disk storage system housed in cabinets that was launched in the same timeframe as television in the mid 1950 s. The clear benefit of these technologies is to continue to facilitate video downloading and streaming for consumers at an accelerating pace to enhance consumer experience for a variety of applications that include television, among others. These technologies also impact the television content itself as well as how it is being watched The Internet as the trigger for innovation and diversity in content Many are familiar with the story of the Internet from its inception as the US Department of Defence funded ARPANET. 36 Expanded access to ARPANET, which evolved to become today s Internet, started in the early 1980s initially to the scientific community and then to the public at large. Coupled with the capabilities of broadband access to consumers, the new medium, the Internet, has revolutionized viewing behaviours of video and television content. The ability to view programming on multiple technology platforms and devices in addition to the conventional TV, namely a smartphone, a tablet, any type of personal computer, 37 a Smart TV, as well as other connected devices including maybe one day a smart watch or other wearable devices, liberates viewers from the linear TV model and empowers them. 33 Within the same timeframe as television broadcasting and the first cable systems were rolled out, in 1956, IBM launched the 350 disk storage unit. The 350 could store 5MB of data using 50*24 inch disks. The 350's cabinet was 60 inches long by 68 inches high and 29 inches wide. It weighed over a ton and required forklifts to be moved. It also cost $3200 USD per month to lease this storage system. In 2014, a 64 GB ipod Touch, thus providing 12,800 times more data storage than the IBM 350, is being sold for $399 Can and is less than 5 inches high by 2.5 inches wide and weighs 3.1 ounces or less than 100 grams. 36 The Advanced Research Projects Agency Network was one of the world's first operational packet switching networks, the first network to implement the Internet Protocol (IP), and the progenitor of what was to become the global Internet. See more information at 37 Often referred to as the four screens. LYA, 2014 The Evolution of TV and New Media in Canada Page 19

25 The multi- platform technology also enables consumers to start watching a video or reading a book on one device and resume viewing or reading on a different device at a later time. In addition to accessing a wide diversity of content from around the world at anyone s fingertips, online television also means that television is no longer only a passive pursuit by consumers but also fully engages viewers in a variety of ways. This includes, as examples: Interactivity during TV shows for voting or live during a sports broadcast. Interactivity during broadcasts of drama programming using apps specific to individual TV shows. The building of communities around shows using webisodes outside of traditional broadcast episodes and enhancing the traditional television content. Building strong social media campaigns to promote television shows. The explosion in user- generated video content on YouTube or other sites by consumers. The adoption of user- generated content and exploitation of its myriad of possibilities by organizations and companies looking to spread their message as anyone can set up its own TV channel on YouTube. And of course, all this content, from anywhere in the world, is on demand, whenever and wherever the consumer may be, in a fixed location, in a car or on a train. This technological paradigm shift from appointment TV programmed, controlled and transmitted by broadcasters over a limited number of channels, to the broadband Internet where consumers choose the content that they wish to access on demand, in individual transactions, has profound implications. It is at the heart of the discontinuity from broadcast media. New media are driven by individualization and consumer- demand as opposed to conventional television, which is mass market driven. This inevitably has marketplace, policy and regulatory implications. LYA, 2014 The Evolution of TV and New Media in Canada Page 20

26 We list below just a few examples of this interactivity and enhanced consumer engagement made possible by online video and TV, highlighting applications from both Canadian broadcasters and other organizations. Webisodes from the TV show Rookie Blue are available online in Canada. 38 A significant social media campaign contributed to the renewal of the sci- fi TV show, Bitten. 39 A 2013 WestJet Christmas gifts YouTube promotional campaign garnered 30 million views, almost as many views as the population of Canada, one week after it was posted last December. 40 WestJet repeated the experience with a new video on YouTube posted as a Father s Day initiative in June The video was posted on Tuesday June 3 rd and had more than 100K views by Thursday June 5 th. 41 The companion app of the CBC drama Heartland that engages viewers during its live broadcasts, as described in Text Box Available to watch at 39 The series also gained a loyal social media following with 903 million estimated impressions from 364,430 Twitter mentions, by 288,071 users using the hashtag #Bitten. Celebrities also took to Twitter to rally for the return of BITTEN with the #RenewBitten campaign, which included supporters Lance Bass, Stacey Dash, Nikki Reed, and Dean Cain. This campaign alone generated 18.1 million estimated impressions, from 29,446 Twitter mentions, by 3,212 users. Available at 40 See article available at airline- surprises- passengers- christmas- miracle- gifts 41 See National Post article available at - airlines- ltd- fathers- day- video/ LYA, 2014 The Evolution of TV and New Media in Canada Page 21

27 Text Box 3 Example of a Companion App for the Drama Show Heartland 42 Heartlandians rejoice we've released a new ipad/iphone/ipod companion app that works hand in hand with the actual episodes as you're watching them! The companion app is available for free on Apple's Canadian App Store, click here to get it! Some (but not all!) of the nifty things the app will do: Show you information about songs that are playing Show you where the cast is on a big map of Heartland Ranch Show you details on the current wardrobe of the cast Offer you further behind- the- scenes information related to what's on screen at any given moment 42 Get the free Heartland Companion ios app, Posted on Oct 2 nd, 2013, CBC.ca LYA, 2014 The Evolution of TV and New Media in Canada Page 22

28 5. Canadian Consumers and Media Firms are Fully Engaged in New Technologies Canadian consumers have adopted new ways of consuming video and television in very significant numbers. This is corroborated by data published by CRTC as well as by the comments provided in the context of its Let s Talk TV and Choicebook consumer consultations, in addition to results of research from many other sources. This section first discusses a few statistics highlighting the enthusiasm with which Canadian consumers have taken to online video. Secondly, it highlights the broad online and mobile offerings of various firms participating in Canada s media industry, from broadcasters, to BDUs, to newspapers, in English as well as in French. An overview of enhanced distribution opportunities within Canada is also included. Thirdly, the enhanced distribution alternatives offered by online video, both from domestic and international perspectives, is discussed. Lastly, we have included analysis from the results of the CRTC consumer consultations pertaining to new media and Internet TV. Our Key Findings from this Section are: Canadian consumers have adopted broadband access and mobile broadband with enthusiasm and are among world leaders in terms of usage of online video services. The comments provided in response to the CRTC consultations and other research provided on the public record of this proceeding show that Canadian consumers like over the top services for their convenience to watch programming they want, when they want it. Canadian broadcasting firms and BDUs are full participants in the development of OTT content, applications and distribution channels. The expansion of OTT offerings and broadband apps from Canadian broadcasters and BDUs enables consumers to access significant content on- the- go, sometimes but not always as long as he/she subscribes to these same services offered from their home BDU service. One of the major benefits of the Internet and of high quality broadband access is the window it provides on the entire world. Overwhelmingly, Canadians want more. more of international content as well as more US content. LYA, 2014 The Evolution of TV and New Media in Canada Page 23

29 Based on CRTC research, many Canadians are not happy with what they pay for their television services and expressed their desire to use OTT services to lower their costs. Digital technologies have lowered the barriers to entry to distribute content on a global basis and thus enhanced worldwide access for small independent producers. Content developers increasingly focus on developing content for multiple platforms leading to more revenue streams domestically and in international markets. Expanding international distribution of Canadian content online is increasingly a critical element in the mix to financial success for many content providers and producers Canadian consumers have taken to broadband access and online video CRTC reported that at the end of 2012, 94% of Canadian households had access to a 5 Mbps broadband service when considering all technologies 43 and that 78% of Canadian households subscriber to a fixed wireline broadband service, of which 80% 44 subscribe to a service at 5 Mbps or more of downstream speed. Approximately 32% of households also had access to broadband services providing broadband speeds in excess of 100 Mbps, again at year- end 2012, a percentage which has surely increased significantly since then as Fiber to the Node (FTTN) and Fiber to the Premises (FTTP) or to the Home (FTTH) deployments by both telcos and cablecos have been continuing to extend the footprint of very high speed broadband services relentlessly. Again a few statistics are telling. As per CRTC, the monthly wireline broadband usage of household increased by more than 50% from 2011 to 2012 reaching close to 34 GB, considering both download and upload usage. Among the countries researched by ComScore, and as of year- end 2013, 45 Canada stands out with one of the highest average monthly online visits per month at 88 versus a worldwide average of 58. More than 4 Canadians out of 5 (84%) reportedly watch online video, compared to 63% of US consumers. Canadians are also increasingly sharing their broadband usage 43 CMR 2013, Figure Which corresponds to 62% of all Canadian households at year- end See CRTC 2013 CMR p Including the US, the UK, Germany, France, Japan, Russia and worldwide. LYA, 2014 The Evolution of TV and New Media in Canada Page 24

30 between their fixed access and their mobile devices. A third of Canadian mobile subscribers reportedly watched TV live or on- demand on their mobile devices in the fourth quarter of We note that many statistics on OTT penetration including those published by CRTC focus on Netflix as the main choice of Canadians to watch video content online. However, while it is accurate that Netflix has succeeded in establishing a presence in a significant number of Canadian households, it is also true that there are many different OTT alternatives offered by other firms, including Canadian broadcasters and BDUs. In May 2011, LYA conducted primary market research, which quantified the percentage of Canadian households that had used a specific OTT video service during the last month. As shown in Figure 2, Netflix figured prominently at more than 13% penetration among households on a national basis at that time, approximately one year after its launch in Canada. Also in 2011, YouTube had been used by a third of respondents during the last month. Apple TV, also competing directly with the linear as well as on- demand movies and TV services of broadcasters and BDUs, had been used by 8% of all Canadian consumers during the last 30 days in the second half of Apple TV had launched a few years earlier, in the 2007 timeframe. However, other services also recorded significant penetration levels, especially considering that few of these services were offered on a national basis. Notably, in 2011, Rogers On Demand On Line was reported as having being used by 13% of respondents, and would thus have had a much higher penetration among Rogers cable subscribers. We note that Tou.TV came in at 10% household penetration in 2011, even though it is entirely focused on French programming. The total at more than 140% also indicated that the average consumer had used more than one of these OTT services or applications during the preceding month. LYA, 2014 The Evolution of TV and New Media in Canada Page 25

31 Figure 2 Canadian Household Penetration of Online Video Services and Applications in 2011 Data published by CRTC indicates the sustained growth in the usage of OTT services since then. Per the CRTC s 2013 Communications Monitoring Report, the proportion of Canadian consumers that had watched Internet video on a tablet in the past month had doubled among Anglophones as well as among Francophones from 2011 to Online content availability in Canada Since 2011, the alternatives available to Canadian consumers for online video and television consumption have increased significantly, both from domestic as well as from foreign firms. While this Report does not provide an exhaustive list of every application and service available, we highlight in the following pages initiatives that have been launched in Canada as well as examples of OTT applications from Canadian broadcasters, BDUs and newspapers. This is in addition to examples of devices available for video streaming applications and a brief overview of the benefits provided by online technologies to increase the distribution and availability of content, Canadian and foreign, within Canada. 46 Anglophones increased from 6% to 12% while Francophones increased from 3% to 7%, CRTC CMR Report, Table LYA, 2014 The Evolution of TV and New Media in Canada Page 26

32 Streaming Devices Enhance Content Availability in Canada Chromecast, 47 a low cost device that the consumer plugs in to the HDMI port of their TV, is available in Canada. Consumers can access a variety of online content via Chromecast without the need for another device such as a gaming console, but it requires content to be streamed from a smartphone, a tablet or a computer. Roku, 48 another type of streaming device that plugs into a television, is also widely available and has launched second and third generation devices since In addition to providing access to movies and TV shows (for example, to Netflix), Roku also provides access to sports. As per its web site Don t even think about missing a game! You ll enjoy access to the biggest selection of live streaming, out- of- market and HD sports packages out there, including hockey, baseball, soccer, and wrestling. 49 Of course, a host of other devices such as Apple TV, tablets, the ipod Touch as well as smartphones enable users to download or stream video just about anywhere and at anytime. The majority of Canadian mobile users now own a smartphone, and thus are enabled to make use of these applications OTT Services and Applications from Canadian BDUs and Broadcasters Videotron offers an unlimited web streaming service, illico Club Unlimited, as part of its video on demand offerings, not only to its cable TV subscribers but also to anyone willing to pay the $9.99 monthly fee in Quebec and in Ontario. 50 illico Club Unlimited, launched in February 2013 with a catalogue of 2000 titles, gives unlimited access to popular movies and TV series, series kids shows and documentaries. According to Videotron, illico Club Unlimited had 68K subscribers at year- end 2013, up from 50K subscribers in August 2013, and there were 11 millions viewings. At its launch, Videotron indicated that In addition to French titles, illico Club Unlimited will offer movies, TV shows and series from the world s largest studios as well as local producers and distributors, including Sony, MGM, CBS, Films Seville, TVA Films and Alliance Google Chromecast finally comes to Canada - Technology & Science - CBC News See the Roku Canadian web site for content available on Roku and where to buy the devices 49 See at on 50 There have been articles and comments made about such services from Rogers and Bell but to date, none has launched online or mobile services other than those offered to their subscribers. 51 Videotron February 2013 Press Release available at en.jsp?q=club+illico+unlimited&videotron- search- site=corporative&gm- search- language=en&x=- 383&y=- 6 LYA, 2014 The Evolution of TV and New Media in Canada Page 27

33 The Tables below provide an overview of OTT offerings from a few other Canadian BDUs and broadcasters including Specialties. 52 Table 2 OTT Services Offered as part of Bell TV Anywhere Table 3 OTT Services Offered by TELUS Optik TV 52 We highlight that this is far from an exhaustive list as most Specialties and conventional broadcasters offer such services. LYA, 2014 The Evolution of TV and New Media in Canada Page 28

34 Table 4 The Global Go App Table 5 Apps from Specialty Channels History, A&E and Treehouse OTT Video Provided by Newspapers Broadcasting entities are not the only ones providing OTT video applications to Canadian consumers. For example, newspapers have also entered the fray to different levels. And OTT video content from newspapers from around the world, not only from those in Canada, is readily available to Canadian consumers wherever they may reside, as long a they have a broadband access service, fixed or mobile. We highlight LaPresse+ as a Canadian success story. The LaPresse+ app was launched slightly more than 1 year ago, as a tablet only media application on the Apple IOS platform compatible with the ipad starting with the version La Presse+ is an OTT application offered in addition to the conventional web site and to the mobile app 53 An Android version of LaPresse+ was launched on April 23, LYA, 2014 The Evolution of TV and New Media in Canada Page 29

35 LaPresse Mobile, offered on smartphones. LaPresse+ relies heavily on video as part of its content and is very much akin to watching the news on a conventional television channel. La Presse+ has been offered free of charge to consumers since its launch. After one year, LaPresse+ had been installed on 435K ipads. Its revenues are generated from advertising, which we note makes extensive use of the new capabilities offered by the ipad platform. According to LaPresse, LaPresse+ has obtained a significant level of success among consumers as well as advertisers. As shown in Text Box 4, in slightly more than one year, and when only available on Apple ipad tablets, the readership of LaPresse+ had reached 37% of the readership of the paper version. Furthermore, readers of LaPresse+ stay engaged for a longer period of time, ranging from 17% to 25% longer on weekdays and on Saturdays, compared to the readers of the paper version. We also note that video content is pervasive in LaPresse+. As an example, out of 163 pages, the May 3 rd edition of LaPresse+ had video content on 30 pages, excluding any video integrated in advertising. There was advertising on 42 pages. La Presse+ reportedly cost $40M to develop over a period of 2-3 years. 54 La Presse is not alone in transforming the intrinsic nature of its newspaper. The Ottawa Citizen launched a totally revamped tablet application in May 2014 where video content is also front and center. These newspaper apps provide multi- platform competition for television news and enhance the diversity of voices available to Canadians truly wherever they are as anyone anywhere can subscribe to the delivery of this content. 54 See information available at presse- plus- analysis/. LYA, 2014 The Evolution of TV and New Media in Canada Page 30

36 Text Box 4 The Readership of LaPresse+ Compared to the Paper Newspaper Excerpts from the web site of LaPresse LaPresse+ En annonçant dans La Presse+, vous pouvez joindre près de lecteurs- tablettes 1 hebdomadairement. Ce lectorat est appelé à croître rapidement avec le lancement de la version Android de La Presse+ du 23 avril Avec un temps moyen de consultation de 44 minutes la semaine, de 50 minutes le dimanche et de 73 minutes le samedi, La Presse+ vous offre un engagement exceptionnel pour faire rayonner vos campagnes. Rejoignant plus de lecteurs possédant un profil de qualité particulièrement recherché par nos annonceurs, La Presse est sans contredit un incontournable dans le marché de Montréal. La Presse (version) Les lecteurs de La presse sont engagés avec un temps de lecture moyen de 35 minutes en semaine et 62 minutes le samedi. Ces lecteurs possèdent un adn économique et social recherché par les annonceurs Distribution Opportunities Within Canada Any video or television content available on demand online benefits from this distribution in Canada. This applies to online video sites from Canadian as well as foreign firms. We highlight below examples of online availability of Canadian content in Canada, either on Canadian owned or foreign platforms. A 2012 report prepared for CRTC indicated that: We have estimated that Netflix Canada's library has a total of 12,020 hours of programming, of which 1,084 hours can be identified as being Canadian hours. In aggregate, 9.0% of total library hours can be identified as Canadian programming. 55 As examples, in December 2013, Netflix announced the acquisition of rights from additional content from the CBC including Murdoch Mysteries, which joins shows already available such as Republic of Doyle, Heartland, Mr. D and Dragons Den Market Impact of Indicators of Over the Top Television in Canada: 2012, at p. 13, Available on the CRTC s web site. 56 Netflix Expands CBC Pact, Adds Murdoch Mysteries for Canadian Members, Variety, December 4, LYA, 2014 The Evolution of TV and New Media in Canada Page 31

37 Apple s ITunes Canadian store also provides enhanced distribution opportunities for Canadian television and film as well as video content. For example, CBC s The Tudors was available on itunes from the early days of the availability of this store in Canada. In May 2014, the Canadian itunes store highlighted movies from a variety of Canadian film festivals, enhancing the availability of this content to Canadian consumers across the country. Canadian film festivals highlighted include Hot Docs, TIFF, the Nova Scotia Atlantic Film Festival, and Reel Canada in addition to movies from the Cannes and Sundance film festivals. There are also numerous popular Canadian TV shows and films available on itunes, in English and in French. We note that Google Play Movies and TV introduced television shows on June 5, 2014, allowing Canadian users to stream their favourite television shows and movies when they want on whatever screen they want. 57 While many sources of research indicate that English Canadians have taken to online media in a higher proportion than those mainly looking for content in French, it is worth noting the significant success of Radio- Canada s Tou.tv in enhancing the distribution of French content online and on mobile, as shown in Text Box 5. We also highlight the recent launch of first release movies made available by a joint initiative of the Excentris cinema and the National Film Board of Canada (as described in Text Box 6). 57 See Google Canada blog post available at watchers- rejoice- your- favourite.html LYA, 2014 The Evolution of TV and New Media in Canada Page 32

38 Text Box 5 Radio- Canada s Tou.tv 58 Tou.tv was launched as a streaming platform focused on RC and other content in January There have been 137 Million connections to Tou.tv since then and on average there are 3.7M connections each month. Tou.tv has been advertising sponsored since its launch. Radio- Canada recently launched a revamped Tou.Tv site with extras and eventually a fee that subscribers will be able to pay. Paying subscribers will not receive advertising. The new Tou.tv was launched including agreements with Rogers and TELUS which both offer Tou.tv free to their post pay mobile subscriber base. Text Box 6 Excentris and NFB Make Canadian Feature Films Available Online on Same Date as Theater Release 59 Starting in February 2014, repertory cinema Excentris and NFB have joined forces to offer new French movie releases online from Canada at the same time as they are released in theaters as well as access to movies available previously released from Canada and elsewhere. This initiative covers independent productions, experimental productions as well as documentaries. As examples, the movie 3 histoires d Indiens of cinematographer Robert Morin was available online for $9.99 at the same time as its theater release in April % of the downloads for this service were from the Montreal area since the launch. Consumers from the regions of Abitibi, Gaspésie, Gatineau as well as Ottawa have also made use of this service. 58 Des changements majeurs pour ICI Tou.tv, on Radio- Canada s web site, March 6, 2014, available at canada.ca/triplex/tag/tou- tv/ 59 See article available at canada.ca/nouvelles/arts_et_spectacles/2014/04/30/006- cinema- excentris- web.shtml LYA, 2014 The Evolution of TV and New Media in Canada Page 33

39 5.3. International Distribution Opportunities for Canadian Content International online video distributors acquire content from a variety of sources in an effort to continually enhance their offerings. As such, these service providers can act as an additional source of revenue for Canadian content providers. The Text Box below lists various examples of US online distribution of Canadian content. Text Box 7 Examples of Canadian Content with Online Distribution Outside of Canada 60 Netflix Acquired rights to Oscar Winning documentary film The Lady In Number 6 for the US and Canada (February 2014) Season 2 of Canadian co- production Vikings was the number 5 best seller on ITunes in the USA the week of March 11, 2014 while during the same week, the Top 5 episodes on itunes in Canada were episodes of The Walking Dead (at no. 1 and No. 3), Suits (at no. 2), Grey s Anatomy at No. 4 and How I met your mother at No. 5. Vikings is also offered free on Hulu in the USA The Canadian movie Starbuck was being offered online on Hulu.com Canadian producer and distributor Shaftesbury sold four projects from its digital division Smokebomb Entertainment to U.S.- based over- the- top streaming service Hulu. Webisodes of Rookie Blue are being presented on the web site of ABC, which also broadcasts the TV series. We also highlight the international success of a series originally developed for Tou.tv. Les aventures de Thierry Ricourt, a 7- episode series, was acquired by the French public television channel, France The French television channel also reportedly plans to offer the series on its Studio.4.0 app, its own equivalent of radio- Canada s Tou.tv. The creators of the series plan to expand to Belgium if it is successful in France. Entertainment One is one example of a Canadian firm that has found success internationally. It has become a global firm with offices around the world, expanding from its start as a Canadian record and tape retailer. Entertainment One is very active on multi- platforms and provides an end- to- end service from the development of 60 As reported by cartt.ca, December 12, Article from La Presse, La série Thierry Ricourt vendue en France, Éric Clément, June 5, LYA, 2014 The Evolution of TV and New Media in Canada Page 34

40 television programming to licensing to distribution worldwide as well as financing including accessing financing for conventional as well as new media. International online distribution is not only a nice add- on for Canadian content: in some cases, it may be critical to its success and growth. We note comments made by industry executives Leonard Asper of The Fight Network and Jay Bennet of Smokebomb regarding the importance of international online distribution. Text Box 8 Comments from Leonard Asper on the Fight Network 62 Linear cable is still very important, but it's not the only option anymore," he says. Asper sees the likes of YouTube, video on demand and other non- traditional content carriers as a lifesaver for a channel that might be swamped in the mainstream Canadian market. The opportunities are endless," he explains. What they are allowing Asper to do is reach the fight- crazed young males from across the globe, rather than having the fight channel's audience restricted just to Canada. Three- quarters of the Fight Network's YouTube views come from outside Canada, he says amazing considering that the channel is available in only six other countries (Turkey, Belgium, Portugal, Angola, Mozambique and on a very limited basis in the U.S. after the purchase of a fledgling fight channel there earlier this year). That allows Asper to overcome the challenges raised by what he says is a restrictive Canadian broadcasting system that favours the big players, most of whom own cable and satellite companies. Getting or maintaining a spot on the dial is a major challenge, he says not to mention trying to maintain or grow wholesale fees. 62 SPORTS TELEVISION: Leonard Asper says there s still room for independents, but with a global focus, cartt.ca, December 10, LYA, 2014 The Evolution of TV and New Media in Canada Page 35

41 Text Box 9 Comments from Jay Bennett of Smokebomb It s always been Smokebomb's goal to create and produce content that can appear on any screen in any market, and our partnership with Hulu exemplifies this, said Jay Bennett, Smokebomb s vice president, digital and creative director. Not only is this an opportunity to expand the reach of our digital slate, it also allows us to bring the companion apps for these series to wider audiences, including working with Google Glass to extend storytelling to the next generation of technology. Canadian content is also being recognized in international festivals. As listed below, according to the Independent Webseries Creators of Canada (IWCC), Canadian web series have won awards at numerous Web festivals and other types of film festivals. These include: 63 Digital Emmy at Banff Rockie Award LAWebFest Awards Grand Prize and others MarseillesWebFest Grand Prize and others BMO SHORT Shorts grand prize 5.4. What did Canadians say on New Media as part of the CRTC s consultations LYA has analysed the comments provided to CRTC as part of the Let s Talk TV consultation. The prevalence of certain keywords in the comments submitted online and by was assessed. 64 The analysis is in line with the Report published by CRTC on the results of this consultation but does provide some quantification related to the frequency with which specific keywords and comments were mentioned. Figure 3 highlights the results. For example, more than a third of participants discussed the cost of their television service and this was the most often mentioned subject. The Internet and Netflix were 63 Information available at ciwc.org/about/canadian- web- series 64 LYA used data archived by the CRTC on its web site. LYA, 2014 The Evolution of TV and New Media in Canada Page 36

42 the second and third keywords most mentioned by participants, at 18% and 15% respectively. Figure 3 Analysis of Comments Provided in the First Phase of CRTC s Let s Talk Consultation 65 Prevalence of keywords in comments provided to CRTC in Let's Talk TV % of parscipants 38% 15% 18% 8% 4% 2% 5% 3% 1% 2% Nelix IPTV Internet Packaging Bundling À la carte or Pick&Pay HD or High Definison Pay or Cost of Service Google YouTube Figure 4 provides more insight into the views of consumers that mentioned the Internet in their comments. 66 Disconnecting one s BDU service is one of the most frequently occurring themes (though the comments themselves vary widely in scope). Other popular comments include consumers looking to watch TV and Netflix on the Internet and that CRTC will never regulate the Internet. 65 Approximately 600 web and English comments as found on the CRTC web site. 66 The sample size for these comments is of the order of 100. This research should not be considered to be statistically valid as the sample of participants is not random or representative of the entire population as consumers had to know about the consultation and then decide to submit a comment. LYA, 2014 The Evolution of TV and New Media in Canada Page 37

43 Figure 4 Let s Talk TV Phase I Comments that Mention the Internet 67 20% 18% 16% 14% 12% % out of 105 comments 10% 8% 6% 4% 2% 0% We also note the results of the CRTC s Choicebook consultation, which was answered completely or in part by more than 6000 Canadians. 68 Below are highlights from the results that focused more specifically on new media: 67% of participants indicated that online services should not be required to contribute to the development of Canadian content if it increases the price to consumers. Less than 30% of respondents were willing to pay $0.50 per month extra for Canadian content. 70% of participants answered that they were not willing to pay $5 per month extra to stream unlimited TV content and thus not incur data caps on their broadband service, and 67 What was said about the Internet out of 105 mentions of the Internet from > 600 web and English comments as found on the CRTC web site. 68 Analysis of CRTC Choice book: Public, Published by CRTC on May 1, LYA, 2014 The Evolution of TV and New Media in Canada Page 38

44 Overwhelmingly, these participants were looking for more foreign content, both from US and outside of the US content, at approximately 70% for both types of content. 69 One of the key findings from these consultations is that Canadians state that they want more choice, more flexibility, access to more content from the US and elsewhere, and that extending the current broadcasting regulatory framework or adding new regulations or fees related to new media or online television is not welcome. This data suggests that relaxing the rules may be the best way to fully engage market forces to meet the needs of Canadian consumers, given that - - at least according a large proportion of consumer comments submitted these needs do not appear to be fulfilled at the moment. 69 The scale and indications on the Figure in the CRTC Report do not provide precise percentages. LYA, 2014 The Evolution of TV and New Media in Canada Page 39

45 6. The Evolution of the Regulatory Framework for New Media in Canada In a recent speech to the Senate Committee on Transport and Communications, Mr. Scott Hutton, Executive Director, Broadcasting at CRTC, clearly stated the approach of CRTC focused on letting market forces drive change and indicating that broadcasting, as we have known it in the past, will never be again. 70 The CRTC has been monitoring trends like Internet television, trying to determine the implications of these innovations for Canada s telecommunications and media industries. After an initial review in 1999, we exempted digital programming services from our regulation. A second review in 2009 confirmed that this was the right approach. The CRTC does not intervene into the commercial arena unless absolutely necessary to achieve the objectives of the Broadcasting Act. We allow market forces to drive change and only intervene when the market is unable to achieve the policy objectives set out in the Act. While some might like to turn back the clock, the reality is that broadcasting as we once knew it is no longer and will never again be the same. Just as Canadians viewing patterns are changing, the system needs to evolve. That s not necessarily a bad thing. Rather than seeing companies like Netflix and YouTube as a threat, they should be looked at from the standpoint of the new opportunities they present. The key findings from the review of the evolution of the New Media regulatory framework since 1999 are: The regulatory framework governing media services in Canada has consistently, and for the last 20 years, strived to favor an evolution toward a more market driven approach. New media has been the subject of repeated reviews of its potential impact on the Canadian broadcasting system for more than 15 years. Investigations of new media have occurred no less than 5 times, sometimes less than 2 years apart. Up to now, the CRTC has always decided not to regulate new media service offerings. As these services differ significantly in their technology 70 Available at LYA, 2014 The Evolution of TV and New Media in Canada Page 40

46 and modes of consumption from the regulated broadcast service offerings, we conclude that up to now CRTC has acted in accord with the 1993 broadcasting Act which states that the Canadian broadcasting system should be regulated and supervised in a flexible manner that is readily adaptable to scientific and technological change. CRTC concluded that extending the regulatory framework of conventional TV to new media endeavors would not contribute to the implementation of the broadcasting policy. On the contrary, CRTC noted in 2011 New technologies, service providers and consumer behavior underpin a transformation that is characterized by greater choice, a global marketplace and new opportunities for Canadian creators. 71 Consistent with CRTC s 2011 comments, we observe the rapidly expanding and wide- ranging use of OTT video. Even newspapers are being transformed into video apps, while a wide variety of other OTT services in Canada, including library- based services, gain popularity among consumers. These services, both foreign and domestic, compete with conventional television, as well as with user- generated content. Innovation brought forward by new technologies in all types of media services and applications is thriving in Canada and elsewhere. Extending a regulatory framework developed specifically for linear TV many years ago would, in our view, contravene the objectives of the Canadian Broadcasting Act, as well as thwart the objectives of fostering innovation and maximizing consumer benefits. The following Figure highlights the key regulatory milestones with respect to New Media. We then provide a review of the consultations undertaken focused on New Media. 71 CRTC Convergence Policy, Results of the fact- finding exercise on the over- the- top programming services, October 2011, available at LYA, 2014 The Evolution of TV and New Media in Canada Page 41

47 Figure 5 Timeline of New Media Consultations by CRTC 1998 to 2014 CRTC launches first review of New Media (1998) New Media Exemption Order adopted (1999) Report to the GIC on Internet Retransmission (2003) CRTC OTT Fact Finding Consultation and Report (2011) Canadian Heritage statement on consumer choice (2013) CRTC launches Let 's Talk TV (2013) A revised broadcasting policy and amendments to the New Media Exemption Order (2009) CRTC launches consultation on mobile TV (2005) LYA, 2014 The Evolution of TV and New Media in Canada Page 42

48 6.1. Public Notice CRTC New Media - Call for Comments leading to the 1999 New Media Exemption The CRTC launched its first review of New Media on July 31, 1998, under both the Telecommunications and the Broadcasting Acts. This consultation included a public hearing in late The intent was to: examine the rapidly expanding, and increasingly available, range of communications services collectively known or referred to as "new media". Key among the questions asked was if new media should be considered as broadcasting or telecommunications and how new media is likely to affect broadcasting or telecommunications activities being regulated by the CRTC at that time. The conclusions of this consultation were published in Public Notice in May 1999, 10 months later. The CRTC concluded that most new media services consisted of alphanumeric text and thus did not fall under the scope of the Broadcasting Act. For those new media services that did fall, in whole or in part, within the scope of the Broadcasting Act, CRTC concluded that regulation was not necessary because new media was not seen as having any (adverse) impact on broadcasters. It then initiated a consultation on a proposed exemption order for New Media Broadcasting Undertakings that provide broadcasting services over the Internet. The Exemption Order was later adopted on December 17, The CRTC also conducted a consultation and review on its television policy in the same timeframe via Public Notice In this Notice, CRTC discussed the successes, from a programming, viewership and financial perspectives, of the Canadian television industry. The financial success of conventional television was highlighted in the context of increasing competition from new conventional, pay and specialty services. The CRTC also cited increased competition as the underlying rationale to eliminate expenditures requirements for broadcasting licensees with respect to Canadian television. 72 However, the CRTC also put in place rules to increase the broadcast of Canadian programming during prime time (the exhibition rules ). 72 CRTC Broadcasting Public Notice , at Par. 78. The Commission is concerned that the existing expenditure requirements are complex and may not provide licensees with the flexibility they require to adapt their programming strategies to a highly competitive marketplace. In addition, concerns regarding the equitable application of expenditure requirements have begun to outweigh the benefits. LYA, 2014 The Evolution of TV and New Media in Canada Page 43

49 6.2. Order- In- Council P.C and subsequent CRTC report to the GIC The next review came 2.5 years later as a result of the June 2002 Order- In- Council P.C calling for comments on Internet retransmission. 74 CRTC then translated this request into 16 different questions to be addressed as part of its public consultation. One of the questions posed focused on the benefits of potential licensing and regulation of Internet retransmission of OTA programming in order to meet the benefits of the Broadcasting Act. We note that some of the questions were very similar to those addressed in 1998/1999 consultation leading to the Original New Media Exemption Order. In its January 2003 report to GIC, CRTC concluded that: 75 The Commission considers that the record of this proceeding demonstrates that Internet retransmission, subject to appropriate controls, has the potential to bring certain benefits to the Canadian broadcasting system by providing a new distribution platform for Canadian programming services. The Commission agrees with parties who submitted that Internet retransmission has the potential to extend the availability of Canadian programming to new venues such as offices and public libraries and to portable devices such as computers and handheld PDAs. To that extent, the Commission considers that Internet 73 The key issues addressed by the Order In Council were: Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Canadian Heritage, pursuant to subsection 15(1) of the Broadcasting Act, hereby requests the Canadian Radio- television and Telecommunications Commission to seek comments from the public and to report at the earliest time practicable, and in any event not later than January 17, 2003, on (a) the broadcasting regulatory framework for persons who retransmit, by the Internet, the signals of over- the- air television or radio programming undertakings, (b) the appropriateness of amending the Exemption Order for New Media Broadcasting Undertakings published in Appendix A to Public Notice CRTC , December 17, 1999, regarding persons who retransmit by the Internet, the signals of over- the- air television or radio programming undertakings, and (c) any other measures the Commission considers appropriate in this regard In order to meet the objectives of the broadcasting policy set out in the Broadcasting Act. 74 This resulted in a consultation via Broadcasting Public Notice in July 2002 and a report to the Governor- In- Council (GIC) six months later (Broadcasting Public Notice CRTC ) in January We note that a key concern expressed during this consultation was that country based licensing rights could not be enforced leading to potential loss of revenues. This concern was very shortly afterwards (December 2002) proven to be unfounded via amendments to the Copyright Act. LYA, 2014 The Evolution of TV and New Media in Canada Page 44

50 retransmission could increase audiences for Canadian services, thereby providing new sources of revenue for Canadian rights holders. (par 65) The Commission also agrees with parties who considered that Internet retransmission would foster technological innovation, consistent with section 3(d)(iv) of the Broadcasting Act, which states that the Canadian broadcasting system should be "readily adaptable to scientific and technological change"(par 66) As it relates to video signals transmitted over mobile broadband networks The CRTC launched a consultation regarding a regulatory framework for mobile broadcasting in August 2005 via Broadcasting Public Notice CRTC This was initiated following a request by the Canadian Association of Broadcasters (CAB). The CAB requested that CRTC determine the appropriate form of regulation pursuant to the Broadcasting Act for mobile TV services, following announcements by key mobile carriers of their intention to shortly launch such services. After having obtained detailed information, CRTC concluded 8 months later 76 that these proposed new services fell under the New Media Exemption Order since they were delivered and accessed over the Internet. 77 At the same time, similar to what it had done for new media in 1999, CRTC also proposed to exempt from regulation all undertakings that provide broadcasting services delivered and accessed via a mobile device, even if they are not delivered over the Internet. This Order was finalized 10 months later by Broadcasting Public Notice CRTC The 2009 Policy and Amendment to the Exemption Order In May 2008, fifteen months later, CRTC issued Broadcasting Public Notice to discuss the scope of a future review of Canadian broadcasting in New Media. In this Notice, CRTC identified the circumstances that would give rise to the need for a review, as listed below: 76 In Broadcasting Public Notice CRTC published in April We note that the Canadian Wireless Telecommunications Association (CWTA) had commissioned a study by LYA to explain how these new mobile TV services were to be implemented at that time. The LYA Report described how mobile TV services were offered via server farms in Reston, Va., and then transmitted to their end destination over the public Internet as IP packets. LYA, 2014 The Evolution of TV and New Media in Canada Page 45

51 the new media environment was having an impact on conventional radio and television audiences; the Internet was having an undue economic impact on the advertising revenues of traditional broadcasters; the availability of high- quality video programming on the Internet was increasing; new media content was becoming substitutable for the content of licensed over- the- air broadcasting or distribution undertakings or the new media environment was offering content that could not be provided by traditional broadcasting undertakings; and/or Canadian Internet users were demonstrating a substantial interest in accessing programming on their computers. Thus, in October 2008, after previously having discussed its scope, CRTC launched a new consultation on Canadian Broadcasting in New Media including a public hearing. 78 The six key themes for the consultation were: Defining broadcasting in new media The significance of broadcasting in new media and its impact on the Canadian broadcasting system Are incentives or regulatory measures necessary or desirable for the creation and promotion of Canadian broadcasting content in new media? Are there issues concerning access to broadcasting content in new media? Other broadcasting or public policy objectives The appropriateness of the new media exemption orders These themes were similar to those addressed in the previous consultations in 1999, 2002/2008 and in 2005/2007, focused on mobile applications in the latter. This consultation culminated with the publication of Broadcasting Regulatory Policy CRTC in June 2009 coupled with a new consultation on proposed amendments to the Exemption Order for new media broadcasting undertakings, a process which was completed in October In its 2009 Policy statement, CRTC indicated that it would maintain new media broadcasting undertaking s exempt status: 22. The Commission considers that broadcasting in new media creates opportunities for the broadcasting system to better serve Canadians and commends parties for their willingness to embrace the new media environment. 78 Broadcasting Notice of Public Hearing CRTC with the hearing scheduled for February LYA, 2014 The Evolution of TV and New Media in Canada Page 46

52 Based on the record of the Proceeding, the Commission does not consider that broadcasting in new media currently poses a threat to traditional broadcasting licensees' ability to meet their obligations. In fact, new media is currently being used in a complementary manner by many broadcasters for activities such as providing audiences with the ability to catch up on missed programs, promoting broadcast offerings and building brand loyalty. As such, the Commission is satisfied that broadcasters have the tools to adapt to the challenges posed by technological change and the motivation to incorporate new platforms and formats into their business models. (emphasis added) CRTC noted its practice to review exemption orders every five years. CRTC also stated its conclusion that the creation of the CMF announced in March 2009 was a fundamental step in recognizing that television is evolving past the traditional TV screen and concluded that no new fund was required for new media nor was it required to implement specific measures to promote Canadian new media content at this early stage. CRTC also proposed amendments to the New Media Exemption Order to reflect the following three elements: CRTC considered that it was appropriate to impose reporting requirements on new media broadcasting undertakings including broadcasting content usage and offerings, revenues and expenditures, etc., as to be determined by CRTC CRTC proposed to expand its definition of new media broadcasting offerings to include services delivered over the Internet or not, or using point to point technology or delivered via mobile, due to the variety of new media offerings. CRTC added an undue preference provision applicable to new media broadcasting undertakings From 2011 to the spring of 2014 On April 1, 2011, 15 months after the last amendment to the New Media Exemption Order, an informal group calling themselves the Over- The- Top (OTT) Working Group, forwarded a letter to CRTC requesting that the CRTC examine the growing emergence of non- Canadian broadcast players in the new digital realm 79 to determine if and if so, 79 April 1, 2011, Letter to CRTC Chair by Alain Gourd. LYA, 2014 The Evolution of TV and New Media in Canada Page 47

53 how, foreign companies should support Canadian cultural programming. This Working Group indicated that they were launching relevant research to assess the current and potential economic and cultural impact of foreign over- the- top services in Canada. The request was only focused on foreign OTT services and did not address the impact of Canadian OTT services. CRTC subsequently launched a Fact Finding exercise on May 25, 2011 on OTT programming in the Canadian broadcasting system. CRTC indicated that there was increasing evidence of the impact of OTT services, including increased consumption by Canadians of programming over the Internet, both Canadian and foreign, on mobile networks, as well as increasing substitutability between new media and conventional TV. CRTC also noted an increase in the number of foreign entities obtaining Canadian broadcast rights and of potential increases in programming costs. CRTC published the results of its fact- finding exercise in a report in October Some of the key CRTC conclusions from this exercise are reproduced below, including the conclusion that OTT services were not exerting negative impact on the Canadian broadcasting system (emphasis added): The Commission considers that the record of the fact- finding exercise demonstrates that significant change is underway in the communications sphere. New technologies, service providers and consumer behaviour underpin a transformation that is characterized by greater choice, a global marketplace and new opportunities for Canadian creators. However, such change is also creating uncertainty concerning established business models and associated support for the creation and presentation of Canadian content, as well as uncertainty for investment and innovation in advanced communications infrastructure. A first group, comprised principally of vertically integrated Canadian entities, considered that the competitive landscape was asymmetric in favour of exempt non- Canadian undertakings and that licensed entities are at a competitive disadvantage relative to exempt OTT providers. Rogers and Shaw specifically called for a reduction in regulatory requirements on BDU- provided video- on- demand undertakings as OTT services compete most directly with these services. 80 This Report is available at CRTC had initially planned to conduct a second fact finding exercise on OTT services in 2012 but later decided in April 2012 that this was not warranted as the CRTC considered that OTT services had not had sufficient impact in the market while indicating that it would continue to closely monitor the evolution of OTT services. LYA, 2014 The Evolution of TV and New Media in Canada Page 48

54 A second group, comprised primarily of the cultural sector and creative groups, submitted that the primary challenge in this environment would be to maintain support for Canadian programming as audiences fragment to sources that have no requirement to contribute to the creation and presentation of Canadian content. This group proposed a regulatory solution calling for the Commission to act to correct this asymmetry by imposing obligations (e.g. content subsidy contributions, exhibition and expenditure requirements) on exempt undertakings. Parties in a third group considered that no regulatory action is required at this time in support of the achievement of the legislated policy objectives. This group, mainly represented by OTT providers and individual Canadians, as well as the CBC, TekSavvy and the CIPPIC, recommended that the Commission maintain a hands- off approach to encourage innovation and experimentation and competitive responses by licensed undertakings...some parties noted that the exemption applies equally to Canadian and non- Canadian entities and that Canadian OTT providers have the opportunity to compete on a level- playing field. Other parties called for a status quo approach for now because of a lack of a full understanding of the OTT context. the evidence does not demonstrate that the presence of OTT providers in Canada and greater consumption of OTT content is having a negative impact on the ability of the system to achieve the policy objectives of the Broadcasting Act or that there are structural impediments to a competitive response by licensed undertakings to the activities of OTT providers. In 2012, the New Media Exemption Order was amended again 81 following the conclusion of a consultation regarding Vertical Integration. 82 The key amendments made to the Exemption Oder focused on: A provision for no head start for those undertakings that have acquired exclusive rights to programming A provision against exclusivity of conventional or PAY television programming on the basis a consumer s specific Internet or mobile service provider. The incorporation of a standstill rule during contract negotiations or disputes mandating continued access to programming. 81 Following Broadcasting Notice of Consultation Vertical integration is defined by CRTC as ownership or control by one entity of both audio- visual programming services, such as conventional or pay television services, coupled with ownership of distribution services, such as cable or DTH services. LYA, 2014 The Evolution of TV and New Media in Canada Page 49

55 The Order was also renamed Exemption Order for Digital Media Broadcasting Undertakings. Since the Second Half of 2013 The Honourable Minister Shirley Glover clearly indicated the objectives of the Canadian government in a statement on October 24, As stated in the most recent Speech from the Throne, our Government believes Canadian families should be able to choose the combination of television channels they want, said Minister Glover. This decision is an important step in defending Canadian consumers, who want choice and flexibility in their television services. Our request will ensure that the CRTC develops a more complete roadmap to unbundle TV channels. In November 2013, CRTC was also mandated by the Canadian Government to report before April 30, 2014 on how to implement Pick and Pay or "A la carte" selection for television programming offered by distribution undertakings. The CRTC response came on April 24, 2014 and strongly emphasized consumer choice as its key criteria. CRTC indicated that: The Commission intends to explore requiring distributors to: offer subscribers a small, all- Canadian basic service that includes only local Canadian conventional television stations, 9(1)(h) services and provincial educational services, as well as in some cases the community channel and the provincial legislature programming service; promote this small basic service to Canadians so that they are aware of its availability; allow subscribers to select all discretionary programming services on a stand- alone basis (pick- and- pay); and allow subscribers to build their own custom packages of discretionary programming services (build- your- own- package). We note that similar legislative initiatives have been launched in the US with the goals of enhancing consumer choice. Proposed legislation entitled Television Consumer Freedom Act, 83 supported by some members on both sides of the House, has been 83 See information available at congress/senate- bill/912/committees. LYA, 2014 The Evolution of TV and New Media in Canada Page 50

56 tabled with the objective of permitting video distributors to offer a la carte programming. In October 2013, in preparation for its review of the television framework, CRTC launched the first phase of its Let s Talk TV consultation process with Canadians. 84 Television Consumer Freedom Act of Allows multichannel video programming distributors (MVPDs) (including cable operators, multichannel multipoint distribution services, direct broadcast satellite services, or television receive- only satellite program distributors), except with respect to the minimum contents of programming required for basic tier service, to provide subscribers with any channel of video programming on an a la carte basis. Defines "a la carte" as offering video programming for wholesale or retail purchase on an individual, per- channel basis rather than as part of a package or tier of video programming. 84 Some key results from this consultation process are discussed in the preceding section of this Report. LYA, 2014 The Evolution of TV and New Media in Canada Page 51

57 7. The Development of Canadian Television Content Development and financing of Canadian television content has been an integral element of the regulatory framework for Canadian television for many years. In this last section of our Report, we address the development of Canadian television content from two perspectives; the first one is the evolution in financing from various sources and the second perspective is from the evolution of audience share for the different types of programming as well as for programming in the categories defined as priority by CRTC. Our key findings from this discussion are: The Canadian model for television content production has created a closed circuit approach focused on Canadian owned private broadcasters and distribution undertakings. To varying extents, these companies both contribute to and receive subsidies (e.g. the Canadian Media Fund) and investments made in Canadian content, which also include direct and indirect government funding. It is a model firmly grounded in conventional, one- way television broadcasting, focused on domestic distribution and viewership. The evolution of audience share results indicates that the current framework for the development of priority Canadian television programming content has experienced declining outcomes in recent years. This is not necessarily a reflection on the quality of the programming developed but may be a result of the financing framework which does not provide broadcasters and BDUs with the required flexibility to quickly adapt to the evolution in viewing habits of consumers. The solution is unlikely to reside in increasing regulatory funding obligations for Canadian BDUs and broadcasters. On the contrary, increasing flexibility and lessening obligations for all participants in the Canadian broadcasting system would support a quicker evolution to a more market driven approach, to the benefit of Canadian consumers and industry participants. Nor would the solution lie in attempting to impose funding obligations on Internet- based entities attempting to force- fit new media to somehow participate in a closed circuit funding mechanism seems an unlikely recipe for success. First, the current financing system was designed for a completely different distribution environment and would almost certainly slow the development of the nascent digital market. LYA, 2014 The Evolution of TV and New Media in Canada Page 52

58 Second, it would result in inequities and inefficiencies since, by imposing new obligations onto online platforms, it could capture foreign entities, which cannot avail themselves of the benefits of the system and thus cannot be full participants. Currently no foreign entities, including foreign broadcasters authorized for distribution by BDUs in Canada, are required to contribute to funding Canadian content; foreign entities are prevented from accessing subsidies themselves. OTT and other new media services are valuable, complementary, countervailing forces. They provide Canadians with affordable access to a wide range of content Canadian and international increasing diversity as well as pressure from market forces on the broadcasting industry, a critical ingredient to foster market success in Canada and elsewhere. We highlight comments reportedly made by Tom Perlmutter, former Government Film Commissioner and Chairperson of the National Film Board of Canada, during the latest Prime Time conference earlier in 2014, 85 discussing the fact that content development was viewed as a cost of doing business and focused on the protection of a revenue model. But there are still a number of barriers to success for Canadian- based screen content. The regulatory system is one of the biggest, argued Tom Perlmutter, strategic advisor at the National Film Board. He described the Canadian system as great in terms of producing and promoting Canadian content, but said there was also a downside. The downside is that we created walled gardens and for many years, not the case now, but for many years, Canadian content was just a cost of doing business for broadcaster. So there wasn t that kind of sense of experimentation and investment in pushing those kinds of boundaries, he said. This walled garden legacy has negatively affected broadcasters ability to take risks and adapt rapidly to changes in the system, Perlmutter said. We had the ability to think about how to do things, be responsive and innovative, but partly because of regulations, they were protecting revenue models. 85 Prime Time in Ottawa 2014: Compelling stories, reasonable price, bringing digital and traditional platforms together are key, Article by Perry Hoffman, February 21, 2014, cartt.ca LYA, 2014 The Evolution of TV and New Media in Canada Page 53

59 7.1. The sources of financing for Canadian television programming The Canadian Media Production Association (CMPA) publishes a summary of various statistics on the production of Canadian television on a yearly basis. In its latest report, as shown in Table 6 below, it highlights the different sources of financing of Canadian television since 2008/2009 until 2012/2013 (ending August 2013). Overall funding levels have slightly increased, by about 4% over the last 5 years, from $2.2B to close to $2.3B, although not in a linear fashion. Broadcasters have exhibition requirements imposed on their regulated services, which in turn drives their demand for Canadian television programming acquired via licence fees. These represented 20% of all funding in 2012/2013, down from 24% five years ago. Tax credits at both the federal and provincial levels provide a significant level of funding, at 28% up from 24% during the period. Tax credits are applicable to Canadian productions and co- productions realized under the joint treaty agreements that Canada has signed with many countries. 86 We note however that there is no co- production treaty with the USA. Tax credits are still available in the case of Canada/ USA co- productions but at a lower level. The amounts listed as Other private (this includes production companies, independent production funds, broadcaster equity and other private Canadian investors) have declined by 25% over the last 5 years, from $242M to $181M and only provided 8% of the overall television production funding in 2012/ These countries include Algeria, Argentina, Australia, Austria, Belgium, Bosnia- Herzegovina, Brazil, Bulgaria, Chile, China, Colombia, Croatia, Cuba, Czech Republic, Denmark, Estonia, Finland, France (Cinema), France (Television), France (Mini- treaties), Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Latvia, Luxembourg, Macedonia, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Republic of the Philippines, Poland, Romania, Russian Federation, Senegal, Singapore, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, United Kingdom, Uruguay, Venezuela, Yugoslavia (Serbia and Montenegro) LYA, 2014 The Evolution of TV and New Media in Canada Page 54

60 Table 6 Sources of Funding for Canadian Television Production to CMPA 87 The sources of funding to the Canadian Media Fund (CMF), at about $350M per year over recent years, are regulated to be the Canadian BDUs (over $200M) as well as the Canadian government (about $130M in 2013) and the remainder from Telefilm Canada. BDUs have to transfer 5% of their gross revenues from their distribution activities to the CMF, which is focused on developing Canadian content in the priority programming categories identified by CRTC in conjunction with a myriad of independent production houses. The CMF allocates envelopes for private programmers, as well as for CBC/Radio- Canada, to be accessed through independent producers. We note that this also means that private broadcasters integrated with BDUs are also funding their publicly funded competitors, CBC/Radio- Canada. A decline in BDU revenues from Canadian consumers disconnecting or reducing their BDU services ( often referred to as cord cutting or cord shaving) could also impact the funding available to the CMF. For example, a 15% reduction in regulated BDU revenues 87 Source: Profile 2013 CMPA, available at information/profile LYA, 2014 The Evolution of TV and New Media in Canada Page 55

61 would reduce their overall contribution to Canadian television production by $80M, out of a total of $2.3B in 2012 or the equivalent of 3.4%. 88 In addition to these regulations, 10% of the value associated with regulated television assets is being awarded to various Canadian content development initiatives, as part of the CRTC's policy of additional tangible benefits. Over the last 10 years, LYA has estimated that this represents an additional $560M of (non- recurring) funding into the development of Canadian content focused on the priority programming categories, which include drama, variety and documentaries. 89 Thus a significant portion of the funding being provided to the development of Canadian television programming is derived from obligations imposed one way or another on Canadian broadcasters and BDUs - - but, funding is not specifically driven by viewership success. This stands in stark contrast to OTT services and online viewing platforms where programming choices by online distributors are primarily based on consumer choices. In this sector, the success of an individual service resides entirely on its ability to attract and retain viewers. We note however that, foreign OTT services, such as Netflix and itunes, offer Canadian programming in Canada, as well as in the US and other countries. Other services, such a Hulu, also offer Canadian content even though they do not offer their service in Canada. The need for quality content, not regulatory obligation, is the key determinant in content choices for these services. With these comments in mind, it may be timely for both the CRTC and Department of Canadian Heritage to reexamine, in the context of the evolving distribution environment, Canada s policy and regulatory frameworks intended to support Canadian audiovisual content. To the extent that these measures favour traditional broadcast media outlets, they also serve to reinforce the already high level of concentration and vertical integration in Canadian broadcasting and telecommunications. To the extent that they preclude new distribution windows such as OTT services from triggering independent producers access to public funding, they limit partnership opportunities for Canadian producers already a challenge in light of concentration. Similarly, the much more limited measures to facilitate access to available public funding for Canada- U.S. co- productions of Canadian content, as compared to those available for co- 88 This example is being used solely for illustrative purposes. Please note that this does not mean that LYA is not forecasting a 15% decrease of regulated BDU revenues over the coming years. 89 Analysis considering all funds disbursed over the last 10 years on a yearly basis based on CRTC decisions at the time of the approval of these transactions. Note that funds are usually disbursed over a 5 to 7 year period. LYA, 2014 The Evolution of TV and New Media in Canada Page 56

62 productions involving partners from countries with which Canada has coproduction treaties, also limits opportunities Evolution of the audience share of various types of programming We now turn our attention to the evolution of market success of Canadian programming in the priority programming categories over recent years to gauge the success of the closed approach to funding Canadian television content. In a 2011 joint submission of CMPA and other groups representing content producers as part of the CRTC s OTT Fact Finding consultation, a report by CMRI 90 presented a figure on the evolution of audience share for different programming categories of English television (see Figure 7 below). We note that based on their analysis, drama and variety, for example, exhibited a decline in audience share during this period; from 2.4% to 1.9% overall audience share for drama and from 1.5% to 1.1% of overall audience share for variety. These represent declines ranging from 20% to 27% for these categories over a six- year period. The market share of sports has, on the other hand, increased by approximately 80% within the same period. This fact is likely related to the significant investments being made by key private broadcasting networks in Canada in recent years (for example TVA, Rogers as well as CTV), increasing funding to their sports broadcasts and sports television channels. We note that many sports events are evidently programming that consumers generally prefer to watch live, thus the continued value of linear programming associated with this type of broadcast. 90 Provided as Appendix I to the CMPA submission. LYA, 2014 The Evolution of TV and New Media in Canada Page 57

63 Figure 6 Evolution of 2005 to 2010 Audience share from various types of Canadian programs % Audience Share of Various Types of Canadian Programs, All English TV, September to August, to , Persons 2-plus, 24 Hours 35.0% 30.0% 25.0% 20.0% 15.0% 30.8% 0.8% 2.1% 1.5% 2.0% 2.9% 1.1% 1.0% 2.4% 3.7% 33.2% 33.9% 33.8% 31.6% 32.0% 0.7% 0.8% 0.8% 1.9% 0.9% 0.7% 2.4% 2.3% 1.4% 2.1% 2.3% 1.1% 1.1% 2.3% 1.1% 1.1% 3.1% 3.0% 3.1% 2.8% 3.1% 2.4% 2.5% 0.9% 2.7% 2.4% 1.0% 1.0% 1.2% 1.2% 1.2% 1.0% 1.1% 2.0% 2.1% 1.9% 1.2% 1.1% 1.8% 2.0% 6.6% 4.9% 5.0% 6.5% 6.8% 10.0% 1.9% 1.9% 2.1% 2.1% 2.0% 2.1% 2.0% 1.6% 1.5% 1.9% 1.8% 1.7% 5.0% 9.3% 9.5% 9.5% 9.2% 9.5% 9.4% 0.0% News Information Documentary Sports Drama Series Movies/MOWs Comedy Animation Reality/General Ent. Music/Variety/Quiz Light Entertainment Other 26 To further this discussion, LYA provides an analysis of data covering more than 10 years focusing on the audience share of Canadian content in priority programming categories, using data published by CRTC. The results are presented in the next Figures for English and French TV separately. We note that our results concur reasonably well with the data presented by CMRI in Our results demonstrate a long- term trend of stagnant or declining audience share for Canadian content in priority programming categories, which are subjected to significant funding obligations. As shown in Figure 7, audience share for English Canadian TV programming increased in the first half of the decade, concurrent with the launch of a multitude of new specialties, but started a slow but steady decline after 2005/2006 in all four categories identified as priority programming. 91 Trends in TV and Internet Use: The Impact of Internet TV on Canadian Programming, Canadian Media Research Inc., July 2011, Appendix to the joint submission of ACTRA, APFTQ, CMPA, DGC and WGC. LYA, 2014 The Evolution of TV and New Media in Canada Page 58