Distributors oppose requests for wholesale rate increases by specialty channels

Cable and satellite TV distributors are opposing requests for wholesale rate increases by specialty channels, despite upping their subscription fees by as much as a few dollars over the past year or so. Direct-to-home (DTH) satellite TV distributor Bell ExpressVu LP tells the CRTC that any rate increase must be fair to the distributor, the consumer and other channels, and ideally should be determined by market forces. The satellite TV company opposes the huge rate increases being demanded by The Score and Rogers Sportsnet as part of their licence renewal applications (CCR, March 27/03). Sportsnet is asking for a 37% rate increase to $1.07 and The Score is requesting a 300% increase to 40 cents. Less vocal on the rate increase demanded by affiliate CTV Newsnet, Bell ExpressVu notes in May 1 general comments on wholesale rates that any increases “should be modest, fully justified, and sustainable in the market.” “The commission has now determined that market forces should determine retail rates charged to individual consumers. We submit that the same treatment should be appropriate for all programming service rates,” Bell ExpressVu writes to the CRTC. In its submission, the Canadian Association of Broadcasters (CAB) rejects that approach, stating that CRTC regulation “continues to be a valid tool in negotiating wholesale rates…” Bell ExpressVu points out that since its channels are sold in thematic packages, a significant or rapid rise in one channel’s rate could result in reduced demand for other licensed Canadian services that are packaged with the service granted the large increase. “Reduced consumer demand or subscriber churn will be the likely outcome,” the distributor states. In fairness to other channels, Bell ExpressVu argues that “established services should not be permitted to significantly increase their wholesale rates to a point that they foreclose the ability of other licensed services to launch or sustain a viable service.” In its licence renewal application, The Score noted that distributors are bound to raise prices as a result of basic cable deregulation, and the real question is how much of the subscriber rate increases would be passed along to programmers (CCR, Jan. 30/03). But Bell ExpressVu counters that argument with claims that, according to CRTC data, revenues for pay and pay-per-view TV services rose an average of 27.7% per year between 1998 and 2002 (CCR, Feb. 28/03). “While DTH operators struggle towards the initial stages of profitability and while digital distributors spend considerable amounts of money to provide capacity and equipment for new services, including HD-TV and interactive TV, the specialty services, as a whole, appear to be doing very well financially,” reads Bell ExpressVu’s submission. The DTH operator notes that it has lost money in every year since it began operations in 1997, and that large wholesale rate increases would threaten its expectation of breaking even on an EBITDA basis in 2004. “Large rate increases by a relatively few programming services is inflationary (in terms of other services), dampens demand for (other) services and ultimately acts as a disincentive for investments in new capacity, technology and new consumer equipment,” Bell ExpressVu states. The DTH operator also asks the CRTC to closely examine the financial projections of the specialty services seeking licence renewals, particularly those seeking significant increases in their regulated wholesale rates. The Canadian Cable Television Association (CCTA), which opposes the rate increases including that of Rogers Communications Inc.-owned Sportsnet, accuses the channels of underestimating advertising revenue growth and the number of subscribers forecast. The CCTA suggests that Sportsnet, The Score and CTV Newsnet would all be profitable if more realistic figures were used. The association also accuses Sportsnet of projecting substantially higher depreciation expenses in its licence renewal application than would appear to be justified, and says The Score has failed to include $1 million in other revenue in its projections. Bell ExpressVu also urges the CRTC to ask in its deliberations on the proposed wholesale rate increases whether the service is remaining true to its licensed format. Like the CCTA, it suggests that The Score is seeking a rate increase to compensate for past programming risks that didn’t work out (CCR, Aug. 29/02). “The financial challenges that (The Score) has encountered are due more to business decisions respecting the acquisition of live sports event programming from non-Canadian sources. While the CCTA does not object to providing programmers with the flexibility to explore new formats, the risks associated with doing so should be borne by the service,” the CCTA states in its May 1 submission to the CRTC. Bell ExpressVu also questions Sportsnet’s contention that it needs the rate increase to remain competitive with TSN. “Though (Sportsnet) may aspire to compete directly with TSN, its mandate is to provide a distinct programming service. ExpressVu is concerned that (Sportsnet’s) desire to position its service as a direct competitor is driving (Sportsnet’s) programming choices and expenditures, and a need for wholesale rates that are the same as TSN’s,” the satellite TV distributor states in its May 1 submission on Sportsnet’s request for a rate increase. The specialty channel licence renewal applications generated more than 900 interventions, according to the CRTC.

Distributors oppose requests for wholesale rate increases by specialty channels

Broadcast | May 8, 2003

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