Canadian Commentary

Who is the Real Pirate?

May 2002

The Supreme Court of Canada recently ruled that the Federal Government has the right to ban Canadians from receiving satellite television from American distributors.

The government has been spinning this decision as a victory against piracy. Industry Minister Allan Rock claimed that it was a blow to "pirates of the airwaves" who are trying to "steal" satellite TV signals.

In doing so, the government is deliberately ignoring the fact that the vast majority of distributors and consumers targeted by the decision are, in fact, paying for the services they receive. They are the "grey market" of people who purchase American satellite services through Canadian distributors. These distributors provide consumers with American postal addresses so they can receive programming from the United States that is not available in Canada.

The government is trying to deflect attention to the minority of "black market" distributors - who sell pirated copies of satellite decoding equipment, and who are defended by no-one - because the issues involved in the "grey market" are much more problematic, and could discredit government policy in the eyes of public opinion.

The intentions of the Federal Government's television policies are noble - to ensure that Canadians have access to high-quality Canadian programming on their televisions, and that Canadian television producers have the revenue to produce such programming. In order to do so, anyone who distributes television channels in Canada, by cable and now by satellite, has to make sure that Canadian channels are included in the mix. As a result, these Canadian channels receive a portion of the subscriber revenue.

The effects of the legislation, unfortunately, are not so noble. Setting up a satellite TV network takes a lot of resources, and in Canada only two large, well-established companies - Bell Canada and Shaw Communications - have done so. Bell's ExpressVu and Shaw's Star Choice are a duopoly - two companies that have a lock on the Canadian market. Because there is little real competition, these companies do not have much incentive to challenge each other by providing better service or trying to reach niche customers.

Unlike cable TV, however, satellite TV customers have an alternative to this government-mandated monopoly, because satellite signals can be picked up from across the US border. The extent of customer dissatisfaction with the service provided by the Canadian satellite television duopoly is demonstrated by the fact that an estimated 500,000 Canadians are willing to pay a considerable premium to get satellite television from the United States. These subscribers are looking for channels that Canadian services don't bother to provide, from specialized sports to a wide variety of ethnic programming.

Rather than trying to provide programming that would satisfy these customers, an effort which might cut into their profits, Canada's satellite duopoly is looking to the Federal Government to protect their privileged position. By going to court to stop the "grey market", these companies are in effect getting the taxpayer to protect their profits, by having Canada's government and police forces remove the competition.

Not only is this effort bad for the customer, it also reflects badly on Canada's cultural policies. When efforts to promote Canadian culture result in the protection of a privileged duopoly that provides poor service to customers, voters will start to question whether these cultural policies are really effective.

Is there a way around this problem? The answer is yes. The Supreme Court's judgement was in fact very narrow. It did not judge on the principle of excluding the "grey market". Rather, it simply decided that the issue was a political one - that the government can ban "grey market" satellite service if it so chooses. In other words, the issue is in the government's hands.

The key goal of the government's cultural policies is to make sure that Canadian producers receive sufficient revenue to create good, attractive Canadian content. Why not, instead of banning American services, simply legislate that Canadians wishing to use these services have to pay a monthly premium that would compensate Canadian channels for not being part of the service?

The premium would be significant - perhaps $20-$30 a month. It would be enough to discourage casual consumers from using US services. But those customers who had a specific interest in programming that is only provided by an American service would be able to do so legally, while still supporting Canadian cultural policies. Customers of US services are already paying a considerable premium for them, and their administrative costs would be reduced if their situation was legalized, so their situation would not change significantly.

By imposing heavy-handed measures that protect a corporate duopoly, and then trying to spin the story against perfectly responsible customers and voters, the federal government risks bringing its worthwhile policies of encouraging Canadian culture into disrepute. With an original approach that adapts Canada's cultural policies to new technology, the government could instead find a way to pursue its cultural goals while still allowing Canadian customers to view channels that are important to them.

May 2002

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