Friday, September 11, 2009

Canadian Content Regulation: An Outdated Policy

I’m planning a few blog entries about the economics of government policy, and its relationship to changes in technology. The first issue I am going to take up is Canadian content regulations.

Canadian content regulations have long generated significant debate. I’m not going to get into the classic arguments over whether these are cultural guarantees or simple protectionism. Nor will I step into the long debate about what the proper definition of “Canadian enough” ought to be. Instead, I am going to argue that these regulations are simply from a different time, and not appropriate to the new technologies that produce and deliver media. With every passing day the idea of regulating media content is less helpful to Canadian artists, more harmful to Canadian broadcasters, and in a broader sense becoming impossible.

Keep this thought in your head. The Canadian content regulation for television was first passed in 1959. Imagine what TV was like then. There were (at best) two broadcasters in a market. Producing content for TV was incredibly costly, and only a few large production companies could realistically compete. There was no alternative to TV; either you were played on TV, or you were not seen. In those days, the case could be made that the market was not very competitive, and that the returns to scale necessitated dominance by a few production companies selling to a few broadcasters. An economist might call it similar to a natural monopoly: a situation where the costs of doing business necessitate one, or few, producers. The economics textbook’s favourite example is utilities like electricity delivery. It was understandable, perhaps, to be concerned that Canadian content might be lost in the middle of these big players.

Radio wasn’t much different. It was the dominant mode of marketing music. Music production was focused at a few large publishing companies, and radio was king. Again, it might have seemed natural to worry about where the Canadian artist would fit in.

Contrast that with the state of affairs today. Music is delivered through the radio, but also through a variety of internet sources. People listen to songs directly on the web pages of the acts themselves, and sometimes buy directly from there. Developments in video technology mean that television production requires much less overhead, and there are such a large number of stations as to serve very narrow markets. There is a channel devoted to Golf. The US supports a Soccer channel, despite its low level of popularity there. It doesn’t take a huge market to generate a marketable channel. On top of the proliferation of cable channels, internet delivery of video, both televised material and material that has not reached the airwaves, is closely following the rollout of high speed internet connections capable of carrying that content. In the language of economics, technological change has reduced the “minimum efficient scale” of production. It is now possible to efficiently produce and distribute music at a much smaller scale.

What do all of these changes mean for content regulation? They mean that content regulations are less effective at encouraging Canadian works, and more of a burden for Canadian broadcasters.

In music, radio stations that are subject to these regulations now compete against other sources which do not. Music subscription services, like, offer unlimited streaming of a large library of songs for a fixed monthly fee. Since the listener controls the playlist, there is no control over the “Canadian-ness” of the music. A listener can hear about an artist from a friend, or their favourite music review webpage, or simply by asking the music service itself what songs are typically liked by people with similar tastes. Of course the listener could also stream any of a number of US radio stations, without regard to content restrictions, directly over the internet. These new distribution technologies are making it harder for a radio station burdened by the extra restriction of Canadian content to survive. Independent record labels and internet distribution offer a democratization of music that makes the content of Canadian radio stations far less relevant. Canadian content regulations only hasten the demise of radio in Canada: it adds one more way in which radio can’t keep pace with the times.

If the competition from these new outlets seems like bad news for Canadian content, keep in mind that this reduction in minimum efficient scale is probably great news for exactly the kind of up and coming Canadian artists that content requirements seek to protect. As in many areas of industry, small is often associated with new. Content requirements mostly focus on radio stations, which by and large are entrenched outlets. That is probably why it is so hard to point to recent Canadian artists which were success stories as a result of radio airplay generated by content requirements, and why it is much easier to point to a few Canadian stars whose songs are repeated on Canadian radio to meet the content requirements. Rather than finding great new Canadian artists, the lumbering radio giants look to established Canadian stars that hardly need the exposure. This is nothing new to an economist: big firms are often not willing to take the risks that small firms will.

Some important rising Canadian artists, like Arcade Fire, were never the beneficiaries of much Canadian airplay until they broke through the independent music scene in North America generally. Their story is very telling: it illustrates avenues that are now available for Canadian bands (holding aside the issue of whether Arcade Fire, a band from Montreal but with members from Texas, would formally “count” as Canadian). They took advantage not of the content regulations, but rather benefitted from all of the new technologies that make small scale production and distribution feasible, and offer an avenue for artists who are not yet a sure thing.

TV is headed in the same direction. Streaming video is taking North America, especially the US, by storm. Hulu offers free on demand video content for many popular US shows. It is currently formally not available in Canada, but Canadian stations already offer a (diluted) version of on-demand, streaming content for shows through their webpages. Viewers choose which content plays. Even Hulu, although blocked to Canadian IP addresses, can be accessed easily through a proxy server service. Media is out there, and short of building a Great Firewall of Canada that would have to be even greater than the Great Firewall of China, there is no keeping it from Canadians. Content regulations only serve to hinder Canadian broadcasters who must compete in this environment.

Just as technological change in music gives artists new tools for finding markets, the same applies to video. Websites like Funny or Die offer video that would never see the light of day in a world with only a few broadcast channels, with some videos reaching more than 60 million views. Between the internet and specialized cable channels, video is becoming democratized in the same way as music, offering exciting new outlets for artists who want to produce content and have it be seen.

The world is flat. More and more each day, media comes from everywhere, and goes everywhere. This is great news for Canadian artists who now have the tools to reach out both to Canadians and the rest of the world using these new technologies. But it also means that the idea of regulating Canadian content is starting to look as out of date as a 1959 TV set.


  1. It's worth pointing out that in their early days, The Arcade Fire did benefit from substantial grants and other government support for the production and marketing of their music.

  2. Regarding Ian's comment, I'd go even further. Those other kinds of support may even be more productive, not less, in the current environment. With so many outlets for artists, providing early support has even more avenues to lead to positive outcomes for Canadian artists. Thinking about the changes taking place in these industries can lead to different conclusions for different policies all aimed at assisting Canadian artists.