Angry in the Great White North

The business model behind private broadcast television is simple.  A deal is struck between the broadcaster and businesses buying advertising.  The advertisers pay the TV broadcasters for eyeballs.

We, the television viewing audience, are the product being bought and sold.  The television programming content is not the product.  That's what trips up a lot of people.  Content is the lure to get those eyeballs.

The reason this worked is simple.  On a given frequency in a particular spot on the planet's surface, a TV tuned in at that frequency will get only one clear signal.  We call those frequencies channels.  Get far enough from the source of the broadcast (the TV tower), and the signal fades.  That means within a certain radius, a TV station can sell the eyeballs of the viewing audience to advertisers, who being local businesses, are interested in reaching those particular eyeballs.

There is a whole spatial-temporal dynamic at play.  The advertisers know when their target demographic in a particular area is watching television.  Local television broadcasters connect them to that demographic at the right place and at the right time.  It is advertising money well spent.

Cable and satellite providers work on an entirely different scheme.  The transaction is between the audience and the cable or satellite company directly, via subscription fees.  The product being sold is content delivered via a high-quality (typically digital) signal.

Much of the content delivered is broadcast signals picked up and re-routed through the cable or satellite distribution system.  The cable and satellite providers don't pay the broadcasters for that signal.  Why should they?  It's been bought and paid for by the advertisers, right?

The problem is that the cable and satellite providers lower the value of the broadcaster's content as far as the advertisers are concerned, and that lowers revenue for the broadcasters.  The cable and satellite providers don't pay compensation for lowering the value of the broadcaster's content.

How is the content lowered in value?  Two ways, one spatial and one temporal.

The spatial effect is through station-shifting.  On my channel grid via cable, I can get a dozen Ontario stations each for the CTV and CanWest Global networks.  I can choose to watch House, for example, via the Toronto station, or the London station, or the Ottawa station.  Each broadcast is available to me on different cable channels.

It's as if suddenly the TV towers in Toronto, London, and Ottawa had been supercharged, and sending the signal far beyond the original, non-overlapping boundaries.

And that's the key -- now the broadcasts are overlapping.  Part of the value to the advertiser was exclusivity.  Knowing that his target audience can watch that program only at a certain channel in the target timeslot meant that advertising dollars spent on that channel would bring ads to his target eyeballs.  Now that's no longer the case.  Instead, thanks to the station-shifting provided by the cable and satellite providers, some of the eyeballs watching the Toronto broadcast are from London or Ottawa, and are of no interest to local advertisers.  Likewise, some of the target Toronto eyeballs are watching the program on the London or Ottawa stations, meaning the ads purchased on the Toronto station aren't reaching them any longer.  Thanks to station-shifting, stations on the same network are cannibalizing each other's eyeball supply.  The pure region-based eyeball supply is now polluted with eyeballs from other areas, and advertisers are now paying broadcasters less for a lower quality eyeball product.

Get it?

The temporal effect is through time-shifting.  Not only are other stations of the same network in the same time zone being delivered across broadcast boundaries, the signals from far-off stations are available as well.  If I miss House at 9pm, I can watch it again at 12pm by tuning in to the west coast station that is available on yet another channel.

From the advertiser's point of view, this is even worse.  Now the target audience is smeared across the clock, impossible to pin down as to when they are watching that key program.  And there is no point in advertising on the 12pm broadcast.  Some of the viewers might be target night owls in the Ontario market, but most are likely west coast viewers who aren't interested in that advertiser's product.

In both cases, the fact that the cable and satellite providers carry the signals out of their original broadcast areas and into other locations and other times smashes the fundamental principles upon which the advertising model was based, that is, that the eyeballs are clumped together in time and space.  Advertisers still advertise, of course.  Some large advertisers have national campaigns.  But most are local, and the local ones are still buying ads.  But they are no longer willing to pay the same rates, or buy in the same quantity, because of how the station-shifting and time-shifting behaviours are devaluing the eyeballs.

Two entirely different business models, with entirely different vendor/purchaser/product schemes, existing in the same business space engaging the same players.  No wonder it's messed up.

The broadcasters essentially want to be included in the cable and satellite model the way non-broadcast specialty narrowcast channels are, that is, sharing in the revenue that the cable and satellite companies are getting for distributing content to paying customers.  It's also a form of compensation for the deleterious effect on revenues the cable and satellite companies are having by busting the eyeball model.  Remember that the broadcasters are not complaining that they are losing in competition with the cable and satellite companies.  There is no competition as such because the business models are different.  But different as they are, they are also incompatible.  For broadcasters, the problem is that the cable and satellite providers are filling in their programming grids with content that the broadcasters and selling the content directly to viewers with no regard to local market boundaries.  As I've explained, this reduces the value of the eyeballs to the advertisers, bleeding revenue from the broadcasters, but without corresponding compensation for participating in the subscriber-content model.

That compensation is what is called "fee for carriage".  It makes sense and it seems fair. By comparison, in the United States, there is fee-for-carriage to compensate for the effect of station-shifting, and time-shifting is simply not allowed.

We either go with that compensation for station-shifting and time-shifting, or the CRTC steps in to stop the cable and satellite companies from delivering broadcasts out of their target markets (or we use the hybrid US approach). 

Putting an end to shifting will be difficult, though.  Canadians using cable and satellite systems have become accustomed with the choice.

And remember that the cable and satellite providers aren't paying broadcasters for that all that extra content from other stations and other time zones.  As such, if tomorrow the CRTC banned out-of-market delivery of signal, and all those extra channels came off the cable and satellite programming grids, subscribers would rightly see that as a reduction in service and demand that their bills come down.  The effect of reducing the bill would be to lower revenues with no corresponding reduction in costs (because the cable and satellite providers weren't being paid for all that content), meaning a reduction in profits.

Imagine the cable and satellite companies trying to explain to customers that all those channels could come off the grid, but that the subscribers weren't owed any reduction in their bills.  Yeah, that'll go over well.

That in itself has to tell you that something isn't right in all this.  One way or another, something has to give and this has to be fixed.

Check out other stories from the CanWest archive.