The CRTC’s Communications Monitoring Report 2014

The bill of health of a system in search of balance

Last October 16, the CRTC unveiled the third and last part of its Communications Monitoring Report 2014.

News media focused mainly on the aspects of the report that deal with consumers. Here are a few headlines: “Canadians paying more for communications services” (from $185 to $191 per month) and the main factors explaining this increase are wireless data and roaming services (up by 20%); and “Les Canadiens se ruent vers les téléphones intelligents et les tablettes” (Canadians are rushing to purchase smartphones and tablets) given that close to 40% of Canadians owned an electronic tablet in 2013.

However, the CRTC’s Communications Monitoring Report is intended first and foremost as a bill of health of Canada’s broadcasting and telecommunications sectors. These two sectors evolved alongside one another for a long time but today form a single ecosystem after years of convergence in terms of technology and usage patterns.

And who says ecosystem also says search for stability. According to Wikipedia, an ecosystem is in good health when its constituting units are in equilibrium.

Within an ecosystem, the units interact to maintain the integrity, structure and behaviour of the complex system to which they belong. In the communications ecosystem, this search for balance and stability can be observed in certain trends, particularly in the decreasing popularity of conventional television, television broadcasting and wired telephony. Everything is rebalanced by the growth of specialty television, wireless telecommunications services and Internet services.

Television financing: the decline of a model

In the space of a decade, the entire television sector’s revenue increased by 58% (from $10.8 billion in 2003 to $17.1 billion in 2013). However, specialty, pay, pay-per-view and on-demand television were the main sectors to benefit from this increase: in 2003, the advertising revenue generated by this segment represented 15% of the industry’s total revenue. In 2013, it accounted for 21%, whereas the share of conventional television’s advertising revenue decreased from 54% to 34% of the total. As for the share of revenue derived from subscriptions, it increased from 31% to 45%. As a result, specialty television now accounts for a majority (66%) of all television revenue.

Revenue of conventional, specialty, pay, pay-per-view and on-demand television Source: CRTC’s Communications Monitoring Reports

Another indicator of speciality television’s dominant position is the decrease of global advertising revenue in 2008 and 2009, attributable in part to the then current economic situation. Revenue then increased slightly in 2010 and began to decrease once again in 2012. However, conventional television’s revenue is decreasing whereas specialty television has generated modest increases in revenue.

Television advertising revenue is decreasing, according to data published by the Interactive Advertising Bureau of Canada (IAB Canada) in September. In 2014, digital advertising represented the lion’s share of ad spending and—for the very first time—exceeded television ad spending by $138 million. According to the IAB, this double-digit growth should continue into 2014 (with growth forecasted at 14%).

Television still has a future but its future will increasingly depend on subscription models. For example, take the recent announcement of an association between Rogers and the iconoclastic yet powerful Vice Media to launch the Vice TV Network, based on what Vice’s CEO qualified as the “Holy Trinity” of convergence: mobility, Internet and television.

Audiovisual content distribution modes: replacing channels

In 2003, 9.8 million households subscribed to television distribution services. By 2013, they were 11.9 million. Revenue generated by these services increased from $5.4 billion to $9 billion over the same period.

In the U.S., at the end of June, the number of Internet subscribers doing business with one of the nine major cable television providers was slightly higher than the number of subscribers to these same companies’ television services. According to certain observers, a tipping point has been reached.

Such an indicator undoubtedly pushed the Federal Communications Commission (FCC) to launchon October 28 the first steps of a regulatory review to grant Internet distribution service providers such as Aereo the same rights as those granted to cable providers as well as the ability to negotiate access to television content.

In Canada, the number of cable television subscribers (7.4 million) has been decreasing since 2012 yet remains higher than the number of Internet cable subscribers (5.9 million).

However, cable television subscriptions decreased by 3% in 2013 (by 0.1% for all BDUs) whereas the annual growth in the number of Internet service subscribers (for all types of providers) remains relatively stable at about 3%, i.e., three times the rate of growth of the Canadian population. Cable distribution companies dominate the market in terms of providing television and Internet access, with a little more than half of all subscribers in each segment.

In the meantime, the audience…

The CRTC’s report also provides indicators of our audiovisual content viewing patterns. For example, both tables presented below paint an interesting picture when they are examined side by side: the national average of weekly viewing hours by Canadians aged 18 years and up with respect to both conventional and Internet television. The graph on Internet television compares the average weekly hours of viewers who watch Internet television on a weekly basis to the national average of Internet television viewing hours.

Whereas the report indicates that conventional television viewing has decreased in the last three years, Internet television viewing has increased significantly.

These results are compatible with the findings of a study by Ad hoc recherche based on comments gathered from Canadian consumers participating in focus groups organized in 8 major Canadian cities. New technologies modify consumption habits and make content more accessible: most participants mentioned that they had watched more movies and series in the last two years. The TV screen is still preferred at home but is today connected to a multitude of screens—with the laptop at the top of the list. This makes it possible to directly access various sources of content. Laptops are closely followed by smartphones and tablets.

And what exactly do Canadians watch on these multiple screens? According to a detailed tablepresented in the CRTC’s report that distributes the 29 hours spent each week in front of the TV screen by genre, language market and origin, the most watched shows are dramas and comedies—which is not surprising. These shows account for 41% of all weekly viewing in the English-language market and 39% in the French-language market.

With respect to the Canadian content of shows viewed weekly in both language markets, there is nothing surprising about the fact that 43% of all shows viewed in the English-language market are Canadian whereas the proportion reaches 61% in the French-language market. It is a well documented fact that Francophones are attached to their television, which to a large extent explains why services such as Netflix have penetrated the French-language market much less. However, this attachment is not eternal, as shown by the slow decrease in the percentage of Canadian content in dramas and comedies (from 35% in 2004 to 29% in 2013, therefore closer to the 20% documented in the English-language market). As we have seen, conventional television has lost ground to specialty television, in terms of both viewing and revenue. Moreover, specialty television broadcasts much less Canadian content.

All ecosystems tend to seek stability. However, equilibrium is disrupted by a new invasive species, a foreign coloniser that needs to invade new regions in order to survive. In the communications ecosystem, these new services—that are not regulated by the CRTC—have already caused their share of disruptions.

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