The way we watch television is changing rapidly, but our regulations aren’t keeping pace. The federal government’s recently announced review of Canadian content and communications policies is an opportunity to catch up. The review should replace Canadian content rules with direct subsidies, focus regulatory hearings on the benefits of competition between technologies and drop ownership restrictions.
Ottawa now supports Canadian content in many ways. It requires broadcasters to offer a certain proportion of Canadian content, and funds that content either directly or by requiring broadcasters to chip in. And it financially supports the Canadian Broadcasting Corp.
The government regulates the sector through the Canadian Radio-television and Telecommunications Commission, which reviews and rules on proposed mergers, sets Canadian content rules, and regulates the relationship between distributors and consumers, among other responsibilities.
Ottawa has regulated traditional broadcast TV because of the high fixed costs and lack of competing transmission technologies. That lack of competition justified having Canadian content rules.
But today, you can easily access any content on the Internet from global providers. Your programming choices are effectively unlimited.
Today’s TV world is fundamentally different than that of the 1950s, but the way our government promotes Canadian content hasn’t adapted. To keep up, the coming federal review of Canadian cultural and broadcasting policies should focus on three reforms.
First, stop relying on broadcasters to finance Canadian content. Those quotas and financial contributions apply to Canadian companies, but not foreign ones, putting domestic broadcasters at a disadvantage. Instead, Ottawa should provide direct subsidies to domestic content producers, financed by general government revenues, but administered by an arm’s length agency.
Direct subsidies would be more transparent than the current policy of hidden subsidies paid by broadcasters and, ultimately, viewers. Direct subsidies would require governments to measure the effectiveness of these policies.
Second, the CRTC should not take a heavy hand in setting regulations. The old way of thinking about competition in the communications business was about adding more competitors. However, competition among providers is increasingly about reaching an audience through smartphones or higher speeds of information flows. This requires companies to invest in new technology and better infrastructure.
Put yourself in the shoes of a communications company. It builds new infrastructure – cell towers, new cables, and so on – to get ahead of the competition. With this kind of competition, companies must constantly innovate. Otherwise, new companies with better technologies will supersede them.
What happens when the CRTC instead mandates access for later entrants to an incumbent’s network? That dilutes the expected return that first motivated the incumbent to invest. The result could be that it decides not to roll out the next generation of technology. The regulation can end up hurting competition and consumers.
Instead, the CRTC should adopt more rigorous economic analysis in its hearings. It should include the potential cost of regulation to viewers and the sector. It should also be subject to the higher standard of legal review that the Competition Bureau faces when it reviews mergers or other measures potentially impinging on competition.
Third, the federal government should drop the rules on who is allowed to own what in the sector.
Our previous government put in place limits on spectrum ownership for incumbents and set aside spectrum for new entrants. This approach reflects the outdated belief that having more competitors is always better. The federal government should instead defer to the Competition Bureau to deal with anticompetitive conduct in spectrum acquisition.
The government also places restrictions on foreign ownership of communications and broadcasting firms. But such restrictions limit the size of Canadian companies and reduce the amount of available investment capital.
Ottawa should remove these limits. If necessary, the government can use the Investment Canada Act to block purchases that could compromise critical communications infrastructure or threaten the goals of federal broadcasting policy.
Canada’s communications and broadcasting world has changed dramatically. It’s time our legislative and regulatory system changes, too. The looming federal review is an important opportunity the government mustn’t waste.
Benjamin Dachis and Daniel Schwanen are authors of the C.D. Howe Institute publication Changing The Channel On Canadian Communications Regulation.
Published in the Globe and Mail
