Submission by the Commissioner of Competition before the Canadian Radio-television and Telecommunications Commission—Broadcasting Notice of Consultation CRTC 2014-190 Let’s Talk TV

June 27, 2014


I. Introduction

  1. The Competition Bureau (the "Bureau") is an independent law enforcement agency which ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. Headed by the Commissioner of Competition (the "Commissioner"), the Bureau is responsible for administering and enforcing the Competition Act,Footnote 1 which applies to virtually all sectors of the Canadian economy, including the broadcasting sector.Footnote 2 The purpose of the Competition Act is to maintain and encourage competition in Canada to, among other things, promote the efficiency and adaptability of the Canadian economy and provide consumers with competitive prices and product choices.Footnote 3
  2. On April 24, 2014, the Canadian Radio‑television and Telecommunications Commission (the "CRTC") initiated a proceeding to formally review the CRTC’s policy approach to the television system, drawing on the issues and priorities identified by Canadians in Phases 1 and 2 of Let’s Talk TV: A Conversation with Canadians.
  3. Pursuant to section 125 of the Competition Act,Footnote 4 the Commissioner wishes to intervene in this proceeding in respect of questions 1, 8, 47, 59, 67, 68 and 78, and is pleased to provide this submission in response to Broadcasting Notice of Consultation CRTC 2014‑190.Footnote 5
  4. The Commissioner, or his designated representative, would be pleased to appear at the public hearing in this proceeding if the CRTC so requests. Given the nature of the issues raised, the Commissioner’s written submissions are unlikely to address all issues that will be raised at the public hearing. The Commissioner’s specialized knowledge and expertise respecting competition may be of assistance to the CRTC in clarifying and assessing the submissions of the Commissioner and other parties.

II. Vertical integration

  1. This section addresses the economics of vertical integration and specific considerations in respect of broadcasting. In particular, it responds to question 47 of the current consultation.
  2. Vertical integration arises where one entity owns or controls different, complementary parts of the supply chain. In broadcasting, vertically integrated firms own or control both programming services and distribution services or own or control both programming services and production companies.
  3. Vertical integration can lead to lower prices by improving coordination and by providing an incentive to reduce prices at complementary stages of production and/or distribution. However, vertical integration by firms with market power at one level of the supply chain can also create the ability and incentive for such firms to exclude rivals, wholly or in part, from complementary inputs or stages so as to create or enhance their market power.Footnote 6
  4. In 2011, the CRTC instituted a vertical integration framework in Broadcasting Regulatory Policy 2011‑601, which included a code of conduct ("VI Code") with several provisions designed to ensure the fair treatment by vertically integrated firms of rival broadcast distribution undertakings ("BDUs") and discretionary services.Footnote 7
  5. The potential for vertically integrated firms in the broadcasting industry to use their market power to engage in anticompetitive acts or to lessen or prevent competition substantially is a concern for the Bureau. In particular, the Bureau is concerned that vertically integrated firms may have the incentive to disadvantage rival downstream BDUs to the benefit of their own distribution offerings in a number of ways, including raising rivals’ costs, limiting rivals’ consumer offerings and stifling innovation. Of particular concern is the potential for vertically integrated firms to use their market power from the "must‑have" discretionary servicesFootnote 8 they own to disadvantage downstream rivals by (i) negotiating higher fees from BDUs for the right to resell their discretionary services; or (ii) imposing contractual terms on BDUs that limit choice and flexibility in their offerings to consumers.Footnote 9 Actions such as these can manifest themselves downstream to consumers through higher subscription fees, less choice and fewer innovative options.
  6. Given the incentives for the potential abuse of market power, the Bureau believes that measures such as those set out in the VI Code are necessary to maintain competition from non‑vertically integrated discretionary services and BDUs.Footnote 10 Rules such as those ensuring that unrelated and independent category B services have some access to carriage on vertically integrated BDUs, the "no head start" ruleFootnote 11 and the standstill ruleFootnote 12 are necessary to maintain competition among vertically integrated and non‑vertically integrated entities. In addition, given all of the potential changes being considered in this consultation, as well as the recent policies implemented by vertically integrated firms, such as penetration‑based rate cards,Footnote 13 the Bureau recommends that the CRTC examine the impact on the vertical integration framework and the VI Code of any changes it intends to implement to ensure they do not adversely affect the safeguards already in place.

III. Consumer choice

  1. This section discusses consumer choice and specific considerations in respect of broadcasting. In particular, it responds to question 1 of the current consultation.
  2. In the Response to Order in Council P.C. 2013‑1167, "Maximizing the ability of Canadian consumers to subscribe to discretionary services on a service by service basis", the CRTC proposes to maximize consumer choice and flexibility by requiring BDUs to offer a small basic service and discretionary services on a stand‑alone basis and to allow subscribers to build their own custom packages. The Bureau supports this measure as it could increase competition among discretionary services and BDUs to the benefit of consumers. The Bureau believes that there are benefits to allowing consumers to choose the services they want and to only pay for the services they select.
  3. Under the current system, most consumers are required to purchase a large bundle of services, including many they may not want or may not value highly, in order to receive the ones they do want or do value highly. This bundling of discretionary services, for example in large tiers or theme packs, limits competition between discretionary services within the bundle.Footnote 14 Within a tier or theme pack bundle, discretionary services do not currently compete for subscribers: each service within the tier or theme pack receives the same number of subscribers independent of its quality because of its placement in the bundle.
  4. If consumers are allowed to subscribe to the discretionary services of their choice on a stand‑alone basis, these services will compete against each other in order to be selected by consumers. This competition may provide additional incentives for discretionary services to invest in quality and innovative programming to remain relevant and appeal to consumers.Footnote 15 Under such a system, the pricing and offerings of discretionary services should be more reflective of consumers’ value and demand for such services.
  5. If the CRTC implements a small basic service complemented by stand‑alone discretionary services, safeguards may be required to ensure that discretionary services do not implement policies to incentivize BDUs to increase their penetrations, which could impose negative externalities on consumers. In addition, safeguards may be required to ensure programming services have the ability to advertise to customers of all BDUs.
  6. A system that allows consumers to choose the services they wish to purchase is likely to increase competition for subscribers at the programming service level, which should result in higher service quality and more innovative service and pricing options for consumers. The Bureau supports a broadcasting system that results in increased consumer choice and flexibility.

IV. Genre exclusivity

  1. This section discusses genre exclusivity and, in particular, responds to question 59 of the current consultation.
  2. As explained in the previous section, the Bureau believes increased competition among programming services is beneficial for consumers. Conditions of licence that define and limit the nature of a programming service restrict competition in certain genres and may hinder the ability of programming services to innovate and adapt in order to respond to consumer demands.
  3. Genre protection insulates discretionary services from competition and prevents discretionary services in less popular genres from moving toward more popular genres. While economists have noted there could be a strong incentive to create products that are too similar, hence reducing the diversity of programming offered, the Bureau considers that removing genre protection should result in a more efficient allocation of resources.
  4. In the United States, where genre exclusivity does not exist, discretionary services have been able to redefine their brand and morph into other genres, resulting in highly differentiated product offerings. Despite the differences in policies, the United States and Canada offer virtually the same genres and niches.Footnote 16
  5. More competition among services with greater flexibility to adapt their programming based on consumer demand is likely to result in higher quality programming and a more valuable service to Canadian consumers. Therefore, the Bureau recommends relaxing genre exclusivity policies. Relaxation of genre exclusivity might allow for some of the programming of these services to find a new home on another discretionary service or possibly on alternative platforms.

V. Availability of information to consumers

  1. This section discusses the importance of reliable advertising and pricing information provided to consumers, as well as the ease with which consumers can switch broadcasting providers. In particular, it responds to questions 67, 68 and 78 of the current consultation.
  2. The Bureau promotes truth in advertising by discouraging deceptive business practices and by encouraging the provision of sufficient information to enable informed consumer choice. False or misleading representations and deceptive marketing practices can have serious economic consequences, particularly when directed toward large audiences or when they take place over a long period of time. These practices can directly affect consumers, and can also harm competitors who are engaging in honest promotional efforts.
  3. The Bureau applauds the CRTC’s efforts to improve clarity and transparency in broadcasting service contracts and supports the development of a code of conduct, similar to the Wireless Code, as a means of improving the operation of the broadcasting industry. At the same time, caution should be taken to ensure that any code does not restrict either the content of advertising or other business practices more than is necessary. Advertisements, promotions and agreements that are not false or misleading lead to greater choice and better informed consumers, and provide an important means of competition for service providers. Mandating unnecessary restrictions on such activities or contracts could have unintended consequences on the proper functioning of the marketplace.
  4. The ability of consumers to act on the information they receive, including the ease with which they can switch between service providers, is critical to ensuring that markets remain competitive. Therefore, the Bureau supports provisions that would ensure that consumers can easily switch between service providers and that all contractual terms are clearly identified to consumers. When consumers have the necessary information to understand what they are buying, the broadcasting industry functions more efficiently.

VI. Conclusion

  1. The Bureau is pleased to respond to the CRTC’s Call for Comments. The Bureau applauds the considerations being made by the CRTC to change the broadcasting system, which will ensure that Canadians enjoy the benefits of greater competition in the broadcasting industry, including lower prices, higher quality service and greater innovation.
  2. For the purposes of this proceeding, the designated representative of the Commissioner is:

    Martine Dagenais
    Deputy Commissioner, Economic Policy and Enforcement Branch
    Competition Bureau
    15th Floor, 50 Rue Victoria
    Gatineau, Quebec K1A 0C9
    Martine.Dagenais@canada.ca
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