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Bell's CTV Buy Based on Failed Strategy

As is Shaw's Canwest purchase. Both bet on building 'walled gardens' that haven't worked.

Michael Geist 21 Sep 2010TheTyee.ca

Michael Geist, whose column on digital policy and law runs every Tuesday on The Tyee, holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at [email protected] or online at www.michaelgeist.ca.

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As open internet blooms, big firms buck trend.

In the years before the emergence of the Internet, three online service providers battled in the United States for market supremacy. America Online (later AOL), Prodigy and Compuserve each adopted "walled garden" strategies that pinned their hopes on exclusive content to attract large subscriber bases.

AOL ultimately won, becoming the largest online service provider in the world in the late 1990s. With tens of millions of subscribers, the company continued to bet on its walled garden approach, even as many people merely wanted their services to access the Internet. Over the years, AOL saw its market share shrink dramatically, overtaken by an open Internet that offers infinitely more choice than any single company can.

While others attempted to erect their own walled gardens -- Minitel in France, early Internet access on wireless devices that only pointed to company-approved sites and services -- consumer demand for open Internet access consistently won out.

Despite the poor track record, walled gardens seemingly still hold appeal to companies that believe the best way to distinguish their services is to offer exclusive access to content. In recent months, Canada has experienced perhaps the last stab at a walled garden strategy with Shaw Communications' purchase of Canwest Global Communications and BCE's acquisition of CTV. Throw in the broadcast assets owned by Rogers Communications and Videotron and control of the major Canadian private broadcasters is solidly in the hands of telecom and cable companies.

Exclusivity vs. openness

This convergence leaves the possibility of either cross-licences to broadcast content among the major players (perhaps excluding Telus and the new wireless companies) or exclusive access that is limited solely to the company's subscribers.

That may sound like a winning strategy, yet it runs counter to everything we have experienced over the past 20 years. Consumers around the world have consistently rejected services that restrict access, finding suitable alternatives on open platforms like the Internet.

The key to ensuring a competitive environment therefore rests on maintaining open platforms on all service providers. That may prove challenging, since the newly vertically-integrated companies will find it tempting to grant preferential treatment to their own assets. In addition to exclusivity, this could take the form of faster speeds on wireless services for company-controlled broadcasts, allowing users quicker access to the walled garden content.

Alternatively, it might mean excluding walled garden content from the bandwidth caps imposed by most providers. Under such a scenario, subscribers would find that accessing walled garden content would be "free" in the sense that it would not count against their monthly bandwidth allocation. By contrast, competing Internet services would effectively face an additional cost, since subscribers would have to factor in their bandwidth consumption.

Will regulators step in?

These scenarios point to the possibility of greater regulatory intervention to ensure a fully competitive converged broadcast and telecom environment. Indeed, the Canadian Radio-television and Telecommunications Commission expressed concern about this direction in its 2009 New Media decision.

Notwithstanding assurances from the wireless carriers that walled gardens have not proven successful and "the industry is quickly moving toward the open Internet model, whereby mobile users can access content of their choice," the commission worried that "the ownership structure within Canada's wireless industry suggests that the potential for unduly preferential treatment needs to be addressed because the industry structure comprises vertically integrated companies with ownership interests in content providers."

As a result, the CRTC concluded that "the process of selecting content for those services must not subject unaffiliated programming undertakings to undue disadvantage with respect to reaching mobile audiences."

The ground rules for placing competing services at undue disadvantage are likely to sit at the heart of future regulatory battles as independent carriers and online services fight to bring down the latest walled garden.  [Tyee]

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