A TALK GIVEN AT THE CIPS SEMINAR ON DATA COMMUNICATIONS
WINNIPEG, CANADA, APRIL 22ND, 1980
It is enough to make one seasick. Everyone is talking about waves of change sweeping over our society. A couple of years ago Charles P. Lecht wrote a book called The Waves of Change describing what was happening in the computer field. Now Alvin Toffler has come out with his new book, The Third Wave. In this book he talks about the electronic cottage, the crack up of the nation state and a variety of other cataclysms that will arise from the new electronic age we are entering. The book is filled with such stirring quotes as:
“The collision of wave fronts creates a raging ocean, full of clashing currents, eddies, and maelstroms which conceal a deeper, more important historic tide.”
I sometimes wonder if many of these writers are not all wet. No one doubts that immense changes are coming, but more often in the form of a gentle swell than a true wave. The problem is the inertia of people’s habits, wants and ways of thinking. Like the rocks on the shore these do not change rapidly in response to waves.
Perhaps Byron recognised this better than some of the modern populist writers when we wrote of the ocean:
“Time writes no wrinkle on thine azure brow
Such as creation’s dawn beheld thou rollest now.”
But changes are coming even though more slowly than the futurists have predicted. Nowhere will this be more evident than in the area of broadband communications.
THE BROADBAND WORLD
By broadband communications I mean the type of network that can accommodate one or more video signals of the 6MHz variety. I will leave to others a discussion of the future for networks under 100KHz – these being the ones with which you are most familiar in the data processing field. I will therefore be discussing mainly what I expect in cable communications linked to form networks by microwave or satellite transmission.
A NEW ROLE FOR BROADBAND COMMUNICATIONS
The cable industry, a major factor in the broadband communications world, is itself at the crossroads. Almost since its inception this industry has been viewed as an integral part of the broadcasting system. It is defined as “a broadcast undertaking” and hence is regulated by the CRTC.
However, the CRTC has also pushed the cable companies into a hybrid situation where they are to some extent producers as well as distributors of entertainment and information. The CRTC’s insistence that cable companies become community programmers has led to this carrier/content integration. At the present time there are more cable community studios in Canada than all the other production TV studios combined.
The cable companies have now recognised that this implies a new role for them. The CRTC has assisted this recognition by stating that it does not intend to regulate non-broadcast functions such as in-the-home security services, as long as there is a clear separation of costs and such operations do not interfere with the licensed broadcast operations.
The cable companies therefore have the opportunity to become more than carriers and more than broadcasters. They can truly become the broadband retailers of the 1980’s.
CANADA’S NEWEST RETAILER
Just as a large department store provides shelf space for goods produced by others, most now also produce their own name brands. It is in this sense that I describe the new cable companies as retailers.
Just as a department store offers a great variety of goods, so will the cable companies. What makes a department store viable is the wide choice of articles that it produces or assembles and the freedom of choice provided to the consumer. This choice is reflected in what the consumer chooses to pay for.
Before touching on a few of the new services which the cable companies could provide to the home or office user we should understand one of the fundamental requirements for using cable as an Electronic Boutique – this is the right to multi-tiers of pricing.
THE ENTERTAINMENT BOUTIQUE
The cable companies got their start retailing entertainment in the form of over-the-air broadcast services cycled through the cable. Now many broadcasters feel threatened by the possible audience fragmentation that could come if the cable companies are allowed to provide other forms of entertainment.
For three weeks in April a committee established by the CRTC has explored pay television. You may not recognise this as the committee is supposed to be exploring service to remote communities. However, much of the discussion has ranged around whether the cable companies would be allowed to charge a certain amount for the basic service and a second tier of charges for first run movies, sporting events not otherwise seen, musical specials, or other such entertainment fare.
There is a sense of unreality about many of the arguments being presented to the CRTC. The Hearing is not really a discussion about pay television. We have always had pay TV. The question is only whether the user should pay on a voluntary or involuntary basis or both.
When we watch a supposedly free television programme, we of course realize that we pay for this privilege every time we buy a good or service. The cost of advertising is built into all the products and services we buy. People everywhere pay this cost whether they watch and enjoy the programmes or not.
The very nature of this process means that the programming must appeal to the lowest common denominator so that the advertiser will get the broadest possible exposure. This has led to considerable dissatisfaction with currently available programming. The cable companies’ proposal is to offer more specialized programming without commercials, for which people would pay or not as they choose and as their interests dictate.
In the United States there are now specialized channels that provide sporting events, cultural packages, foreign productions, special language packages, and other such fare. The charges for each of these are purely discretionary.
It is our belief in this user pay concept that has caused the cable companies to pressure the CRTC to allow pay television in this country. The only reason pay TV did not start earlier was that there was no effective way of monitoring viewing or collecting for it in the early days and so advertising was almost the only approach. There never was a problem with charging for attendance at movies or for purchasing books. The ability to collect for services provided is fundamental to any type of retailing. The means is now at hand to charge for selective viewing on cable.
THE SERVICE BOUTIQUE
On the assumption that the CRTC will allow a second tier of charges for entertainment and has already said it is not intending to regulate non-entertainment services, the future of cable as a retailer should be assured. But what else could the cable retailer put on its shelves.
I have mentioned security services. These were the first that established the concept of the use of cable for non-entertainment services for a charge. However, indirectly there have been other precedents. In Ottawa, for example, credit courses have been offered on cable for the past couple of years. Although the cable company does not charge for this service, the educational institution does. This is another precedent
However, beyond these initial chargeable services the role of cable as a retailer is just beginning. Despite all the talk about the types of information or service that could be provided in the home or office, there is not yet a clearly established pattern of need or desire that will lead to short run financial success.
As James Martin pointed out in Future Developments in Telecommunications: “The difficulty with providing such home services is that most of them are unlikely to make a profit for a long time. Packages that incorporate many different services could make a profit if there was a sufficient wide coverage and widespread acceptance. But the wide acceptance will not grow if the initial systems fail due to lack of profit. In other words, we have the old telecommunications chicken-and-egg problem: wide coverage is needed for profitability but initial systems cannot have wide coverage.”
We know that systems such as Prestel in the United Kingdom have been operational for some time with a reasonable number of pages of information being offered.
At the present time, however, only about 2,700 Prestel terminals have been installed and most of these are on a free basis. This should not be taken as a discouraging observation, but rather to point out that we must clearly define what the client will buy, even if we have to lead the market a bit to create the needs by offering a suitable menu.
A databank pioneer in Canada, Frank Ogden, and some of his associates have proposed to Premier Communications a series of databanks that might be of use to businessmen. These include:
THE INFLUENTIAL (5,000 influential British Columbians, titles, firms, addresses, phone numbers, brief biographies, etc.)
RESTAURANTS (Where to go for lunch)
THE 100 BIGGEST COMPANIES (With senior personnel, PR reps, profiles, etc.)
ELECTED OFFICIALS AND SENIOR AIDES (This would cover all four levels: Municipal, regional, provincial, federal)
THE MEDIA DIRECTORY (All B.C. newspapers and magazines, radio stations, TV stations, with key personnel, important on-air people, columnists, etc.)
THE HUMAN SERVICE (probably liaison with Gil Evans and the Vancouver Information Service; other agencies)
HOTELS AND CONVENTION FACILITIES
THE SHOPPER (Flowers, gifts, holiday items, with a focus on the busy businessman)
TRANSPORTATION SYSTEMS and CHARTER SERVICES
THE OFFICE DWELLER’S GUIDE (Furniture purchase and rental, temporary personnel, office space availability, copying machines, postage metres, etc.)
PROFILES OF B.C. COMMUNITIES (Elected officials, major industries, services)
I predict a large interest in services to the business community but not just of the type that can be watched in the office. Many a businessman would welcome informative programming that he could watch in the evening or on weekends. This may form a new type of chargeable business expense even though the service is relayed into the home.
WHO WILL TAKE THE LEAD
I am sure there are many in this audience who have heard me talk before about the wonders of the Wired City. Some even may recall an early attempt by Systems Dimensions Limited (SDL) to buy Ottawa Cablevision Limited so that we could experiment with some of these in-the-home and office services. Not to be discouraged by that early CRTC turndown, Premier Communications Limited and Canadian Cablesystems Limited now have their proposal before the CRTC to merge these two companies which are already the two largest in the cable industry in Canada.
If this merger is approved we are committing to make Vancouver into a world class Wired City. It is the intention over the coming five years to rewire Vancouver using the latest techniques for network organisation of broadband communications. This would provide a fully interactive 36 channel system with potential for further channel expansion. The system would have the reliability that comes from backup power and remote status monitoring.
We are further committing to install 10,000 addressable, tierable interactive devices so that meaningful tests can be run in the areas of in-the-home education, teleshopping and a variety of other information and entertainment services.
Only a company with the engineering talent and financial resources of these combined organizations could logically take the risks involved in starting such new projects. We can afford to wait for profits in a way that a smaller organization could not. Some of these projects will be successful and some will not. Those that are successful will be made available to other cable companies in Canada on a basis that will allow them to become economically viable retail offerings.
It is most important in developing these new services that we protect those who do not wish to take them, i.e. we must structure our tiering in such a way that it will not impact on the cost to the subscriber of the basic service. We expect that the basic service will be the over-the-air broadcast package of Canadian and American channels already offered, plus the community channel which people have come to expect as a service of the cable companies. The profit for Premier/CCL will come from the charging for the new tiered services as these prove to have public appeal.
The approval of this major merger will be approval in principle by the regulatory authorities that cable companies would be allowed to grow to their natural potential as broadband retailers of a wide variety of entertainment and service packages.
Despite my opening remarks, this could create some really big waves in the communications ocean.