by David Ellis + Alexandra Birukova
(Get in on the fun while cutting your reading time by 40%: check out the abridged version of this story posted at the Wire Report on April 26. Any similarity to real life entirely intentional.)
Let’s say for the sake of argument you have near-monopoly control of Internet access in millions of homes. All your retail rates are deregulated, because the regulator has identified a force that faithfully eliminates any market distortion: vigorous competition. And yet, paradoxically, you can use your market power to eliminate competitors on the application layer of your network, since the regulator isn’t sure what unjust discrimination and undue preference might look like. You can also cap customer bandwidth any old way you prefer, which not only drives out competition but adds a nice chunk of change to your bottom line from the overage charges that none of your subs could possibly understand, especially after reading the formulas some math nerd provided in your online FAQ.
And let’s say you buy a TV network. Oops. Since onliners now spend more time online than they spend with TV, you ask the regulator to regulate your TV network a lot less than it used to, on the grounds that the Canadian content you air makes far less money than the US programming you resell at a hefty markup, which, granted, is not exactly an original argument. You’ve been around. You know cable-TV was created in Canada not to improve the quality of regional signals (as in the US), but to bring US signals across the border that Canadian audiences were clamoring for. That hit US programs made Canadian broadcasters wealthy. That the Canadian production community has long depended on US “service” productions to keep crews working.
But lately you’ve developed a hate-on for US programming and US program distributors, especially of the new-fangled online variety. Exhibit “A” – Netflix. Showing no shame or scruples, Netflix is “invading” your video space in a massively unfair “assault,” “attack,” or “threat,” depending on what day it is. Your investment bankers say your industry is so concentrated (and vertically integrated) that none of the “over-the-top” invaders can make a dent in this market. Easy for the Bay St geniuses to say. Did they see this coming? Who could possibly have seen this coming?
Not the regulator, and not your senior online managers, who all think the Web is TV on downers; that Web 1.0 worked out fine; and nobody is seriously interested in watching low-quality videos of dancing cats or creating their own (shudder) unprofessional content. Your broadcast execs, still pining for the days when all they had to do was fill ad orders, care more about slapping DRM on their content than making it widely available so it can find an audience. You do, however, have a pdf circulating that explains to staff why people keep talking about the “customer experience.” And related terms of art, like “disintermediation.”
Still, your people are a little too out of touch to understand why consumers like Netflix, and haven’t the imagination to sit down and develop a new business model. No worries, you’ve taken a leaf from the music moguls, who blamed their stupidity on pirates and left it to a computer geek to show the way online. All you had to do was substitute “bandwidth hogs” for pirates! But Netflix is a different kind of threat. Their fancy technical innovations are a threat – technology that streams content to over 400 end-user devices. Their predatory pricing is a threat: $7.99 a month and a market cap of $13 billion. You can’t keep posting 80% gross margins at those prices! Their platform engineering is a threat: you lower your data caps and presto, they lower their default bitrate, like stealing the money right out of your ISP wallet! Their support staff is a threat: they answer the phone promptly, they take their time, they can handle the Mac OS, they’re… nice. Their user interface is a threat. Innovation, affordability, ease of use, focus on the customer experience. Sickening.
Plus you’ve had to listen to all that BS from the OECD about how crummy broadband is in Canada. If anyone asks, you can always apply one of the standard responses. The OECD “may have used” a very small sample of ISPs in its study. Or we’re trying to figure out how the OECD averages are double what we charge. Or the all-time favorite: there’s a mysterious problem with their methodology. Maybe you should actually download the spreadsheets and read them? Nah, who cares if Canada ranks 28 out of 33 countries for the most expensive broadband?
Not your subs, that’s for sure! Not the regulator, who helped design and deploy punitive charges to keep people offline and watching cable-TV like they’re supposed to. You even got those rabble-rousing MPs on the Commons Heritage Committee to buy into your “vision” in that “report” on new viewing platforms.
Remember those “Death Stars” 20 years ago? Great concept, death rays beaming down from US satellites threatening to destroy cozy cable-net monopolies in sports, movies, music, etc. For that matter, remember radio in the 1930s? “The State or the United States!” Booyah! Lucky for you, the Deciders in Ottawa are still partying like it’s 1951, when Vincent Massey figured out the great unwashed public should use TV to cultivate a taste for opera. They love telling folks they know what’s good for them – just like you! And what’s not good for them. That producer mouthpiece really upped the ante when he told the regulator that civilization will come to a screeching halt unless it does something about… the “heroin drip” of US programming! Booyah! Can’t wait for the remedy – methadone?
Seriously though, you know the remedy – Canadian Cultural Content. Embrace it, praise it, just make sure you don’t ever have to pay for it. The tricky part is finding a problem for the remedy that everyone can agree on. That’s why it’s so important to stick to airy-fairy abstractions – cultural sovereignty, programs of national interest, the “single” broadcasting system that unites us from sea to shining sea, blah blah blah. You can’t go around saying you want to be protected from every new online business model so you can keep making obscene amounts of money, can you? The secret sauce is still the same as it’s been for decades. You tell the regulator and politicians the real problem is ensuring Canadians have enough Canadian content choices, on every platform everywhere, which they won’t if Netflix is allowed to run amok in the henhouse you built.
And the 2-punch, like a Zen koan, is that the only way to protect Canadian consumers and what you know to be in their best interest, namely having more Canadian program choices, is… to greatly restrict their program choices! A simple, elegant formula, and best of all, baffling to small minds. And since it’s the very soul of the Nation at stake, no measure is too drastic, as the regulator will attest. Do the plebs want their cultural sovereignty or do they want to watch freaking Super Bowl ads?
Why, you ask, is Netflix on its way to a million subs in Canada, with expected break-even in Q3? Who cares? This is Canada, you are the gatekeeper, you have the money, you’re wrapped in the Maple Leaf. You can provide the crappiest service on the planet, at the highest prices – then become the consumer’s friend! How is that possible? Just saying it makes it so. That’s the beauty of this setup. Broadcasting dead, they say? Not in Canada, where we have a Single Broadcasting System, a “public service essential to the maintenance and enhancement of national identity and cultural sovereignty”… and a whole lot more.
The Internet a game-changer, they say? Not in Canada, where the regulator thinks the Net is just another series of tubes carrying sewage or whatever. Where the starving artistes have decreed that a screen is a screen is a screen, so all those iPods computers owe them lunch money too. In the immortal and reminiscent words of a fellow media mogul, “If it looks like a duck, it is a duck!” Doesn’t quack? No problem! This is Canada!
When they appeared before the Commons Heritage Committee, some of your fellow travelers set a fine example of how to co-opt consumers without a shred of evidence in support – and without those pesky consumers feeling a thing! Try conjuring with a hackneyed concept that makes you sound hip, like “consumer experience.” As in this pronouncement: “Companies that both create the content and distribute it will be able to maximize the consumer experience and remain relevant in the media landscape moving forward.” Whatever the hell that means. Another opined that the aforementioned vertical integration “will benefit consumers by increasing the production of Canadian content on multiple platforms.” How? Not his problem! If you tell these pols consumers will be happy if you give us what we want, they just eat it up.
On the flip side, some participants warned what would happen if Netflix and its ilk aren’t reined in – threats to everything and everybody, especially the little guy: “Finally, consumers will ultimately suffer, with fewer Canadian choices.” Tug at those heart-strings, reduce the sum of human suffering – blow Netflix outta the water! What a bunch of suckers!
But what do you do if you’re the Canadian regulator and don’t have the guts or the brains to figure out how to follow up on the Commons Committee recommendation to maybe start a proceeding to look into whether maybe Netflix should be regulated? Why, say no more – you strike another Committee. An external Committee! All those execs come over from the other Committee, having established their public-interest credentials and faux populism, and end up at an invite-only, closed door 2-day meeting to figure out what they’re going to allow Canadians to watch on their Internet.
God, don’t you just love this country?! Hand me the bill-counter.