Canadian hardware, foreign software: the political economy of pay-per-view.

Author:Terzic, Marilyn

On February 1, 1983, the introduction of First Choice, currently known as The Movie Network, marked a significant step in the evolution of Canada's video industry. For a nominal fee, cable subscribers were able to watch uninterrupted and unedited versions of top box office releases that had completed their theatrical runs. Not only were Canadian audiences provided with an alternative to going to the cinema, but they were given the opportunity to purchase the programming of their choice, at a price they were prepared to pay. However, pay television was more than just another vehicle for the influx of U.S. films and made-for-cable programming. For the Canadian program-production industry, it was a means by which it could attempt to repatriate viewers to Canadian programming, strengthen its position within the marketplace, and establish new sources of revenue and investment funds. Most important, it was a solution to the underutilization of works created by domestic independent program producers in a television and feature film industry that produces the majority of its works in-house.

The cable television industry has always faced the problem of becoming, very quickly, a mature industry. As its markets became saturated, the growth in its customer base leveled off. Consequently, broadcasters and cable operators were not only faced with the challenge of creating more programming, but also of developing new service formats that would allow consumers to personalize their viewing experiences. The introduction of pay television and specialty channels was a key step in this direction. As Perrin Beatty, the Canadian Minister of Communications, pointed out, "The viewer, not the broadcaster and certainly not the government, is king. The disappearance of a captive audience has forced us all to reexamine not only how we do, but what we are doing" (Canadian Cable Television Association, 1992, p. 12). The next step, then, was to offer Canadians the option of purchasing programming on a per-event basis.

By law, the Canadian broadcasting system is "a public service essential to the maintenance and enhancement of national identity and cultural sovereignty ... [and should] serve to safeguard, enrich and strengthen the [country's] cultural, political, social and economic fabric" (Canadian Radio-Television and Telecommunications Commission, 1991a, section 3). The law is founded on public, private, and community undertakings, each of which are subject to ownership restrictions and content regulations. Foreign ownership is effectively permitted up to 46.6% (33.3% at the holding company level and 20% at the licensee level; Dalfen, 2003). Content regulations require broadcasters to dedicate a minimum amount of time for the exhibition of Canadian programming; private broadcasters and program undertakings are required to make significant financial contributions to the production of domestic programming as well. These laws have been hotly contested. Pay television's ability to contribute to the achievement of these objectives has fueled significant policy debate (e.g., Feldman & Janisch, 1982; Globerman, 1982; Jaffee, 1980), as did the type, scope, and structure of service that should be offered (e.g., Black, Woodrow, & Woodside, 1982; Peers, 1982), in addition to its potentially adverse effects on the Canadian communications industry (e.g., Bernstein & Goldberger, 1982; Shields, 1980a).

Economics, too, were a part of the debate. The Canadian Radio-Television and Telecommunications Commission (CRTC) faced criticism for pay television's limited success and ultimate demise. According to Hardy (1983), the weak economic climate of the 1980s combined with the increased scheduling of films on network television contributed to the public's tepid response. In his view, "pay television [should have been] licensed [in the 1970s]. As all product life cycles tend to be determined by buyer habits and available substitutes, pay television ... arrived too little and too late for the really big profits" (p. 37). Furthermore, as part of their conditions of license, pay television service providers were not permitted to offer free previews, the single most powerful and effective marketing tool for selling subscriptions. Even though this decision would soon be reversed (CRTC, 1984), cable operators deserved a fair share of the blame as well. Their unpreparedness and lack of sophistication in aggressively marketing discretionary services, as well as their seemingly high installation and subscription fees, left little to be desired (Gelman, 1983; Hardy, 1983). The variation of monthly rates among cable operators was not well received by their clients either (Hardy, 1983).

There has been little research relative to these debates in the scholarly journals of broadcasting and mass communication and nothing relative to the English-language pay-per-view services. Among the first of the few were Peers's (1969, 1979) definitive studies of politics and Canadian broadcasting, but these predate the consideration of cable and particularly pay-per-view. Johansen (1973a, 1973b) was first to examine the CRTC and Canadian content regulations pointing out the necessity in content regulation for the preservation of Canada's cultural fabric and noting the inconsistency in the CRTC's cable policy. Audley (1994) reviewed the voluminous literature on public policies affecting the mass media. Collins (1995) compared the development of broadcasting policy in Europe and considered its relevance to Canada. Hoskins, Finn, and McFayden (2000) provided a context for the cultural research, and subsequently (Hoskins, Finn, & McFayden, 2001) speculated on what the Canadian broadcasting system would look like without the Canadian Broadcasting Corporation (CBC). Wagman (2001) focused on the various interrelations between the Canadian sound recording industry, cultural policy critics, and the overall influence of the CRTC in the licensing of MuchMusic (Canada's national music video service). Murray (2001) explored the cultural perspective and argued for a link between education and policy. Demers (2003) reported on the various issues of ownership policy and convergence in Canada. Most recently, Killingsworth (2005) examined specialty cable channels and their lack of financial success. However, little has been written specifically about Canadian policy development and Canadian pay-per-view.

This research explores the interplay of government policy and corporate strategy as related to the English-language pay-per-view film services offered by Viewer's Choice Canada to digital cable subscribers in eastern Canada (i.e., Ontario, Quebec, and the Atlantic provinces). Specifically, the history of pay television policy in Canada is examined. Thereafter, the prospects for pay-per-view, in terms of the industry's structure and competitive dynamics, are described using Porter's (1998) Competitive Strategy as a framework.

History of Pay Television in Canada

The Etobicoke Experiment

The history of pay television in Canada spans over 4 decades. The idea of selling a television service to consumers, instead of financing it through advertising or government subsidies, originated in Etobicoke, Ontario, when a test market for a new coin-box system was launched on February 26, 1960. International Telemeter, a subsidiary of Famous Players and Paramount Pictures, provided the service. Programming during the trial's first year consisted of films, sporting events, and special presentations. The selection had proved popular among subscribers as its primetime viewership exceeded that of U.S. broadcast networks by 18% ("What They Pay," 1960). In 1961, Telemeter acquired the rights to the Toronto Argonauts football games as well as the Toronto Maple Leafs away-from-home hockey matches ("Hockey-on-Tour," 1961). This was considered to be a major coup for the service provider because the majority of its offerings were either second-run or low-budget fare (Mullen, 1999). Regardless, Telemeter would eventually fail to build on its earlier success. On April 30, 1965, whether because of content or format, the experiment was terminated; subscriptions had fallen from a high of 5,800 to 2,500 and Telemeter had suffered losses of $3 million (Shields, 1980b). Despite the demise of the Etobicoke experiment, Telemeter was still actively pursuing connections with the cable television industry. Later that same year, the firm was planning a programming experiment in Montreal that would offer three pay channels on an 11-channel cable television system. Although the experiment was never carried out, interests in pay television were greater than ever.

The 1970s: A Decade of Uncertainty, Debate, and Regulatory Drama

The turn of the decade brought forth a rapid expansion of the cable television industry. Cities were installing cable systems and the technology for more advanced systems was starting to surface. From the consumer's standpoint, cable was economically attractive; from the cable operators' standpoint, added channel capacity was economically lucrative. However, the cable industry would have to face a long and arduous battle before it would benefit from the new sources of growth and revenues that pay television would have to offer.

As early as 1972, cable operators sought licenses to provide their subscribers with pay-per-channel services featuring films and specialized programming. The CRTC chose not to consider any of the applications, because no general policy on pay television had yet been established (CRTC, 1972-1973). In October 1972, the CRTC issued its first public statement on pay television. Although it acknowledged the "significant role [that discretionary channels would play] in the development of the Canadian broadcasting system, [the Commission was uncertain of] their precise potential for service to the public, and their effect on television broadcasting and cable television services" (CRTC, 1972, p...

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