Category 2 licensees prepare for tough negotiations; Chum bets on DTH

The CRTC’s decision to license 21 Category 1 channels – double the number initially proposed – could result in Category 2 licensees having to wait even longer to get launched. Digital capacity is finite and with a mandate to make room on digital tiers for all Category 1 services, negotiations to secure digital carriage for the Category 2s could be cut-throat. "(This decision) will mean a little bit less 2s and a little bit more 1s at the initial launch," says Janet Yale, president/CEO of the Canadian Cable Television Association (CCTA). "The (addition) of 1s might come at the expensive of some of the 2s rather than the ability to actually get everything up and launched as promised." On Dec. 1, the CRTC licensed 262 category 2 channels while denying 99 applications, mainly because they would have competed with approved Category 1s. Companies that take the plunge will need deep pockets and patient investors, given that carriage needs to be negotiated, digital penetration levels are low, and distributors will be reluctant to carry too many channels that look alike. For example, at least 17 Category 2 sports channels have been licensed, including five devoted to hockey. How these services get launched will depend primarily on their consumer appeal, and partly on undue preference rules designed to prevent broadcast distributors from moving their channels to the top of the carriage list. Industry executives are already predicting that many Category 2s will never launch, and of those that do, not all will survive. They also suggest that companies may end up giving distributors cash or equity in return for carriage. "I’m sure that some people will (pay), but Chum will not," says Peter Miller, VP of business and regulatory affairs at Chum Television. "Remember under the CRTC’s definition, if cable owns under 10 per cent, it is not deemed affiliated (under undue preference rules), so cable can go around and ask for 9.9 per cent as a condition of carriage," Miller adds. "The reason we’re not prepared to do it is that these channels will lose enough money....The only way these channels can make money is to have them integrated with your existing operations." The CRTC framework calls on distributors to carry five non-affiliated Category 2 channels for every one of its own that it distributes. But Miller contends that Shaw Communications Ltd and Rogers Communications Inc could easily pick up each other’s channels to help fulfill the five-to-one rule, while leaving others out in the cold. Chum’s solution, according to Miller, is to count on DTH satellite for its main distribution into homes. "We’re going to take the gamble that if we launch Category 2s, we can do deals with Express Vu, and using our cross promotion muscle, maybe we’ll win that game of who blinks first." Chris Frank, VP of government relations and corporate development at Bell Express- Vu, says direct-to-home satellite is in a good negotiating position because its service is all-digital, with more than 600,000 subscribers. The CCTA has developed a code of conduct to safeguard against undue preference, one modeled on another drafted by Bell ExpressVu. "The code is a reciprocal instrument. It requires us to do certain things and the broadcasters to do certain things," explains Frank. In particular, the DTH provider wants guarantees that access will be provided on terms and conditions similar to other distributors. That hasn’t happened in the past, says Frank, "because the cable industry has used their influence to ensure that (Bell ExpressVu) paid higher prices and got more onerous conditions." Developed in concert with the Canadian Association of Broadcasters and the Specialty and Premium Television Association, Bell ExpressVu’s code commits to "give reasonable commercial consideration to distributing Category 2 services, having particular regard to viability, marketability and program diversity," as well as subscriber demand and available channel capacity. As for how the digital Category 2 services will be packaged, Yale says the real issues won’t be known until the negotiations begin. "There may be disputes between the parties on some of these packaging arrangements, but we’re confident that these issues will be dealt with through commercial negotiations," she says. "There are going to be tough negotiations because it is a much riskier business environment and it’s tougher for everybody." Pumping up the Category 2s Despite the odds, Category 2 licensees say they’re optimistic they will be among the survivors. Astral Media was shut out from the English-language Category 1 licences, but that didn’t stop the company from touting its success in winning 12 Category 2 channels. Astral’s sole Category 1 was for the French-language fashion channel Perfecto La Chaine, in partnership with Musiqueplus Inc with Chum Ltd. "Many people were surprised we didn’t get any English-language Category 1s... I’d be lying to you if I said we weren’t disappointed. …But we are happy with the 13 we did get," says Karen Spierkel, VP of communications at Astral Media. Another applicant that didn’t do as well as expected on the Category 1 front was Alliance Atlantis Communications. The company had bid for a Category 1 Independent Film and Documentary Channel, which the CRTC opted to divvy up, giving the film portion to Salter Street Films and the documentary side to a Corus Entertainment-led consortium. "In our case, a lot of our more prestigious channels were actually Category 2 channels," says Sue Bowen, a spokesperson for Alliance Atlantis. "We have U.S. partners for all of these channels and the only reason they weren’t Category 1 applications was because of the (higher) percentage of Canadian content." Alliance Atlantis won 34 licences in total, including five movie channels – action, justice, nostalgia, romance and horror – as well as National Geographic Canada, National Geographic Adventure One, BBC Canada, BBC Kids and Do It Yourself Canada. Its two Category 1 licences are for a health channel and PrideVision, in which it owns a 40 per cent stake.

Category 2 licensees prepare for tough negotiations; Chum bets on DTH

Broadcast | December 7, 2000

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