Wired to Win !
Canada’s Positioning Within The World’s Technological Revolution
I. TECHNOLOGY AND THE DELIVERY SYSTEM
Conventional Broadcasting
Cable TV
Satellite TV
Telephony
Local Wireless
Utilities
The link between communications technology and culture has been, as most Canadians know, a defining reality of Canada’s progress since Confederation. In the mid-19th century, a telegraph system was built to transmit information to newspapers and journals across the country. In the 20th century, telecommunications and broadcasting systems were created as an east-west national infrastructure to link the regions and reinforce Canadian sovereignty.
Communications systems help strengthen our identity by facilitating social dialogue and cultural expression. They also facilitate the flow of information and cultures into Canada from other countries, just as they promote the export of Canadian information and cultural productions to the rest of the world. Today, Canada can boast one of the world’s most sophisticated communications systems. It is among the most open countries to foreign cultural influences – notably those from its American neighbour. Even in Quebec, where the province’s unique linguistic situation makes French-language cultural works extremely popular, the influence of American culture is significant.
In the past, Canadian policymakers have tended to adopt a defensive attitude toward the pervasive influence of American culture, especially in the English Canadian market. Policies included the establishment of Canadian monopolies or quasi-monopolies – particularly in the broadcasting industry – and imposing cultural obligations on Canadian companies in exchange for protected monopoly profits. For example, the financing of Canadian television programs and movies has been cross-subsidized by profits made by Canadian companies that imported American products. Canadian broadcasting and related cultural policy thus has been based on a pragmatic trade-off.
Today, the emergence of powerful technologies – particularly the Internet – pose challenges to traditional cultural policy and the tools that have been used to promote it. To meet the challenges and seize the opportunities presented by the new communications technologies, Canadian institutions and policies need to adapt to the realities imposed by technological change. In the future, a more pro-active approach will be required, one in which the traditional protectionist reflex is balanced by policies aimed at actively promoting Canadian cultural goods and content.
In its April 1997, interim report the Subcommittee raised a number of issues, mainly on the "hardware" of the technological revolution. For its final report, the Subcommittee spent as much time researching the "software" and the issue linked to content. It specifically asked: How can Canada’s cultural diversity best be promoted given the emerging realities of market globalization, technological convergence and new media?
Through this final report, the Senate Subcommittee on Communications hopes to provide in Chapter one and two, a concise overview of this technological revolution, through a review of the current delivery systems and the Internet as the new paradigm. Then, in Chapter three, this report raises some fundamental issues related to the cultural impacts of the new technology, while Chapter four offers suggestions for initiative that could be taken to strengthen the presence of Canadians within the new media environment.
The report is based on independent research, fact-finding missions and the published evidence from the hearings. The Subcommittee is aware that, when dealing with issues as complex and fast changing as communications technologies, discussions can be highly specialized. However, the Subcommittee wishes to put all Canadians – both as players and as consumers – at the forefront of its concerns. Given the significance of globalization, the Subcommittee has also endeavoured to take into consideration the wider international context and broader issues related to technology and culture.
The members of the Subcommittee believe, as was pointed out in the interim report, Wired to Win, that it is necessary to ensure new technologies do not create a gap in our society between the "haves" and the "have-nots." Neither should these technologies facilitate the domination of certain cultures at the expense of the full expression of others. In a word, policies should promote universal access to new communications technologies and ensure shelf-space for all forms of cultural and linguistic expression. The Subcommittee has, therefore, been guided by two basic principles. First, that competition among communications delivery systems should be encouraged in order to maximize the number of distribution outlets available to Canadian cultural material. And, second, that Canadian cultural producers benefit from significant funding opportunities so they can establish a pride-of-place presence in their own domestic market and be well-positioned to gain access to foreign audiences and markets. The specific policy recommendations contained in this report flow from the basic objectives set out above. (The recommendations, which appear in the text, are also listed in an annex.)
I. TECHNOLOGY AND THE DELIVERY SYSTEM
The technological revolution marks a rupture between what are commonly called "old media" (traditional) and "new media" (contemporary). The old media, such as radio and off-air television, had their own basic characteristics. The policies that applied to them were shaped in part by their technical potential and limitations. Likewise, new media – such as the Internet – have their own inherent characteristics. Any new policies must take into account the fundamental differences between old and new media that are now coexisting in a phenomenon known as technological "convergence."
The characteristics of old media are generally known: scarce spectrum, state regulation, distance limitations and public ownership. These concepts deserve some explanation. First, radio and television have been constrained technically by spectrum limitations that allow only a certain number of radio stations or television channels. Second, spectrum scarcity gave states an incentive to assert their role in the allocation of those scarce frequencies. Third, old media tend to be restricted geographically by the technical limitations of off-air frequencies, which travel only within a certain radius. Finally, state ownership of old media has been the dominant broadcasting model in most countries, with the notable exception of the United States.
The recent emergence of "new media" has been facilitated by technological innovations and their commercial applications. For example, the use of personal computers with powerful software applications is rapidly transforming the Internet-based World Wide Web into a mass-market phenomenon. Nevertheless, there still are more television sets than computers, and this has created an incentive to bring the Web to television – particularly with the introduction of consumer electronics products such as "WebTV." Indeed, so-called old media – radio, television, telephone – are in the process of merging with computers into a single technology platform. It is generally predicted that the functions of the television, telephone and computer will soon be bundled into the same household apparatus – hence, the term "convergence."
As a witness from the Alberta-based telephone company, Telus, noted:
We have been talking about convergence since the late 1980s, but it is through the Internet that we are really beginning to see some of that convergence materializing in the marketplace. You see it in Internet banking, shopping, new media applications. All of these instruments, all of these developments, are making convergence very real.
Like old media, new media have their unique characteristics: capacity abundance, distance insensitivity, lighter-touch regulations and an absence of public ownership. Again, a word of explanation is required. First, digital compression permits a virtually limitless number of channels – transmitted as electronic "bits" on the Web – that can be delivered to homes via cable or satellite. Second, new media, such as satellite TV and the Internet, are not limited geographically – hence the recently coined phrase, the "death of distance." Third, because new media are non-territorial they are more difficult to regulate by national governments than are old media. Finally, it is difficult for states to claim any legitimate role in the ownership of new media outlets, mainly because of the absence of capacity constraints.
The paradigm shift from old media to new media can be better understood by examining specific delivery systems and how they have been affected by the technological revolution and the emergence of the Internet and its commercial offshoot, the World Wide Web.
Conventional television is a "couch potato" medium –what has been colloquially called a "weapon of mass distraction." As noted, because spectrum is limited, governments in most countries have heavily regulated the airwaves, especially to achieve public policy objectives in the areas of education, cultural content, right-of-reply, violence codes, children’s programs and the like.
The advent of the Internet poses a threat to conventional broadcasters, mainly because the Web diverts viewers from TV sets to computer screens where viewers have access to different forms of content. Children and young people in particular spend less time watching television and more time surfing the Web than do older generations. A U.S. survey taken in 1998 revealed that increased time spent in front of home computers means time spent away from other forms of electronic media. About 18 per cent of Americans said they read fewer magazines because of the Internet. Some 18 per cent said they spent less time reading books, and 11 per cent said they read fewer newspapers. Of those surveyed, 78 per cent said they spent less time watching television because of the use of the Internet. These statistics would be roughly applicable to Canada.
Broadcasters, whose revenues depend on commercial advertising, are worried about the impact of the Web on their bottom line. Their concern appears to be justified. Procter and Gamble, one of the biggest television advertisers in the world, recently held a series of strategic meetings called "FAST" – for Future of Advertising Stakeholders. The goal of these meetings was to assess the opportunities presented by the Internet. Already, some major U.S. broadcasters, such as the U.S. network NBC, have formed partnerships with companies, such as Microsoft, and also have invested in Web search engines. In Canada, most television networks, including the publicly owned CBC, have a major presence on the Web. It can be expected that conventional broadcasters will move even more aggressively into Web-based services in order to limit negative competitive impact as technological convergence blurs the distinction between television and the computer.
Cable TV was first introduced in the late 1940s, but remained marginal for about two decades. In Canada, cable was at first considered to be a threat to Canadian cultural sovereignty mainly because cable TV systems offered Canadian viewers unregulated "distant" American signals. Moreover, conventional broadcasters, such as the CBC and CTV, felt threatened by cable TV because cable systems transmitted to their Canadian subscribers many competing channels from the United States. By the 1970s, however, the CRTC decided to encourage the development of cable TV as a monopoly distribution system, in exchange for certain cultural policy trade-offs – notably the mandatory carriage of Canadian channels and investment by broadcasters in Canadian programs.
By the 1980s, cable TV in Canada had become the dominant medium in the Canadian broadcasting system, reaching approximately 70 per cent of Canadian households. For viewers, cable TV brought a tremendous "fragmentation" of the television landscape. Whereas in the past only a few mass-audience channels had been available over-the-air, now dozens of new and more narrowly focused "specialty" channels were available via cable. The emergence of "niche" television accelerated rapidly in Canada and in many other countries throughout the 1990s.
Until the early 1990s, the cable industry in North America was a monopoly facing no competition from other distribution systems. The arrival of digital satellite TV, however, has been a powerful force behind the so-called "500-channel universe" and today represents a competitive threat to the cable industry.
Several witnesses before the Subcommittee commented on the nature of the competition that would affect the cable industry. As a witness from the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) put it:
I think much more significant will be the competition to the cable industry, which will come from the telephone companies and perhaps the satellite companies as well. I think that will be much more instructive. Even before high definition television has a real impact on the industry, I think you will see the impact of distribution via the Internet and computer-based technologies. I think those are the more likely factors to cause disruption and change and create threats and opportunities in the industry.
Today, after many delays, Canadian cable companies are investing in digital technology to increase their carrying capacity in order to compete with satellite TV and other competitors. Cable companies are also betting their coaxial-wire infrastructure will be the most efficient and consumer-friendly system for high-speed Internet access. In Canada, major cable companies are offering a high-speed Web-access service for a monthly charge. This includes Rogers and Shaw with @Home and Videotron with its own Internet access service. At present, most North Americans who are hooked up to the Web use dial-up services via telephone wires to access the Internet. If cable’s @Home service gains widespread consumer acceptance it could represent a significant new revenue stream for the cable industry.
Satellite broadcasting dates back to the late 1960s, but direct-to-home satellite TV did not emerge commercially until the 1990s with the launch of fully digital systems such as DirecTV in the United States. Satellite TV has a tremendous competitive advantage over cable TV because, thanks to digital video compression technology and its continent-wide "footprint," a satellite can offer hundreds of channels beamed down over vast geographic areas without any need to install expensive wired systems. However, satellite TV subscribers must bear the initial cost for a small satellite dish.
Canada’s two satellite TV operators – StarChoice and ExpressVu – each launched their services in 1997. Both are owned by former large-scale monopolies. StarChoice is controlled by the Calgary-based cable company Shaw Communications, and ExpressVu is controlled by Bell Canada. At present, satellite TV does not appear to be a major competitive rival to cable TV in Canada, in part because StarChoice is cable-owned. The Canadian cable industry counts about 8 million subscribers, while StarChoice and ExpressVu each have about 250,000 subscribers. In the United States, satellite TV operators such as DirecTV, which has roughly 5 million subscribers, have competed much more effectively with the cable industry. Satellite TV is also highly successful in Europe. In London, England, members of the Subcommittee were frequently told about the influence that the satellite service BSkyB has had on the U.K. television industry. BSkyB is an aggressive competitor and has altered the market for sports on television, bidding up the price of television rights for sporting events and shifting some from free over-the-air services to subscription. BSkyB also has introduced more foreign television content into the U.K.
Satellite systems have yet to emerge as major players in the consumer Internet-access business. However, there are some potential uses. Shaw Communications suggested:
We would like to see a situation where someone in a car is able to do an audio Internet access and we see no reason why they should not be able to do that.
The Canadian telephone system began as a collection of local monopolies, but eventually consolidated into regional systems, in some cases controlled by provincial governments (for example, Saskatchewan). In the United States, a court ruling in the early 1980s broke up the monopoly phone giant AT&T into a single long-distance operator and several regional "Baby Bells."
In competition with other distribution systems, telephone companies are hampered by the disadvantage of a relatively inefficient copper-wire infrastructure, which is not ideal for video and Internet access. However, new technologies, such as "ADSL" (asymmetric digital subscriber line), may help telephone companies overcome these obstacles to some extent. It is believed that some phone companies – particularly long-distance firms – will buy cable TV systems as a way of entering the "local loop" to compete in a marketplace of converged television and telephone service. No take-overs of this kind have occurred in Canada, but in the United States AT&T recently took control of Tele-Communications Inc., one of the biggest U.S. cable companies.
In Canada, some telephone companies – for example Telus (Alberta), Bell Canada (Ontario and Quebec) and NB Tel (New Brunswick) – have announced plans to compete head-on with cable TV systems in the delivery of television channels to homes. Telephone companies also have entered the Internet-access business as Internet Service Providers (ISPs). Bell Canada, for example, sells access to the Internet under the brand Sympatico, which competes with other ISPs who depend on Bell’s wires to offer service to their customers. Bell Canada also has entered the multimedia content business through investments in Canadian firms such as Digital Renaissance.
Local wireless systems are fully digital and can offer both television and telephone service, as well as data and Internet access. Technically speaking, they operate much like over-the-air broadcasters, except that their signals are transmitted from "nodes" placed on top of buildings and towers and received by dish-like antennae attached to the subscriber’s office or home.
Since local wireless systems have only recently launched commercially in Canada, it is difficult to say whether they will have a significant competitive impact on cable TV and telephone systems. One player, Look TV, appears to be well positioned to compete with cable TV in Ontario and Quebec. Two others, MaxLink Communications and Connexus, appear to be concentrating more on telecom and high value-added services such as video conferencing. As the witness from MaxLink told the Subcommittee:
Wireless is a promising alternative to new competition (in telecommunications technology)… You need the broadband, and we have the broadband in the wireless area.
Launched in late 1998, the full market potential of local wireless systems will likely not be proven until the 2000-2005 period.
Electricity utilities have emerged as possible competitors to traditional delivery systems in providing video and telephone service. While utilities generally have been electricity providers operating as monopolies, deregulation and privatization are forcing them to exploit other market opportunities.
The communications sector is a logical business opportunity for utilities, given that they already have an extensive infrastructure in place, running wires into virtually every household. They also have the "rights-of-way" over transmission and distribution networks. And they already have a direct billing relationship with most households in their franchise area.
The universal availability of utilities is one of the reasons why long-distance carriers are seeking to establish partnerships with them as a way of getting into the local telephone market. In Canada, Ontario Hydro appears to be poised to enter the telecom business. The formation of strategic alliances between utilities and established telecom companies can be expected in the near future.
All the above distribution systems once operated in completely separate worlds, and indeed were regulated as distinct industries. With the introduction of new technologies, such as digital compression, these previously separate systems are now either converging or finding themselves in competition with one another. In the very near future, all these systems will likely be offering television, telecom and many other value-added services.
Perhaps most importantly, all these delivery systems are currently reorienting their business strategies to take advantage of the explosion of the Internet.