THE MANAGEMENT GROUP OF TELESAT CANADA
OTTAWA. JUNE 28, 1983
Later this summer Telesat, the cable companies and the CBC will be cooperating in a project to bring the proceedings of the World Council of Churches to Canadians and our friends around the world. In trying to define responsibilities for this project I concluded that the cable companies could handle everything up to 100 feet or so above the ground, Telesat could take responsibility for everything from there up to 25,000 miles but beyond that it was strictly up to the clerics.
The cable industry has been working closely with Telesat with Telesat taking the high road and the cable companies taking the low road a little closer to the ground. If we do the right things together we could arrive together at a mutually productive and profitable future.
In general, the cable industry has been at least once removed from being a direct purchaser of satellite services – at least in Canada. However, I believe this will change and therefore it is important that we discuss together the cable industry as a potential market for transponder time.
A BIT OF HISTORY
As the down to earth partner in bringing new services to our subscribers, the cable industry has become a major user of transponder time in North America. Some satellites, as you know, are almost entirely dedicated to pay television or other cable subscriber services. In these cases the cable company acts as the retailer. To a large degree, therefore, your success goes hand in hand with ours.
In Canada the cable industry has attempted to contract directly for satellite time. As you may recall, the industry established the Cable Television Satellite Network (CSN) with the aim of leasing a transponder to carry the Galaxie children’s programming across the country. This programming is created by TV Ontario.
Our application to do this was denied by the CRTC on the grounds that this would be networking by a cable company and might have an adverse effect on the broadcast industry. I am sure I need not remind you of the problems facing a developing new industry such as the satellite/cable system when confronted by a regulator who however well intentioned is operating under a broadcast act that is woefully out of date.
The CRTC tends to define the broadcast industry as being primarily the over-the-air television or radio broadcaster and considers Telesat or the cable companies as being essentially carriers. In any proposal to provide new services the first consideration always seems to be protection of the past.
Again, I need hardly remind a Telesat audience of the recent CRTC decisions on not allowing stereo broadcasting for Canadian Pay TV other than in a limited fashion, the disallowance until recently of Telesat’s thoughtful offer of ballooning payments for Canadian Pay TV, and similar matters. While I would not say that the demise of C Channel and hence the loss of revenue to Telesat is solely a result of these kinds of decisions, clearly they had a devastating impact on a struggling new commercial enterprise.
The fundamental problem that both you and we face is a regulator obsessed with the development of Canadian production facilities and the carriage of Canadian content. It is not that any of us are against this. However, the non-commercial approach taken by the regulators leads to situations where nothing will be financially viable, and hence there will be no money to put into Canadian production or adequate facilities to display Canadian production. You simply cannot get milk from a dead cow and this is what the regulator does not seem to understand.
For our part, the cable industry is quite prepared to have a tax or other subsidy applied to the development of new Canadian film or TV production facilities. We may question the way the particular tax is applied, and certainly feel it is a mistake to apply it on a brand new service such as Pay TV. However, in principle, we are not opposed to initiatives that will help in this area, but together all of the companies operating in the communications business in Canada are going to have to impress on the CRTC that a tax is useless unless there are revenues and profits, and that the regulator simply cannot have it all ways.
Our long stated objective has been to support Canadian production with dollars and reasonable exposure, but Canadian content rules applied on a mathematical basis only cause increasing customer dissatisfaction as Canadians are forced to watch less than adequate Canadian programming. We would prefer to see less programming produced but world class programming. It is just not reasonable to expect Canadians to produce enough programming to fill your satellite or our cable when we have only one tenth the population of the United States. We would be far better to push for quality programming that could become an export item and then leave the cable retailer to market what the public will buy so that we can afford to put the proper dollars into Canadian production.
LOOKING FORWARD RATHER THAN BACK
But that is enough history. It would be more helpful to look at what cable sees is the future of its industry and how this relates to satellite needs. I have already spoken of cable as being essentially an electronic retailer. In the past we have tended to retail only services produced by others, e.g. over-the-air broadcast television or fm, or more recently satellite delivered Pay TV. I believe this is changing.
If you look at the future of cable you might examine it in four broad areas:
This is a highly competitive area. The viewers have many alternatives including video tape, video disc, off air reception, direct broadcast by satellite (DBS), or simply going to the movies or a football game. Even reading a book is an alternative use of discretionary viewer dollars.
It is therefore important that we continue to have the flexibility to experiment in new types of programming. Pay TV is a start. However, a non-advertising supported Pay TV operation has not yet demonstrated that it can be a financial success, with the exception of major movie channels. As you are aware only HBO and Showtime have after many years actually demonstrated a good bottom line.
It is clear that the viewing public would like more specialty channels, e.g. an all sports channel, music channel news channel or a life style channel. However, as these channels are available by satellite it is essential for the cable industry’s survival that we be allowed to deliver the same type of programming. It is unlikely that these U.S. delivered satellite channels will ever be scrambled as they are advertising supported. We will be proposing that the cable companies or others be allowed to take these American signals from the U.S. satellites under contract, Canadianize them and possibly allow Canadian advertisers to buy advertising space to replace American commercials. The signals would then be sent out from our head ends through the cable network.
This form of tiering would provide desired signals which could either be packaged with our pay signals to improve penetration, or could be provided on stand alone tiers.
The implication for Telesat is that if reasonable arrangements could be worked out, it might be feasible to uplink some of these signals again in Canadian in their Canadianized form. Initially, however, we doubt the economic feasibility of doing this.
That is in the near term. Looking a little farther out, the cable industry is going to be faced with some very interesting problems which we hope to turn to potential. you are all aware of the impending intention of U.S. broadcasters to start broadcasting TV signals accompanied by full stereo sound. This will have some implications on the requirements for satellite capacity, as Canadian broadcasters will clearly have to follow suit.
You are also, I am sure, aware of the high res television. This move to convert television density from 525 lines on the screen to 1125 lines will have a major impact. It may move the standard television bandwidth requirements from 6 MHz to 10 MHz or beyond. It is going to require close coordination between Telesat and the cable industry to ensure that this move means not only better service to the clients but profit to us without the disruption that running a two standards system could easily imply.
Further if the above trends to increased narrow-casting i.e. specialty channels, continues the requirement for additional satellite capacity will be enormous. again, the economic feasibility of this will depend on the regulator allowing a mixture of advertising and subscriber fees to support such programming, and hopefully the reduced cost of satellite time as the space shuttle and technology combine to reduce the cost of transponder time. It is with some regret with this kind of future in front of us that I hear some rumblings from Telesat that they may be unable to complete their current launch series.
Moving on from entertainment, another market area we foresee is information in various formats. We already provide what looks like an electronic newspaper on many of the Rogers’ cable systems. These have all the elements of an alpha numeric news channel. weather channel. financial channel, TV listing channel, consumer news channel etc. These are all the elements of a daily newspaper, although we have not formatted them in a way to make this really a saleable feature.
However, all of these suffer from the same problem. They are essentially passive. I believe that it is only with the development of inexpensive interactive information systems that this field will really grow to be of any significance. This raises an interesting marketing problem for Telesat. Essentially for the home user satellite is a one way street. With all the talk about DBS and its impact for the home market, the real hurdle is finding some way of interacting back through the satellite for a wide range of new services. I will be most interested in your opinions but I believe the opportunity for inexpensive uplinks are many, many years in the future, if ever.
This implies a forced interaction between the satellite and the cable or other land communications. Here is clearly an area where close cooperation will be required. I am less optimistic about the short range economic impact of teletext or other essentially passive services than I am with the future of interactive services. This is clearly an area for cooperation between Telesat and the cable industry.
Although this might be considered another form of information delivery, I add this as a potentially important service for cable and satellite in the next few years. It is trite to point out that the changing technological scene will require massive adult retraining in the years to come. If we do not want to move people for all the obvious reasons, we may have to move education to where people are. One of the interesting potential proposals for tiered services is a national education network using satellite. The backers of the Knowledge Network of the West, Access, TV Ontario and others are looking at such a national service.
Again, however, this will only be really effective if there is a high degree of interactivity and this is going to require some imagination if satellite is going to play a two-way role.
There are endless services that may or may not have an impact on satellite technology. but clearly will on cable services. These include in-the-home security, meter reading, in-the-home shopping, telebanking and the whole litany of Wired City services.
However many, like electronic mail, could have a satellite impact, as message handling is clearly a national or even international matter.
WHERE DO WE GO FROM HERE
The New Broadcast Policy announced by the Honourable Francis Fox clearly assigns to cable the role of saviour of the broadcast industry with its contribution to Canadian culture, language and national unity. This is not a role we particularly sought but we clearly understand that neither we nor the government have any alternative. The government has recognised that satellite technology will ultimately make DBS feasible. Satellite signals do not recognise international borders. Therefore the flood of foreign satellite signals could have a damaging effect on any attempts to maintain a Canadian culture. The government therefore views the cable industry as a way of wiring the country together and assisting Canadian broadcasters, Pay TV producers or others to display their wares by helping them through such matters as programme substitution, broadcast repeats or other approaches. If together we are going to develop the potential in this country I believe the following steps are necessary:
1. We must cooperate in convincing the regulator that the cable industry be allowed the flexibility to make its own arrangements for networking such as was proposed with Galaxie. This will mean direct business for Telesat. I would suggest a liaison with Telesat and the Canadian Cable Television Association would be a good place to start.
2. We must anticipate both the capacity requirements and the changing technological requirements that will come about through increased narrow-casting and through the changes involved in stereo broadcasting, high res television, or similar inevitable developments. These have a long lead time in terms of cable plant capacity or satellite capability. Here I would suggest opening a liaison with the Cable Telecommunications Research Institute.
3. Canadian cable companies are active in the United States. With the increased channel capacity available in newly franchised operations there is a desire for additional programming. I would hope that Telesat and the cable industry could work together to convince the government to relax its regulations on the reception of foreign satellite signals.
I believe that Telesat has been an international leader in satellite technology and given a reasonable regulatory break could compete internationally in carrying Canadian signals to the United States. There are a great many Canadians living in California, Florida and elsewhere. I would like to see Canadians offering a Canadian programming package to the United States.
Canada has been a leader in both satellite and cable technology. We can be again if we are allowed to make sensible commercial decisions that are responsive to your ultimate market and mine – the public. Together we must ensure that this is allowed to happen.