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Canadian Television - an Environmental CANADIAN TELEVISION - AN ENVIRONMENTAL SCAN 2014 Prepared for: Prepared by: Submission to the Canadian Radio- television and Telecommunications Commission (“CRTC”) Peter H. Miller, P. Eng., LL.B. “Talk TV” Process Broadcasting Notice of Consultation June 25, 2014 CRTC 2014-190 Environmental Scan June 26, 2014 Peter H. Miller Foreword: Purpose and Mandate of Report This report was commissioned by the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), Canadian Media Production Association (CMPA), Canadian Media Guild (CMG), Friends of Canadian Broadcasting (FRIENDS) and UNIFOR to provide an unbiased third-party perspective on the technological, consumer, competitive, financial and regulatory environment facing television, and the sector’s prospects for the future, for collective submission to the Canadian Radio-television and Telecommunications Commission (CRTC) in its formal review of the television system1. In response to the Commission’s stated objective of defining a framework for the “future of television”, the commissioning parties believed it important to provide some perspective on what that future might hold, in the short and medium term, and what the implications could be for the system, different players within it, and their capacity to support Canadian programming (including programming of national interest “PNI” and local programming) and other objectives of the Broadcasting Act. The author notes, with appreciation, that within this mandate, he was given wide latitude to investigate and opine on the matters contained herein. Accordingly, the report reflects the research and views of the author, and should not be necessarily construed as representing the views of the commissioning parties. 1 Broadcasting Notice of Consultation CRTC 2014-190 http://www.crtc.gc.ca/eng/archive/2014/2014-190.htm 1 Environmental Scan June 26, 2014 Peter H. Miller Table of Contents FOREWORD: PURPOSE AND MANDATE OF REPORT .................................................................1 1. STUDY APPROACH ............................................................................................................................3 2. VISIONS OF THE FUTURE OF TV ...................................................................................................4 3. CANADIAN TV RIGHTS MARKET...................................................................................................8 4. TECHNOLOGICAL CHANGE..............................................................................................................9 THE ABILITY OF BROADBAND INTERNET TO REPLACE BROADCAST DISTRIBUTION................................ 10 CONSUMER INFORMATION AND ENTERTAINMENT SPENDING ....................................................................... 12 DATA COLLECTION AND ANALYTICS .................................................................................................................. 12 PIRACY AND BYPASS............................................................................................................................................... 13 CONTENT PRODUCTION......................................................................................................................................... 14 5. CONSUMER EMPOWERMENT...................................................................................................... 16 CONVENIENCE, CHOICE AND QUALITY ............................................................................................................... 16 MEDIA EFFICIENCY ................................................................................................................................................ 19 TV IS VIDEO, BUT IS VIDEO TV?.......................................................................................................................... 20 REGULATORY CHANGE .......................................................................................................................................... 22 6. ADVERTISING REVENUE............................................................................................................... 24 CLUTTER, EFFECTIVENESS AND ALTERNATIVES ............................................................................................... 27 7. SUBSCRIPTION REVENUE............................................................................................................. 28 8. OTHER FACTORS............................................................................................................................. 30 A ROGERS OTT SERVICE – SHOWMI?................................................................................................................ 30 OUTSTANDING SIGNIFICANT BENEFITS PACKAGES.......................................................................................... 31 CONSOLIDATION AND VERTICAL INTEGRATION............................................................................................... 31 9. ASSESSMENT OF CURRENT ENVIRONMENT .......................................................................... 34 10. REVENUE OUTLOOKS.................................................................................................................. 37 THE PURPOSE OF OUTLOOKS............................................................................................................................... 37 GENERAL ECONOMIC OUTLOOK .......................................................................................................................... 39 OUTLOOK FOR THE CANADIAN ADVERTISING MARKET.................................................................................. 40 OUTLOOK FOR TELEVISION WITHIN THE CANADIAN ADVERTISING MARKET............................................ 41 OUTLOOK FOR SUBSCRIPTION REVENUE ........................................................................................................... 43 BROADCASTING SYSTEM REVENUE OUTLOOKS................................................................................................ 45 IMPACT ON CANADIAN PROGRAMMING EXPENSES.......................................................................................... 48 DISAGGREGATION OF IMPACT .............................................................................................................................. 49 POTENTIAL TIPPING POINTS................................................................................................................................ 49 11. ASSESSING BROADER ECONOMIC IMPACT .......................................................................... 51 TOTAL REGULATORY IMPACT............................................................................................................................... 52 REMOVAL OF SIMULTANEOUS SUBSTITUTION................................................................................................... 53 PICK-AND-PAY AND LOWER BARRIERS TO ENTRY............................................................................................ 54 IMPACT ON CANADIAN TELEVISION PRODUCTION ........................................................................................... 55 12. PUBLIC POLICY REPERCUSSIONS............................................................................................ 58 APPENDIX 1 – MODELING ASSUMPTIONS................................................................................... 60 APPENDIX 2 – ABOUT THE AUTHOR ............................................................................................ 70 2 Environmental Scan June 26, 2014 Peter H. Miller 1. Study Approach “If you don't know where you are going, you will probably end up somewhere else” Laurence J. Peter 1.1. The approach devised for the study at the outset was to identify and examine the primary factors and trends affecting Canadian television, and from that develop different seven-year (medium-term) revenue ”outlooks” or “scenarios” for the Canadian Television System. 1.2. Primary factors identified and examined included: a. The state of the Canadian rights market; b. Technology trends and impact; c. Consumer viewing habits; d. Advertising revenue; e. Subscription numbers and revenues; and f. Other factors, such as outstanding significant benefits packages and the impact of consolidation and vertical integration. 1.3. As is further discussed below, in the author’s view, industry trends are sufficiently clear to forecast revenues fairly definitively over a three-year horizon (2014-2016). 1.4. Over a “mid-term” seven-year horizon, the author’s view is that the best way of constructing a useful analysis is to consider a series of ”outlooks”, positing different best-case and worst-case scenarios for the system, depending on such considerations as “gradual change” or more “material change”, relatively status quo regulation, or more fundamental changes to regulation (as contemplated in the CRTC Public Notice). 1.5. As is also evident from this analysis, linear impact from change affecting the industry cannot be assumed over the medium to long term. Rather, it is quite possible that the characteristics of the Canadian television system lend themselves more to “tipping point” impact. Such tipping points are not, however, assumed or modeled over the study horizon. 1.6. From the revenue forecasts and outlooks, the study estimates Canadian programming expenditures (CPEs) – an important indicator of the system’s ability to support the objectives of the Broadcasting Act. 1.7. In addition, given the importance of the Canadian television system to
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