CRTC’s Communications Monitoring Report 2013 – The cord hasn’t been cut yet (Part 1 of 2)

“Broadcasting distributors now deliver telephone service. Phone companies deliver television service. The Internet delivers everything and mobile devices bring it all into your hand wherever you are.” Those are the words used by Konrad von Finckenstein, former chairman of the CRTC, in a speech he gave in 2010.

He could have added that the communication industries that were transformed by the convergence of their respective markets provide their clients with access to the Internet—their ecosystem’s main disruptor and the quintessential killjoy. The loop is closed so to speak.

On a yearly basis since 2008, in its Communications Monitoring Report, the CRTC measures these markets’ effervescence and reports on how they are evolving. The 2013 report, released last September 26, totals over 200 pages of tables and figures that provide as many indicators of how our media consumption habits and our use of communication technologies are evolving.

Here is a snapshot of the Canadian communication system in 2012: global revenue totalling almost $61 billion, 80% of which was shared by Bell Canada, Quebecor, Rogers, Shaw and Telus, i.e., the market’s five major players.

The vast majority of this revenue (72%) was generated by telecommunications services (wired and wireless telephony, Internet access, data transmission) provided by both BDUs (broadcasting distribution undertakings) such as Rogers and Quebecor and telephone service providers like Bell.

The result is that mature cable operators like Videotron and Rogers now generate a major portion (68% for all Canadian companies combined) of their revenue from the sale of telecommunications services rather than the sale of broadcasting services such as cable television or television channels. Wireless telephony services account for a little less than half of telecommunications revenues.

In this new world of convergence, everything is connected: the number of hours the average Canadian spends watching TV, the speed and cost of Internet services for residential consumers, and broadband availability among a host of other factors. Each factor impacts the health of the entire system.

In a twofold analysis, we shall examine trends that emerge from the massive quantity of figures and data provided in the CRTC’s report. Our goal shall be to track the transition of two pillars of the broadcasting system—cable television and television programming—toward their new incarnation in what convergence has transformed into the communication system. Each of the system’s components has been transformed. Although the transformation began before the arrival of the Internet, it accelerated under the combined impulse of technology and the new freedom of choice available to consumers.

FIRST COMPONENT: CABLE TELEVISION, THE CORD HASN’T BEEN CUT YET
When cable television was added to the first mode of distribution of television programming (Hertzian waves), this new access to distant signals that could not be tapped into until then created the first disruption in the system. Next, new technologies arrived—causing more or less significant disruptions—and were added to the list of services regulated by the CRTC: direct broadcast satellite, multipoint distribution and IPTV (Internet protocol television) technology among others.

The modes of distribution are on the verge of being replaced by broadcasting services that are not regulated by the CRTC. Indeed, over-the-top (OTT) services are being held responsible for market segments that are referred to in the U.S. as cord-cutters (subscribers who cancel their services altogether), cord-shavers (subscribers who cancel certain services) and cord-nevers (members of the generation who will never subscribe to cable television services).

The indicators pointing to the existence or non-existence of this trend can be observed firsthand in the evolving revenue and subscriber data of Canadian cable television service providers:

Source: Communications Monitoring Report, CRTC, September 2013, section 4.4 Broadcasting distribution market sector

At first glance, these indicators do not confirm any cord-cutting or cord-shaving trend: both subscriptions and revenues continue to increase.

However, the growth in revenue is driven mainly by an increase in the amounts spent by consumers. That is how Quebecor, for example, explains the situation in its 2012 financial review: “higher revenue per client resulting from increases in some rates, the impact of migration to digital, leasing of digital set-top boxes, and an increase in subscription to HD services.”

Furthermore, the Internet appears to be behind this increase in the number of subscriptions: growth in the number of subscribers is almost exclusively driven by an increase in the number of IPTV subscribers, i.e., television broadcast over the carrier’s Internet infrastructure as opposed to OTT services using the public Internet. At present, IPTV services are only available in Canada’s major urban areas but very closely reproduce OTT’s interactive and on-demand experience. Canada’s main Internet protocol television service provider is Bell with its Fibe service.

The rate at which consumers are adopting audiovisual content viewing practices that bypass the regulated system is another indicator that the industry is undergoing transformations.

In its report, the CRTC devotes a chapter in collaboration with the Media Technology Monitor (MTM), an initiative of CBC/Radio-Canada that provides the industry with a research tool on the adoption and use of technology devices in Canada based on over 12,000 telephone interviews conducted on a yearly basis.

This study’s findings retained media attention in particular, in light of a 70% increase in the number of Canadian Netflix subscribers (which rate increased from 10 to 17% over twelve months and sits at 21% since the beginning of 2013) and an increased viewing rate of video over the Internet, which rate has reached maturity (70%) in consumers’ communication technology adoption cycle. These figures are impressive particularly given that they exclude teens and preteens who are usually the first to embrace new technologies. Indeed, MTM conducts its surveys with respondents aged 18 and up.

That being said, table 6.2.1 (presented on page 185 of the report and titled “Media technology adoption by consumers”) shows that Canadians who cut the cord and those who will never subscribe remain a minority: according to the survey conducted last year, only 4% of Canadians view television exclusively online. To borrow the terminology used by MTM, this would make them “visionaries able to recognize winning technologies.”

Have these visionaries detected a winning technology? Will television programming soon be distributed through the network of networks? And what form will this programming take once freed of scheduling constraints given it will surely be affected by the means taken to distribute it to residential consumers?

Read the second part of this analysis in Part 2 – New Television.

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