Proceedings of the Subcommittee on
Communications
Issue 11 - Evidence
OTTAWA, Wednesday, February 17, 1999
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 4:00 p.m. to study Canada's international competitive position in communications generally, including a review of the economic, social and cultural importance of communications for Canada.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: We have undertaken a study, first tabled in the Senate of Canada about 18 months ago, on Canada's international competitive position in communications generally. In our first report we concentrated on changes in technology, human resources and culture. This time we are looking at not only the technological changes, but also the content issues that give rise to questions about identity, culture and messages. We know that you are most interested in both aspects. We will follow your presentation with questions and answers.
Mr. Eli M. Noam, Ph.D., Professor of Finance and Economics, Director, Columbia Institute for Tele-Information: When I was a Ph.D. candidate I worked for John Kenneth Galbraith, one of Canada's successful cultural exports. Professor Galbraith used to say that one of the major functions of the United States was to tell the rest of the world the calamities that would befall them a few years later. The question, then, is whether U.S. experience with the Internet has any particular relevance to other countries.
The Internet has been a source of endless fascination and hype. It is part network and part cultural and political phenomenon. I think of it as an ink blot test into which everyone projects their fears, fantasies and expectations. For a while it was expected that the openness of the Internet would recast all economic and social laws of control and hierarchy and everyone would substitute sharing for acquisition and all those good things. The new economic person had arrived, all because of packet switching, supposedly. Now, the same people are starting to wake up and observe that increasingly there are entry barriers and market concentration in the Internet industry. Those things exist just as much for the digital realm as they exist for the physical realm.
Others can look at the Internet and see that right now, particularly in the United States, the gender, age, racial, educational and income gaps are actually disappearing. The gender gap is narrowing each year, as it is doing also in Canada. The majority of new Internet subscribers are women.They are narrowing the gap. Obviously, it exists. However, the news here is basically good as an entry point.
The Internet of the future will not be one in which the PC will maintain its control as it has today. The PC must be the most user-unfriendly piece of consumer equipment that has ever been devised and it is not cheap. It is the entry point right now but in a few years, or even less time, many devices will allow us to enter into the Internet. They will be TV sets or VCRs, automobiles that will communicate with each other and the highways, lawn mowers that will communicate with their parking garages, and so on. Packages will communicate with shippers. That is to say, the world will be full of sensors that will communicate with each other in various ways, and device-to-device communications will vastly supersede communications of people-to-people or people-to-machines. In that environment, virtually everyone will be connected to the Internet, just as today virtually everyone is connected to electricity. In rich countries, that issue will disappear. The Internet will be one of those continuously unconnected types of situation like we have with electricity.
There is yet another way of looking at the Internet to see the various possibilities. People have been expecting some form of global brotherhood of man and have felt that information and communications would bring us together. I should like to talk about that with you next. Presumably, it will be of interest to you.
In some ways, the digital convergence - that is, the Internet - instead of creating bridges, which it does to some extent, could also create tensions, trade wars, cultural conflict, and so on. One of the main drivers towards those conflicts is what The Economist magazine calls "the death of distance." That is, distance ceases to have its protective function. From one country to another there is a large number of miles and oceans and it is expensive to cross them either physically or by communications. That protection disappears because we are at the verge of a true capacity revolution. Most people have not quite focused on that because right now they focus on the capacity shortage. We call the World Wide Web "the World Wide Wait" because everything is congested and it takes a long time to obtain information. In a short number of years, however, that situation will be totally reversed.
Several factors play into this situation. One is simply economics. Presently, the Internet is composed of bizarre economic signals and incentives, based on its background in the non-profit and governmental sectors. The Internet was largely outside the market system. It has been described as the closest brush with socialism that the United States has ever seen. However, that is disappearing rapidly and price signals are emerging. That will take care some of the congestion problem, although it means that it will become more expensive.
The capacity increase that we will be seeing is extremely important. In the future, transmission will be the driver instead of the brake. One needs only to take a look at the projected capacities of American networks with new third generation carriers such as Level 3, Qwest, IXC, ICG or Williams. Add to those new carriers the capacities of established carriers such as AT&T, MCI, Sprint, and so on and the Bell companies that are trying very badly to get into long distance, and take into account the capacity and technological improvement of fibre optics, with multiple weave division multiplexing that has now reached about 100 different window frequencies and with amplification technology and various other improvements, and you see that we are in the early stages of a capacity revolution that is simply extraordinary. When we add this all up, in 10 years, perhaps, backbone capacity per capita, per household in the United States will be so vast that several compressed TV channels could be distributed to each American household simultaneously at different times.
As the national backbone capacity increases, you should also expect the local capacity to increase considerably to keep up with it. We will also see similar developments in international traffic - not only in other countries such as Canada but also among countries across oceans. With enormous cable projects, geostationary earth orbits, GEOs, and low earth orbits, LEOs, capacity will increase to unheard of levels. As that happens, the per-circuit cost drops, the marginal cost is negligible, and prices will lower, becoming capacity-based and flat. In a few years, your basic telephone subscription will give you a virtually flat rate, with unlimited domestic and international calling. For your $35 per month you will call and talk almost as long as you want to someone in either Tokyo or New York.
What are some of the impacts? When it comes to television media, the protection of distance disappears. Companies can distribute video over fibre networks from large distances over the Internet. They have begun to do so now for radio and on companies called Broadcast.com, which carry a large number of radio stations, and the same will be true for television stations. The transmissions will be not only from television stations and live broadcasts, but also from servers - that is, storage devices at various locations that can distribute video on demand, presumably for money, although some could be subsidized and some supported by advertising.
Broadcasting will change considerably. It will no longer involve the network arrangements that exist today. More likely, producers from Hollywood will have their own server such as the Disney, the Fox or the MGM server, located in the United States or in certain regional centres, distributing video products cheaply and effectively across other countries. These individualized channels of the future will supersede, to a considerable extent, the mass channels that we have today. We will have more a video store than a broadcast channel. We will still have broadcast channels - people want to watch the news in real time, and so on. Nothing ever disappears. We still have radio, which is quite powerful. The average American household still listens to the radio for 3.3 hours a day. Nothing ever goes away, it just loses its centrality.
The advantages of the American production industry are that it has a high budget, it is entrepreneurial by nature, and it has distribution networks aligned with high technology distribution. That can make for a powerful global distribution for the kind of movies for which Hollywood has become known - namely, large, high-budget movies. There might be niches for domestic production and specialized production, but the ability to control these distributions through the licensing scheme becomes more questionable. One could do it, but it would be difficult. As the traditional rationale of spectrum allocation of scarce spectrum resources disappears, it will become more like the licensing of a video cassette distribution company.
Similar trends will be taking place in the field of electronic commerce. Here you also have zero-cost global transmission, which will lead to a tremendous increase in electronic transactions.
American firms will likely be the most successful ones. There is nothing inherently American about electronic commerce; however, the United States is technologically on the leading edge in this area. It has risk and venture capital at its disposal. There are advantages to being the first entrant or an early entrant and to having a large home market. Those things come together.
Once you establish a successful model, such as Amazon.com, it is relatively easy to expand the model to other countries. Costs of expansion are relatively small. The model is successful. It can be scaled up. When you have an Amazon.com, it becomes simply more difficult to replicate it in other countries. It might be more difficult to have Yukon.com in Canada. It is possible, but it is just more difficult because a model already exists.
Many companies are finding it difficult to enter into that market. The largest U.S. book distributor and retailer, Barnes & Noble, is also not really making much progress in this arena any more. There is a real advantage to being number one, being first and establishing a successful model and a loyal user base.
The U.S. advantage has factors that are, I think, unique in their combination. They have a strong position in hardware, software, capital, linkages to research universities, telemarketing and cable television and they have a fairly competitive telecommunications system. Those are all factors of advantage.
As I was looking over that list, it occurred to me that many of those elements also exist in Canada. In some cases Canada is better positioned than other countries such as Japan. The question is how to put those factors together in a synergistic way.
I am nervous, because revolution creates losers and losers organize. That is one thing at which losers are very good. If the United States is successful in the information revolution, losers will organize and they will go to government and to international organizations to plead for restrictions and regulations to create a protective umbrella.
There is presumably justification at each level; however, when you add them up you can foresee a future cyber trade war. How do we avoid it? The best way to avoid a cyber trade war is if other countries are also quite successful. Therefore, it would be in the best interest of the United States to have Canada be highly successful in this area.
The United States government has been arguing around the world for electronic free trade zones and so on. They have also been arguing in the United States against sales tax. I find it remarkable that the United States government was going around asking other people not to tax.
If the Internet was so near and dear to the federal government's heart, it could have been given federal tax exemption. However, the federal government just went to the states and said, "You cannot or should not impose any state sales tax."
Going beyond that point, it is always easy to be against restrictions in the abstract. I should like to imagine the response in the United States if we had a thriving electronic entry by unlicensed Albanian or Pakistani tele-doctors or doctors over the Internet. Would we still be talking about not regulating transactions over the Internet? Similarly, what would be the reaction to child pornography peddled from Thailand, cigars by Cuban mail-order providers, gambling from Monaco or stock ventures from Nigeria?
The point is that each society has a set of values and interests for better or worse which underlie its legal arrangements. No society will drop those values and interests just because these activities are now done over computer networks. It is totally naive to think that the Internet will be some form of libertarian island in a society that runs on some rules.
At this point, people will usually assert that even if you wanted to do something about this, you simply cannot regulate the Internet and transactions over the Internet, so it is hopeless. After all, 12-year olds can run electronic circles around flat-footed, heavy-handed government regulators. In a way, that is not true.
It is difficult to regulate the electronic transactions themselves, but communications are not just about bit streams and transactions. They also involve physical entities, people and institutions with domiciles and assets. Therefore, if you cannot catch the mobile parts in the system, you can go after the immobile parts, such as underlying transmission networks, physical delivery, packages, people, transmission facilities, assets, advertisers or whatever.
This might not be a perfect or elegant way to do that if you want to do it, but neither are income taxes and traffic loads particularly elegant. Simply because there is a certain slippage and you cannot control every transaction, just as in the cases of taxes, does not mean that you cannot try if you want to.
My conclusion is that if you want to regulate the Internet, you can.
I want to make very clear that I am not saying that you should regulate it. That is a different issue. It is a question of values, not of technological determinism. You should choose freedom because you want to, not because you have to or you have no alternatives.
That choice will not be materially different from those choices that societies generally apply to the panoply of their activities. Why should computer communications be different?
As the Internet moves from essentially a nerd preserve to an office park, shopping mall and community-centre-based environment, it is fantasy to expect that its uses and users will be beyond otherwise applicable laws.
Having said that, what can you do or what should you do?
Senator Spivak: That was Lenin's question.
Mr. Noam: I will not take the Leninist position.
Though I say that if you wanted to regulate the Internet you could find ways to do that, most likely through the underlying transmission carriers, that kind of regulation is likely to end up being somewhat messy.
Some possible suggestions for regulation include some form of import tax or bit tariff. However, even if those were held to be legal by the Constitution, the WTO and so on, they would end up raising the cost of vital input, namely information. It is difficult to differentiate between kinds of information.
One can presumably also permit personal solutions, such as filters or some kind of preferred menus. That does not strike me as requiring much government action at all. If people care about protecting their children from Hollywood or from American culture or whatever, they can do that. They can install filters and menus on their machines and devices, and presumably those things would be provided by market suppliers. I do not think that a legal compulsion by government is necessary here.
Let me take a step back and ask the question on which you probably have a better perspective. Is there a serious problem at this point? It is clear on the one hand that most major portals and electronic commerce sites are American. On the other hand, I am told that the CRTC hearings did not find any shortage of Canadian content on the Internet. It is not clear to me whether there is a serious problem or not.
It is important to make the point that this is all for narrow band content. Right now the Internet is relatively easy to enter in terms of content because anyone can throw in some pages. I have done it individually and our institute has done it organizationally. Everyone has a site. However, that is in the narrow band, text-based Internet. In a matter of a few short years, the norm will be Internet communications that are multi-media, broad band, moving images, sound, pictures, video. In fact, that is upon us already. At that point it starts to require production budgets. It is not so easy any more for any 16-year-old to create an elaborate web site. It requires production teams. The barriers to entry increase and it becomes more expensive.
Of course, the visitors, the users, then become accustomed to high production values and will not deign to visit the low budget sites, in the same way that people are used to Hollywood-style movie production budgets and will not watch a camcorder-produced, cheapo movie.
On the whole, the Internet penetration of Canada has in many ways been successful. I have seen some numbers that indicate that it is higher thatn in the United States and some that indicate that it is lower. In any case, it is certainly in the same ballpark so there is no need to be defensive about that. Your telecommunications and cable infrastructure is very strong and fairly open. You have internationally successful high-tech companies such as Nortel Networks and Teleglobe. In cultural production you have a long track record of successful productions and artists who have become successful globally. I went to the Canada web site and looked at the list of famous Canadians, half of whom I did not know were Canadians. It is certainly an impressive list.
A great deal of technological and content activity is going on here. However, the broad band communications coming upon us will change the terms of trade in all of this. Our major advantages are being of scale, being early and being global.
That will create problems in the future. Maybe there is no problem right now but you should be alert to the problems in the foreseeable future and ask what can be done.
One strategy - and these are in no particular order of significance - is to keep pushing the infrastructure. However, you must be cognizant that infrastructure can be a one-way road for imports from abroad. On the other hand, thinking that you can deal with the problem of imports by having a lousy infrastructure is like saying we will not have any railroads and highways so that no one will send their trucks over. That is not a real solution. You must forge ahead and have a strong infrastructure, a strong user base, and hope that that will create critical mass for domestic business ventures and content ventures that can then be exported elsewhere or at least be successful within the country.
In the United States and other countries, I believe, there is financial support, including subsidies or preferential prices. The Gore initiative with the E rate and the subsidy mechanisms for schools, hospitals and libraries are exactly that. I see no particular problems with it in principle, although the U.S. arrangement in practice has not been designed particularly well.
If necessary, you could have a tax to support it. The easiest way is probably some form of surcharge on telecommunications, on the underlying telecommunications carriers themselves rather than on the ISPs. However, it should not be only on telecommunications. Cable companies in the U.S. and I assume here also are on the verge of providing Internet services over cable modems. If they do, I think similar neutral levies should apply there as well.
Because a large skilled user base is essential, educational efforts should be on several levels: get them when they are young, in the schools, colleges and graduate schools; train engineers and computer experts; provide skills education outside of college; have adult education programs; have immigration policies that encourage technological skills; and so on. Encourage venture capital and other risk capital formation. Encourage government to be a leading-edge user. In effect, pay for some of the early parts of the learning curve for some activities.
That certainly is the history of the whole Internet in the United States. It was a government network that became a military network, that then became a national science foundation research network, and it took off from there.
You have consortia, like Canary, that judging from what I read seem to be very effective. I do not know enough to make conclusive judgments, but the notion of public-private consortia and test-bed type approaches is probably a good one. Encourage small community efforts with small community grant programs. The National Telecommunications and Information Administration, NTIA, which is an agency of the U.S. Department of Commerce, is offering grants of $50,000 to $500,000 to small community-based Internet efforts. That, too, creates a culture, a skill base and a familiarity that are useful.
Update the legal system and create the necessary legal instruments, for example digital signatures that are necessary in order for people to be able to engage in electronic commerce.
Perhaps most important is to encourage an entrepreneurial culture among young people. Most of the Internet ventures in the United States do not come out of big, well-funded institutions with government support. Ultimately, they are the result of some 22-year old. Some of my business school students start their own business. Some fail. There is no major shame in failing in this business any more.
The potential for becoming very rich should not be underestimated here. The notion that one can start something like Amazon.com and four years later be worth $1 billion is a very powerful stimulant.
Canadian companies can be highly successful as they become global providers not only to the United States, which obviously has a large market, but also internationally. Amazon.com has done nothing that could not have been done by Canadian companies. It had no particular advantage of location.
The way I see it, the world is becoming a world of business niches and there are real opportunities. The important thing is to recognize that in order to create successful content in the future you must understand that the world is fragmenting not so much along national user groups and interests but along fragmented groups, such as sports lovers, music lovers, youth culture and so on. You supply those particular niches. Thus, there are ever narrower slices, but they are global slices. That is what communications does. As you make it more convenient, cheaper and easier to communicate in new ways you also make it, relatively speaking, less convenient and more expensive to communicate in the old ways to your physical neighbours and neighbourhoods, including the national community. In some ways, that is the basic dilemma.
Canadian companies, like American companies, can be globally successful. However, the more successful they are, the more international they become. Therefore, the less Canadian in content orientation they will become. The culture of the future will not so much be American but will become fragmented across specialized communities as opposed to the traditional physical communities of geography and territory.
I will stop there, Madam Chairman.
The Chairman: In this whole new information age and technological revolution, what do you see as the role and responsibility of the WTO?
Mr. Noam: Let me start by saying that I have always been a bit cynical about this whole exercise of the WTO and the telecommunications agreement that was passed about a year and a half ago. Most of the rich countries promised to do what they were going to do anyway: to liberalize, to privatize and to establish independent regulators. Thus, it is hard to find a single thing that the United States or the Europeans promised that they had not promised before.
Those matters that were somewhat controversial, such as the satellite issue, were written out of the commitments. I am not current on the U.S.-Canada satellite dimension that happened then or how it proceeded afterward.
Primarily, I see it as a telecom infrastructure-transmission agreement. The content issues are so vastly complex that I am not sure - and I know this is not the U.S. position - that a pure trade regime applies. That should not suggest that free flows of information communications are not in many ways an essential underpinning of societies. However, I do not think it is the only value.
Senator Spivak: Professor Noam, in listening to you one could almost feel comforted, because Canada might become a global player, there are niche markets, and we can regulate the Internet although we should not because it is better to be free. However, freedom is good among equals. The real story is not exactly like that. I gather from your presentation that if there is an overcapacity of network, transmission costs will drop. You ask who will gain from that. In your written presentation you say that those who will gain will be the usual suspects - Hollywood.
We have a love-hate relationship with Hollywood. In Canada, we want to be competitive yet retain some control of our cultural identity. That is the key question here. There are many other questions but that is an overriding one. We want to be competitive and we want to maintain our cultural identity. We do not want to be regarded as part of the U.S. domestic market, which is how Jack Valenti and Hollywood think of us. We know that Time Warner is intimately connected to the American administration and that they do not want 98 per cent of the market: they want 100 per cent of it.
You have given us much advice regarding that situation and the advantages of Hollywood and Silicon Valley. Those are all interesting points. However, do you really think that this will stand against the juggernaut that is against us? Every time we try to carve out a little niche, as we did in film distribution under Flora MacDonald, or as our minister is trying to do with the split-run magazines, the United States comes back and hammers us over the head. We are in a difficult situation again because, as I say, it is a love-hate relationship.
You raise the question, although you do not answer it, as to whether Internet culture is really not American culture. Given that we are small in size compared to the Americans, will any of the strategies you gave us really work in the real world against what seems to be happening?
Mr. Noam: That is fair. The question is: What are the alternatives? There is no magic bullet. There is just a whole set of preconditions that make it possible for people to be creative culturally and in business terms.
It might be very difficult to be successful against Hollywood in the big-budget movie categories.
Senator Spivak: They want all the categories.
Mr. Noam: When it comes to smaller-budget films, there have been some non-Hollywood success stories. The Internet form of distribution makes it easier to distribute them. They will not necessarily get more attention because many people fail to notice text-based material that is distributed over the Internet.
Senator Spivak: Do you think we ought to be regulating?
Mr. Noam: It would be better to support in a positive way domestic Canadian efforts in content and electronic commerce, rather than to regulate in a restrictive way, making it more difficult for others, especially Americans, to come in.
Some of your companies have done very well in the North American market. I mentioned Nortel Networks and Teleglobe. I am sure there are other examples. I would not be defeatist about the possibilities. Certainly the people of Hollywood and the electronic-business types that I have encountered in the United States are not geniuses of a sort that cannot be found anywhere else.
It is easier to think this through in terms of electronic commerce. Entrepreneurial ventures or existing established business ventures here could take off. I really do not see any structural problem.
When it comes to film content, the question is a bit more difficult. You have a decent production industry here. As the world media becomes more fragmented, there is more room and more opportunity for smaller-budget films. I would not give up on that potential. Such a film may not be the Titanic of the future, but there are plenty of other media products that the world will consume quite voraciously.
Senator Spivak: I have just returned from Europe and Finland in particular. Their strategy seems to concentrate on excellence and quality, and that will be competitive. Given the present conditions with huge Hollywood output, is that a viable strategy for Canada to pursue?
Mr. Noam: Finland's story is interesting. An acquaintance of mine has written several books on the Internet in Finland. He has shared certain observations with me.
Finland is very well connected to the Internet, more so than any other country. In terms of transaction and content, though, it is a secondary player at best. Maybe it is too small. There is a language issue as well. Canada does not have that issue. Canada can tap into large markets in either English or French.
Until now, Finland has been the recipient of American content sites, rather than a contributor of its own content. Clearly very few people have visited Finnish music sites or shopped at Finnish e-commerce sites.
Senator Bacon: There is some discussion among certain countries, including Canada and France, to the effect that we should treat culture differently in the present trade discussions. Do you think this could have an effect on the development of the Internet and, more generally, on the telecommunications convergence phenomenon?
Mr. Noam: This brings us to the matter of European quotas. That issue, especially with regards to television, has been creating trade frictions.
As I said, I do see not a problem with culture being treated somewhat differently but that does not mean that it should be treated harshly. A subsidy mechanism, for example, seems to be perfectly legitimate. On the other hand, France, at least for a short time, demanded that any Internet site physically located in France must be in the French language. Thus it shut down, for a while, a University of Georgia exchange-program site that was trying to bring students in contact with French culture but that happened to have their computer in the English language. No country wants to be in the business of checking up on computers and their content and counting bits and comparing how many bits are in one language or another.
The only policy that ultimately works in the long term is affirmative support of certain types of content, rather than the restriction of others.
Senator Bacon: If everything goes on as predicted, television as we now know it - large audiences watching the same programs at the same time - will be replaced by "Me TV" where each viewer selects what he wants to see and when he wants to see it. In such an environment, how will television production be financed? Do you think that that will affect the quality of what will be offered to viewers?
Mr. Noam: That is a very interesting question. Everyone in the media industry, profit and non-profit alike, is trying to find that out. My guess, and there is nothing dramatic in this observation, is that there will be a multitude of revenue streams. Some will be outright government-type subsidies, such as public television and its equivalent on the Internet. Some will be advertiser-supported. That model seems to be gaining strongly right now, to the point that there are some efforts to give people free Internet access, totally advertiser-supported.
Last week I read that a company is actually offering free personal computers to people as long as they can be tied into advertising. Even the equipment then could be advertiser-supported. However, with advertiser support comes a certain orientation towards body count and so on.
A third revenue stream would be the subscription fees, such as pay-TV and pay-Internet. That is, in many ways, most logical but it does not seem to be successful. People are so used to the Internet culture where everything is free or at least flat rate that they are not willing to pay extra for the information itself.
Just a few days ago, Slate, an Internet magazine, a venture long supported by Bill Gates and Microsoft, announced that it would become pay subscription-based. The decision had been postponed several times, was finally made, but has now been reversed. The magazine returned to being a free service. Evidently, the idea of subscription fees does not seem to be going anywhere right now. That means that advertiser support will be the main source of revenue, along with some forms of public support in other situations.
Senator Maheu: I have not been on the committee very long but some of the witnesses that I have heard have impressed me quite a bit. One of them represented smaller groups.
In one of your papers, you said that you were optimistic about the role of relatively small players, but is it not true that most of the big companies are buying out the smaller players? Quebec in particular has many small, unilingual, francophone groups. How do we protect them? How do you see the role for small players in the future?
Mr. Noam: I have struggled with that question myself and some of my views might seem contradictory. Let me try to put them together in a consistent way.
I think that there is real opportunity right now for small players to enter and to become very big, in the style of Microsoft, AOL and Amazon.com. There is a bit of a gold-rush atmosphere. I also think that in the future this industry will be very concentrated and much less open. The AOL types will become the big portals and will be quite dominant.
The concentration that we see with Microsoft or with Intel in some parts of the Internet complex might easily be duplicated in other parts of the Internet too. The economies of scale are such that the problem is not only for a Canadian company to enter successfully as a competitor but also for alternative American companies to survive when they are clearly smaller.
There is another issue, which is whether the conglomerate form of media business is the necessary type of business structure for the future. In other words, do you have to be like a Time Warner company, in magazines and films and music and so on globally, in order to be a strong media company? That, I do not believe. I simply have not seen strong synergies here. It is true that most companies are organized that way right now, but I think that that is temporary and based more on the empire-building tendencies of the leadership rather than on any real inherent business advantage in having your feet in all those businesses.
I think the future will be one of large entities but of focused entities, of specialized entities.
The Chairman: Professor, one of the things we discussed when we were in Europe was the future role of the public broadcasters. As you know, in Canada we have an extensive public broadcaster in radio and television, in both official languages. We reach, through the public broadcaster, 99.8 per cent of Canadians, which means that all Canadians, wherever they are, despite the geography of our country, have access to public service and entertainment in both languages. The same situation exists in Japan and Australia. What role do you see for public broadcasters within the new environment?
Mr. Noam: I think they are a major tool for countries to develop some content strength in the new media. I would not hesitate to use them as such. You also have the National Film Board of Canada and Telefilm Canada. They have equivalents in Europe and in Japan. Once those organizations see themselves in the new media in an active way, they can be a major tool for interesting content-based work.
PBS in the United States is very aggressively looking into this, partly because they still feel somewhat shamed by how they missed cable television. Cable television simply went right over their head. They play absolutely no role in cable TV, so now they do not want to miss this particular media revolution. They are actively focused on it, but of course they do not have any resources.
I think it is better here, and I would make the most of it. That is particularly true because this multimedia environment of the future is so exciting. Creativity is up for grabs. I truly believe that the next generation of creative people who would sit in a Greenwich Village cafe and write novels will become multimedia producers, using the Internet to create text and sound and music in new, interesting and exciting ways. In fact, I believe the books of the future will be not so much paper-based but electronic tablets that can give you pictures and moving pictures and linkages. There will be exciting and different ways of doing things. In that sense, books will become the boring medium of popular culture rather than of high culture, because the most creative people of the future will work in the new media.
That will require rather large budgets. Just last semester I produced a course that was given simultaneously in New York and at a Swiss university. I had it all on a web page in multimedia, but it took research assistants a lot of time to do that. This needs support. Public broadcasting can do these experiments.
Digital television sets will start to come on the market now. The system was designed in the United States and has started to go into broadcasting, although no one in the United States has noticed yet. However, presumably in a relatively short period of time - maybe eight or 10 years - many digital sets will be around and they will be able to do lots of new things, and because it can afford to take big risks, public television can be right there, more so than commercial television.
The Chairman: You opened the door to my next question when you talked about books.
You mentioned in your presentation that old media never die, they survive quite well, and you gave the example of radio. We have heard from different witnesses that what changes, finally, are the habits that surround old media. For example, during the war, people would sit around the radio and therefore radio was a social event, whereas now it is a very personal event. You are sitting in your car, you are in your kitchen, you wake up in the morning - you are more alone with your radio. Television, by contrast, is more a social event. You watch television with other people.
How do you see this in the context of "Me TV" that Senator Bacon raised? In France, we heard something very striking from one of the witnesses. We were told that public television there likes to create national events where all citizens of a country listen to or watch an event or news at the same time.
Mr. Noam: Radio was a communal event when radios were relatively expensive so people did not have many radios. I now have about 14 radios.
With television, similarly, when there are more than two or three channels to watch, the family fragments. You have the teenage daughter in one room watching one program, the kid brother in another room and the parents downstairs, and perhaps the father watches a football game and the mother watches something else. It will be even more fragmenting in the future when people can continually dial up whatever they want to watch. Watching TV will not be that much of a social gathering or event, except perhaps for soccer matches and the like.
The national events will still be important. There is the inauguration of a president or the funeral of a princess and so on. The event might still be a common social event, but it will not be reported or carried or owned by just one channel. There will be 75 different versions, just like with newspapers, which do not own the events that they report on.
Historically, there is only a brief window where the notion of television and broadcasting as a common denominator and mass media applies. In the past, that was not the case. You had many newspapers, many magazines, many books, and not everyone was reading the same book at the same time. The notion that half of the country would watch the same program at the same time lasted only a short while. In a way, you can call it nationally inspiring and a common denominator, but you can also call it, in the U.S. context, an orientation of the lowest common denominator. Those were mostly not particularly ennobling types of events. The special events were very special.
I think the future will be fragmented just as the past has been. We should not romanticize this brief window because it was based only on the fact that there was a spectrum scarcity for a few years. There were no cable channels and no Internet. There were only three or four channels.
Ultimately, I do not think it is a great system in which half of the country is simultaneously glued to the same program. Almost inevitably, it lends itself to manipulation and to political issues. It leads to big fights over who controls the channels that half the people watch simultaneously. Inevitably, you insert an element of government or political process - I am not saying this in any negative way - that you would never tolerate for books.
The Chairman: What about ownership? Senator Spivak mentioned having the same owner controlling 75 outputs, similar to having the same owner controlling half of the newspapers in a country. Have you given that some thought?
Mr. Noam: I am in the process of writing a detailed statistical study on media concentration in the United States. You have some concentration problems, but you also have some good news. It is a mixed situation.
The present Bill Gates situation of control over an operating system with the possibility of extending it seems to me to be a real problem. The United States government is doing exactly the right thing by going after this particular situation. I am not sure what the remedies will be, but I think they are precisely right. Bill Gates' defence clearly has been stumbling quite badly in making their case so far. That is a problem.
There is another problem in concentration in the United States right now on the cable side. Up to now, cable has been virtually the only multi-channel provider. If you wanted to get CNN, there was no place to go except for a monopoly cable company. That is now changing with satellite and with digital terrestrial television. Those are the two major control exceptions that we see in the United States.
You do have conglomerates also emerging but, as I said, I have my doubts that they will remain stable. Time Warner is not a particularly stable company in the long term.
Senator Spivak: I want to ask you for some predictions, first of all having to do with e-commerce. We have E-Bay and all those things that get on the market, and investors seem to think that they are the last word in the future. Will e-commerce really become that big? Second, will the Internet become a broadcast medium? In other words, will we be just computers or in that sort of competition?
Mr. Noam: I think e-commerce will become very large. You always have some hype with these things, and the notion is that four years from now everyone will do all their shopping that way.
Senator Spivak: Will no one go to the malls?
Mr. Noam: It will not happen that fast. In a long-term, historic perspective of 15 or so years, it will be extraordinarily large. Again, one should not think of it as, "I will log on to the computer and find that site." It will be much more user-friendly. You will just click on vacuum cleaners or trips to the Caribbean and have your agent search for something decent. You can do the transaction and pay. It will need to be considerably more convenient than it is, but it will be. It will have advantages over mail order because you can find the best deal and you can ask questions back and forth and you can look into that vacation site. There will be clear advantages. I think it will be quite large. Also, it will be global. You can then relatively easily buy and sell from all over the world.
As to the Internet becoming a TV medium or broadcast medium - absolutely. As transmission becomes cheap and plentiful, it will be used exactly in that fashion. We already have this push of technologies and point-cast in various ways with streaming of video that try to deal with the limited capacity. The limited capacity will go away. At that point, it will be used quite a lot for video-type broadcast purposes.
The Chairman: As you can see, we are not running out of questions, but we are running out of time. We appreciate your availability and your openness with us. If our research team has additional questions, I hope they can feel free to communicate with you, professor.
Mr. Noam: They would be most welcome, as is anyone else involved in these topics in the Canadian government.
The Chairman: Thank you very much, sir.
The committee adjourned.