Traditional Broadcasting and Video Distribution Still Prospers

Blog, Disruption, Roland Renner

In spite of all the hype around Internet video, the traditional broadcasting system continues to very well.

The CRTC’s “Communications Monitoring Report 2012” was released in September.

It contains many interesting results that are directly related to the issues that we have been dealing with in the papers and blogs over the past year or two.  This will be the first of several blogs examining what this statistical update tells us about the direction of broadcasting and telecommunications in Canada.

In 2011, according to some of the hype, we were on the verge of seeing the end of cable television and the traditional broadcasting system as everyone was switching to Over the Top (OTT) viewing and listening using their Internet connection.

One of the responses from the telcos and cablecos that dominate the internet access market was to introduce Usage Based Billing (UBB) in the form of lower download caps and supplementary charges for additional usage.   More slowly in Canada and the USA than in some other places in the world, the telcos and cablecos continued to upgrade the capacity of the Last Mile of their networks that connect to residential households.

In the U.S. Google challenged the incumbent telcos and cablecos by launching a third network using Fibre to the Home (FTTH) in Kansas City.

Google is implementing exactly what the telcos and cablecos have claimed is too expensive, too fast and unnecessary given the state of consumer demand.

One of the most obvious conclusions from the report is that all of the traditional broadcasting sectors continue to do very nicely.  Nothing fits better than the tired phrase, “their demise has been greatly exaggerated”.

Broadcasting revenue increases in all sectors

  • Broadcasting revenues went from $15.8 billion in 2010 to $16.6 billion in 2011. All sectors of the industry experienced growth:
    • cable and satellite revenues increased 5.8% from $8.1 billion to $8.6 billion;
    • pay, pay-per-view, video-on-demand and specialty service revenues increased 7.9% from $3.5 billion to $3.7 billion;
    • conventional television revenues (including those from the CBC) increased 2.2% from $2.6 billion to $2.7 billion; and
    • radio revenues increased 3.9% from $1.5 billion to $1.6 billion.

Source: CMR p. i

Meanwhile, 10% of Canadians subscribed to NetFlix.   While nearly 70% report having seen some form of Internet video in the past month, only one third report watching Internet TV.  Only 20% watched a full 30 minute or 60 minute program online and about 15% watched a full length movie.  Although climbing, average weekly viewing only reached 0.7 hours.

Why isn’t OTT viewing skyrocketing and traditional video distribution tanking?  Three main factors are at play.  The first is that many consumers are comfortable with traditional cable service and packaging.  This is true in the US, where there are fewer regulatory restrictions on pick and pay, but packages remain popular.  For all the hype generated by the rise of NetFlix there is plenty of life left in the traditional services.

The second factor is that copyright restricts the amount of programming available online, both for Canadian distribution rights and globally.  Consequently some programming is still difficult or impossible to find or access without paying additional fees.  For early adopters this doesn’t matter very much, but many others are more comfortable reaching for the remote like they have always done.

The third factor is that the telco and cableco incumbents have been successful in raising the effective price of OTT viewing towards the level of traditional video distribution services.  By implementing UBB with relatively low download caps they are generating extra revenue via internet access service.  The monitoring report includes a very interesting table showing the amount of viewing in hours for different programs that reach Gigabyte cap levels.  Heavy users of Internet video are likely to exceed the lower download caps.  See CMR, Table 4.4.2, p. 107.

The incumbents have been quite successful in promoting this as “fair” in the sense that those who use more should pay more.  Many critics argue, however, that the price of increased usage is far greater than the cost and that the telcos and cablecos can only get away with this because of their dominant market power in the Last Mile.

Google is challenging these high prices and the entire old revenue model in their Kansas City FTTH deployment.  This competition is to be welcomed for its impact on prices and services.  Is this the model that will allow the Internet video challenge to supersede the old system?