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What to do about vertical integration? Absolutely nothing

23 Jun

There’s a fun spectacle going on in Ottawa right now called the “Vertical Integration Hearings,” which is basically a pillow fight by the telecom industry in front of the CRTC over who owns what. It’s fun when you consider that the whole exercise is a complete waste of time other than being regulatory theatre at its finest for fans of that sort of thing.

In a nutshell, Canadian telecom is now lorded over by four relative giants: Bell, Rogers, Shaw and Quebecor. Each has telecom concerns, such as internet, wireless, television and phone businesses, as well as broadcast and print holdings. For those keeping score, Bell has CTV and the Globe and Mail, Rogers has CityTV and a host of magazines including Macleans, Shaw has Canwest (Global) and the National Post, while Quebecor has the Sun newspapers and TV and a bunch of French channels. Because these companies own both the content and the methods of distributing it, they are considered to be “vertically integrated” (as opposed to horizontally integrated, which is what you sometimes become with your significant other).

The point of the hearings is to answer the question: What’s to stop these companies from keeping their content from the other guys? If CTV (via TSN) has the rights to NHL programming, for example, what’s to stop Bell from offering hockey only to its own customers? And what if Rogers chose to do the same with MLB baseball or some other sport? In such a scenario, customers would have to get TV subscriptions from both Bell and Rogers if they wanted to get all of that programming. The same concerns also apply to the internet and wireless, where all content is migrating to.

Such a situation would of course be a nightmare, yet there have already been instances of it – in May, Bell announced it would stop carrying Sun TV because Quebecor was apparently charging too much for it. (Not that many would consider living without Sun TV a nightmare, but you get the drift.)

A number of commentators have argued that this is very bad and consumers will ultimately suffer for it, which means the CRTC must put rules into place to prevent it from happening.

I couldn’t disagree more. This is a classic case of the CRTC needing to stay the hell away because it’s related to several other issues the regulator has recently messed up or is currently in danger of messing up.

The answer to the question above, about what’s to keep companies from tying up exclusive content, is simple: competition, which comes in several forms. Firstly, as York University professor David Ellis so eloquently argued recently, the regulator needs to get its “grimy paws off my Netflix.” To summarize, the CRTC is currently considering whether it should regulate so-called over-the-top internet services, including Netflix, YouTube and the like, but it most certainly should not. If the CRTC foolishly decides otherwise and does try to get involved, it will enter its own regulatory form of the Vietnam or Afghanistan war. Its mission will be hopeless and it will be endless.

Over-the-top services need to be left alone and possibly even nurtured as competition to vertical integration. Of course, the CRTC has already nearly screwed that up when it gave its blessing to usage-based internet billing, which would have effectively castrated such services. Amazingly, and somewhat perversely, the market responded by working as it should. Since the regulator fouled up, the public got outraged, the government threatened action and the industry – Shaw and Telus so far – have responded by significantly increasing their internet usage limits. The others will have to follow suit or risk even more consumer anger.

If the vertically integrated companies want to shackle down content with exclusivity, they should be allowed to go ahead and try. If consumers have all the internet data they want to play with, they will quickly find their content through other legitimate over-the-top services and, failing that, they’ll turn to less-legitimate options such as BitTorrent.

This sort of “piracy” is the ultimate competition. File-sharing and other questionably legal methods of acquiring content are constantly improving, both in terms of ease of use and encryption. It’s been proven over and over that when content providers make it more difficult or expensive for consumers to acquire the stuff they want, they not only turn to alternative means, they feel justified in doing so. It’s also been proven that legal and technological responses can’t stop this sort of thing, they only make it improve even more.

So bring on the exclusive vertical integration. Anyone who tries it will soon learn the folly of their ways as consumers turn to other options, as well as the fact that many people who do go that route never come back.

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8 responses to “What to do about vertical integration? Absolutely nothing

  1. hfiguiere

    June 23, 2011 at 11:42 am

    I have better proposal: let them fight on the content, and force them to:

    1. respect the Net Neutrality. This include the throttling that is occuring that should be prohibited
    2. drop UBB and other pay per use charge on the Internet access. This would allow innovation in delivering the services.

     
  2. confused

    June 23, 2011 at 3:30 pm

    “Anyone who tries it (exclusive vertical integration) will soon learn the folly of their ways as consumers turn to other options…”

    Brilliant. So if Rogers can’t show soccer, I’ll switch to Bell, where I won’t be able to see baseball, so I’ll switch to….

     
  3. Dwayne Winseck's Media Blog

    June 23, 2011 at 6:46 pm

    Good post, Peter. I’ve gotta run, but two quick things. First, Bell no longer has stake in Globe and Mail. Second, isn’t there a clash between your proposal for bigger caps and less UBB, on one hand, and the reality of vertical integration across much of the industry, on the other? Don’t you think that history teaches us that one method after another, like a kind of whack-a-mole will arise to deter the likes of Netflix and others like it? Thanks, too, for the tip of the hat to my piece. cheers. D

     
  4. Marc Venot

    June 23, 2011 at 7:18 pm

    “The Commission acknowledges that the potential for preferential treatment exists in such cases yet remains of the view that vertical integration can lead to benefits, such as cost savings and increased efficiencies.” How can that be since it’s mostly a dispatch of digital signals? Is it because of the comments?

    There is another challenger for this kind of content, the video games, which may even be or become interactive with gizmos like the kinnect or handheld pointing device.

     
  5. L P

    June 24, 2011 at 1:28 pm

    “To summarize, the CRTC is currently considering whether it should regulate so-called over-the-top internet services, including Netflix, YouTube and the like, but it most certainly should not. If the CRTC foolishly decides otherwise and does try to get involved, it will enter its own regulatory form of the Vietnam or Afghanistan war. Its mission will be hopeless and it will be endless.”

    Conventional wisdom and past decisions by the CRTC should lead people to believe that it is not a matter of IF the CRTC will regulate services such as Netflix, but HOW they are going to attempt it.

     
  6. Dwayne Winseck's Media Blog

    June 24, 2011 at 2:11 pm

    Hi Peter. The precise relationship between Bell and Globe and Mail is that the former still retains 15 financial stake. It pared back its dominant ownership stake (orig. around 70%, if memory serves) when it acquired CTV in 2010/11.

     
 
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