Can Canadian Broadcasters Compete with Free?

Earlier this month, Bell and Quebecor, two giants in the Canadian broadcasting and telecom landscape, became embroiled in a dispute over Sun News Network, the recently launched all-news network. At first glance, the dispute appeared to be little more than a typical commercial fight over how much Bell should pay to Quebecor to carry the Sun News channel on its satellite television package. When the parties were unable to reach agreement, Bell removed Sun News Network, leaving a placeholder message indicating "the channel has been taken down at the request of the owners of Sun News Network."

While the dispute is now before the Canadian Radio-television and Telecommunications Commission -- Quebecor claims Bell is violating the legal requirement against "undue preferences" -- more interesting is Bell's claim about the value of the Sun News Network signal.

According to Mirko Bibic, senior vice-president of regulatory affairs at Bell Canada, the market value of Sun News Network is zero because Quebecor makes the signal available free over-the-air in Toronto and is currently streaming it free on the Internet. Given the free access, Bell maintains that the signal no longer has a market value.

Bibic's comment may be posturing for negotiation purposes, but it highlights the larger problem for Canadian broadcasters and broadcast distributors such as cable and satellite providers.

The reality of the current environment is that all broadcasters must compete with free. Free streaming has become so common that devices such as the Boxee have popped up to offer users a seemingly unlimited array of legal on-demand television programs all streamed via the Internet. Indeed, if the value associated with broadcasts is directly correlated to its free availability online, a growing percentage of broadcaster content has no market value.

The implications for Canadian broadcasters are significant since their ongoing fight for a fee-for-carriage (or value-for-signal) is premised on the notion that their broadcasts have value, independent of their availability on other platforms.

Out on a US limb

Moreover, Canadian broadcasters continue to rely on foreign (primarily U.S.) content as their most profitable and high profile programming. Given the shift toward online streaming, it is only a matter of time before U.S. rights holders retain their Internet rights to stream content on a global basis. When that happens, Canadian broadcasters will be left vying for less valuable broadcast-only rights.

The situation is little better for Canada's broadcast distributors who view streaming alternatives with growing trepidation. Free online streaming, when combined with over-the-top video services such as Netflix or new video rental services from YouTube, provides an increasingly viable, low-cost alternative to traditional cable or satellite television services.

The Internet-based streams effectively reduce the value of a cable or satellite television subscription, since much of what is now offered through those services is, by Bell's own definition, of no market value.

Pressure to meter the Net

Claims that broadcast versions of free streamed programs have no market value may be an exaggeration, but there is a harsh truth in the reality that Internet streaming is having a disruptive effect on both Canadian broadcasters and broadcast distributors. Given these emerging challenges and the vertically integrated market in which Canadian broadcasters, broadcast distributors, and Internet providers are often part of the same corporate family, the backlash is likely to be fierce.

Internet providers already deploy usage-based billing schemes (so called Internet metering) to increase the cost of free Internet streaming by hiking the price of Internet access. On the regulatory front, there is the growing push to increase the costs to companies that stream content by imposing broadcast-like regulations.

These moves may create new challenges for online alternatives, but they will not solve the long-term broadcaster and broadcast distributor problems of relying on programs that by their own admission faces diminishing market value.