Why the Crull controversy is a symptom of Bell Media's bad bundles bet

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The furor over Bell Media President Kevin Crull's banning of CRTC Chair Jean Pierre Blais from CTV news coverage following the pick-and-pay decision made for a remarkable news day yesterday.

From the initial Globe report to the unprecedented response from Blais to the Crull apology, it was a head-spinning day. While Bell presumably hopes that the apology brings the matter to a close, that seems unlikely to be the case as there are bigger implications for Crull, CTV News and Bell more broadly.

Crull's future has been the subject of much talk, with some calling for his resignation, particularly since there is evidence that this is not the first instance of the editorial interference. Assuming it has occurred before (the reference to "re-learning" in the Crull apology is telling), CEO George Cope was undoubtedly aware of the practice and must surely have condoned it, suggesting that Crull will survive.

However, Crull's bigger problem may be that his ability to represent Bell Media before the CRTC has been irreparably damaged. Bell could have Cope represent the company rather than Crull (indicating the seriousness of the issues), but Crull will struggle as the public face of the company before the regulator for as long as Blais remains chair.

The CTV News problem is that the Crull apology does not address the broader systemic problems of editorial interference. Unless it plans to have Robert Fife cover all telecom and broadcast matters, its future coverage will be subject to intense scrutiny and skepticism over whether it is unbiased. As Steve Faguy argues, an independent investigation and stronger walls between editorial and corporate executives is needed.

Moreover, Peter Nowak calls for an independent ombudsman within the company to address editorial independence.

The bigger implications are for BCE and Bell Media itself. Crull's editorial interference reflects what must be enormous corporate frustration with the CRTC. Bell could once reliably count the CRTC as an ally, but the Commission has ruled against it on a host of issues in recent months, including pick-and-pay, simultaneous substitution for the Super Bowl, and the legality of MobileTV service. Those decisions and the Bell frustration speak to the biggest issue of all: the company's big bet on one bundle -- Internet, wireless, broadcast distribution, and content -- is falling apart due to market and regulatory changes.

Bell's bet on vertical integration, which included buying Astral and CTV, was premised on the idea that Canada's biggest communications company could create the ultimate bundle with consumers buying their Internet access, wireless services, and television packages from a single source. That same source would own the majority of television channels and the Canadian rights to the most popular programs. It could then leverage this control by creating unmatchable offers to entice consumers (ie. data-free mobile access to television services) and give advertisers access to the most comprehensive data on user preferences and online activities.

That might be attractive to business analysts, but the vision has faced steady opposition from government, regulators, and market developments. Government has emphasized the need for more competition in wireless services with spectrum set-asides designed to assist new competitors. As noted above, the CRTC has ruled against Bell on several key issues in recent months and may yet order wholesale access to fibre Internet access. The Privacy Commissioner and/or the CRTC may also rule against the targeted advertising approach. Meanwhile, companies like Netflix have proven to be far more effective competitors than Bell likely anticipated.

It is no coincidence that Bell's anger boiled over with the pick-and-pay decision, since it was particularly harmful to Bell's one-bundle vision. A week after the decision, Bell has still not publicly commented on the ruling, but three aspects of the decision represent worst case scenarios for the company.

First, pick-and-pay will make it far more difficult for the company to cross-subsidize some of its unpopular channels through bundling. With limited ad revenue and lost subscription revenue, some of those channels will shut down.

Second, the basic service requirement of a $25 package hurts Bell the most, since its Bell Fibe service has the highest price among the major providers for basic service. Further, while it might be inclined to exclude U.S. channels from the basic package, it will be difficult to do if competitors such as Rogers (which argued for inclusion of the U.S. channels in a basic service and is bleeding customers to IPTV services) add them to its service.

Third, as I pointed out earlier this week, the pick-and-pay decision specifically targets vertically integrated companies. For example, starting in September 2018, for every service offered by a vertically integrated cable or satellite company, an independent programming service in the same language must also be offered if available. That policy severely undermines Bell's ability to leverage its large cohort of channels.

Bell Media has been scrambling to adjust to these developments with calls for blocking U.S. channels, making it more difficult to access U.S. Netflix, levying a TV tax for conventional channels, and challenging the CRTC decisions on MobileTV and simultaneous substitution at the Federal Court of Appeal. But these moves smack of desperation as doubts increase about whether its multi-billion dollar bet on bundling will pay off.

 

This piece originally appeared on Michael Geist's blog and is reprinted with permission.

Photo: wikimedia commons

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