Submission by the Commissioner of Competition before the Canadian Radio-television and Telecommunications Commission—Broadcasting Notice of Consultation CRTC 2015-87—Call for comments on proposed amendments to the exemption order for video-on-demand undertakings and to the standard conditions of licence for video-on-demand undertakings
April 27, 2015
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- The Competition Bureau ("Bureau") is pleased to make this submission in response to the Canadian Radio‑television and Telecommunications Commission's ("CRTC") call for comments in connection with Broadcasting Notice of Consultation CRTC 2015‑87.
- The Commissioner of Competition ("Commissioner") supports the proposed changes to the terms and conditions of the exemption order for video‑on‑demand ("VOD") undertakings to create the "Hybrid VOD" exemption. The Commissioner is of the view that the Hybrid VOD exemption may lead to increased consumer choice, reduced switching costs for consumers, and increased competition and innovation, as it would require that a VOD service be made available to all Canadians regardless of whether they have an existing relationship with a particular broadcasting distribution undertaking ("BDU") or Internet service provider ("ISP").
- Section 125 of the Competition Act grants the Commissioner the authority to, among other things, make representations to federal commissions in respect of competition. Pursuant to section 125 of the Competition Act, the Commissioner makes this submission.
Context of submission
- Recently, several vertically‑integrated BDUs launched online VOD services in Canada. They offer customers a library of television series and films that can be streamed through a customer's television set‑top‑box or over the Internet. In the broadcasting sector, vertical integration occurs when a BDU owns or operates programming undertakings. Vertical integration also exists when a VOD undertaking is affiliated with a BDU or ISP. In Canada, several BDUs are integrated with ISPs, programming undertakings and VOD undertakings.
- Access to certain VOD services recently launched by vertically‑integrated BDUs, however, is restricted. Access is granted only to consumers who purchase other products or services from that vertically‑integrated BDU, or a designated BDU or ISP. Restricting access in this manner creates at least two problems in the market. First, by limiting access to customers of a specific BDU or ISP, the sellers of these online VOD services—who offer both vertically‑integrated BDU and ISP service—may be putting rival BDUs and ISPs at a competitive disadvantage in terms of attracting customers. Second, limiting access to these online VOD services to customers of a specific BDU or ISP (and excluding consumers who do not subscribe to the designated BDU or ISP service) increases the cost of switching service providers for consumers, effectively limiting consumer choice.
Cost of switching and consumer choice
- When BDUs limit access to online VOD services to customers of a designated BDU or ISP, consumers who wish to access those VOD services face a limited choice of BDUs or ISPs. Similarly, as much of the content catalogued on any one online VOD service is exclusive to that service, existing customers of such services face higher costs of switching BDUs or ISPs as they will give up a valued VOD service if they switch BDU or ISP.
- Where more than two online VOD services with exclusive or distinct content catalogues are offered by competing BDUs (who are also ISPs), a consumer may be required to subscribe to services from two or more BDUs or ISPs in order to access all of the online VOD services. Such a scenario potentially increases the cost to consumers who wish to consume content from two or more VOD services.
- Consider a consumer without a BDU subscription. If that consumer wishes to subscribe to an online VOD service, he or she will need an Internet subscription. If the online VOD service is available only to customers of a specific ISP, the consumer is limited in his or her choice of ISP. Similarly, if that same consumer wanted to subscribe to an online VOD service that is dependent on a subscription to a BDU, his or her choice is limited in two ways:
- it requires that the consumer subscribe to a BDU service (even if he or she prefers to be without BDU service); and
- it requires that the consumer subscribe to a particular BDU service.
- Restricting access to online VOD services to those customers who purchase another service from a particular BDU or ISP increases costs to consumers. Increased costs effectively limit consumer choice in regard to what content they consume and how they do so. Similarly, in the case where access to online VOD services is dependent on a subscription to a BDU service, choice is limited by requiring that a consumer subscribe to a BDU service even if he or she does not wish to do so. The Hybrid VOD model, if adopted by operators of online VOD services, will allow consumers to maximize the value of their services by subscribing to only the services that they want and choosing the ISP or BDU that they please without giving up access to the online VOD content they want to access.
Disadvantaging rival BDUs and ISP
- Limiting choice and increasing the cost of switching ISPs and BDUs for consumers is one way that vertically‑integrated BDUs and ISPs who operate online VOD services can potentially reduce the effectiveness of rival BDUs and ISPs. Such vertically‑integrated entities may have the incentive to disadvantage rival ISPs and BDUs and have the ability to do so by restricting access to online VOD services to the customers of the vertically‑integrated entity.
- When consumers face a higher cost of switching BDUs, they are less likely to switch. By restricting access to online VOD services to customers of a particular BDU (even when accessed over the Internet), rival BDUs, whose customers cannot access that online VOD service, may be put at a competitive disadvantage.
- A similar case exists for ISPs. A number of online VOD services are offered by entities that provide both BDU and Internet services. By leveraging their position as both BDUs and ISPs, vertically‑integrated operators of online VOD services can potentially disadvantage rival ISPs. As consumers face a higher cost of switching ISPs (in that, if they switch to a rival ISP they lose access to valuable online VOD services), innovative ISPs may be put at a competitive disadvantage.
- The Hybrid VOD exemption, if adopted by the operators of online VOD services, will increase choice for consumers, reduce their switching costs, and allow BDUs and ISPs to offer comparable and competitive services.
- Hybrid VOD services will be able to operate without the regulatory requirements normally imposed on traditional licensed VOD services. The proposed exemption order creates an incentive for BDUs to offer online VOD services to all Canadians with an Internet connection, without the need for these consumers to purchase an additional service from any particular BDU or ISP.
- The Hybrid VOD model, therefore, is a positive step in ensuring that barriers to entry and expansion by ISPs and BDUs are not enhanced; and that Canadian consumers can benefit from greater competition, increased choice and flexibility in how they view content (and who delivers that content).
- The Bureau is pleased to respond to the CRTC's call for comments on this important subject. The Bureau supports the CRTC's proposed amendments and hopes that the Hybrid VOD model will be widely adopted, as this will allow Canadians to enjoy the benefits of enhanced competition, innovation and choice in the broadcasting sector.
- For the purposes of this proceeding, the designated representative of the Commissioner is:
Deputy Commissioner of Competition, Competition Promotion Branch
21th floor, 50 Victoria Street
Gatineau, Quebec K1A 0C9
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