Small cablecos need programmers’ consent to carry analog signals in digital

The CRTC has confirmed that small cable operators must receive the consent of programmers before distributing analog specialty channels on a digital basis – Public Notice 2001-130. But the commission expects consent to be given for digital distribution of analog channels that have not been carried due to a lack of analog channel capacity, and in the case of duplication or migration, where the programmer will be "substantially no worse off, in terms of wholesale fees received." What’s in a definition?The Canadian Cable Systems Alliance (CCSA) is applauding the CRTC for adopting a broad definition of small cable system in its digital migration policy for small cablecos. "It really is the accurate one," says CCSA president/CEO Alyson Townsend of the definition. "You know it’s been some time that we’ve been saying that the companies that we represent are in a different type of business than Rogers and Shaw and other large vertically integrated companies." CCSA cable system members (86 independent cablecos with a combined subscriber base of 1 million) were the big winners in the CRTC decision to classify small cable systems as those systems "not owned or operated, directly or indirectly, by Rogers, Shaw, Vidéotron or Cogeco" – the big four cablecos. The definition is much wider than the one adopted by the commission in its small system exemption order – Public Notice 2001-59. In that case, the definition consisted of any system with less than 2,000 customers. Because of its broader definition of small cablecos, the digital migration policy for small systems extends the number of systems that will be permitted to source U.S. 4+1 signals authorized for distribution in Canada from non-Canadian sources (CCR, Dec. 19/01). The commission also included overbuilders such as Calgary’s Suite Systems Inc. and Vancouver’s Novus Telecom Group Inc. in its definition. "The commission therefore includes ‘overbuilders’ in the definition of ‘small cable system’ for the purposes of this public notice, provided that the overbuilder is not owned or operated, directly or indirectly, by Rogers, Shaw, Vidéotron or Cogeco. The commission would be prepared to review this determination with regard to any particular overbuilder, if it were to attain sufficient size as to command bargaining power comparable to that of its incumbent competitor(s)."Some programmers have expressed concerns that the CRTC’s ruling takes only wholesale fees into account, and not market penetration. They note that a channel that is moved from the existing analog universe that is about four times larger in terms of subscribers than the current digital environment would command lower advertising dollars. "I think that the commission didn’t really reflect on the potential loss of audiences, especially for an operation such as CHUM that gets about 70 per cent of its revenues from advertising, not subscription. So there is a concern there," Peter Miller, VP of planning and regulatory affairs at CHUM Television Ltd., tells CCR. For example, he points out that CHUM’s MuchMusic specialty channel has been a great addition to cable packages because its solid advertising revenues have allowed CHUM to offer relatively low wholesale rates. But if MuchMusic loses some of that advertising revenue with a move to digital, does CHUM jack up the wholesale price and perhaps make itself less attractive? Miller asks. Most programmer representatives interpret the clause on wholesale fees in PN 2001-130 as meaning that there would have to be a wholesale fee top-up for any channel moved from analog to digital to offset the lower digital subscriber base. But it is unclear what would happen in the case of an analog channel receiving carriage for the first time in digital. "What happens if a system hasn’t been able to carry some analog channels because of (lack of) capacity, but can now? What happens there?" Miller asks. "The CRTC is saying you should basically give them the same sub rates (they’d get in analog)." However, Janet Yale, president and CEO of the Canadian Cable Television Association, has a different interpretation. She argues that the same fees won’t necessary apply because the channel would actually be receiving a net increase in revenues since it wasn’t carried at all previously and thus no income was derived. "I think the real trick is what does ‘substantially’ mean?…That’s one of the things that we’re going to have to work through," she notes. She points out that if wholesale rates were to go up too much in digital to compensate for lost analog revenue, broadcasters could price themselves out of the market. "It’s a trade-off, because you’re not protecting your revenues (if you price yourself out of the market)," she says. Small cable operators claim they cannot afford analog wholesale fees for specialty channels that they previously couldn’t carry but want to offer in digital. Ken East, operations manager of Omineca Cable Vision, which serves just over 2,000 subscribers in B.C., points out that ROBTv wanted higher rates when the channel was negotiating digital distribution with Omineca. "But in going digital, we can’t afford to be paying analog rates. And we just said ‘no’," he tells CCR. "(We told ROBTv), ‘you can either make some money off us or you can make no money.’ The digital rates are based on the number of set-top boxes out there, so we can’t have a skewing of the rates." Most digital carriage agreements for small cablecos are negotiated through the Canadian Cable Systems Alliance (CCSA). But East notes that the CCSA has not yet come to terms for digital distribution with ROBTv or the Women’s Television Network (WTN), so he negotiated on his own. He had a clause added to the agreements requiring that once the CCSA inked deals with the services, they would take precedent. East predicts that due to capacity constraints in analog, a majority of specialty channels will eventually be offered in digital on small cablecos. "Over time, I think that small systems will have 75 per cent of their channels in digital," he predicts. He uses Omineca as an example. Its channel capacity expanded from 40 channels to 153 when it introduced the HITS QT digital solution a few weeks ago. As a result, many analog channels were added to its digital packages, and now 66 per cent of the specialty channels carried by the cableco are only available to digital subscribers. CCSA president and CEO Alyson Townsend concedes that small cablecos may come under fire for not using all of their analog capacity to carry Canadian specialty channels, opting instead to carry some U.S. services first. "I understand that this will likely be brought up by programmers when we go forth with this decision," she says. "In many cases, though, small cablecos haven’t been able to add more channels (in analog) because they don’t have capacity for anything. Independent cable companies are always trying to juggle the regulatory requirements with what their customers want so that they can remain competitive." However, Townsend dismisses fears that channels currently being carried will be moved from high-penetration analog tiers to digital. "The reality of the situation is that most of the companies that we represent do not intend to do that. They do not want to hurt their analog lineup," she points out. East concurs, noting that Omineca’s analog lineup provides it with a tool to compete with its satellite TV competitors. Omineca has a marketing campaign touting the fact that its analog tiers can be received on multiple television sets in a household. With digital distribution, a set-top box is needed to receive digital signals on each television.

Small cablecos need programmers’ consent to carry analog signals in digital

Broadcast | January 18, 2002

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