CHUM counters Cogeco request for rate decreases, as several channels seek raises

CHUM Ltd. was left to defend itself against a suggested decrease in the wholesale rates of some of its specialty channels during a CRTC hearing that wrapped up this week on the licence renewal of the specialty services licensed in 1996 (Broadcasting Notice of Public Hearing 2003-3). Several channels, including CTV Newsnet, The Score and Rogers Sportsnet, came cap in hand to the hearing seeking regulatory permission for unprecedented hikes to their regulated wholesale rates. But Cogeco Inc. used the proceeding not only to oppose those requested increases, but also to ask the CRTC to decrease the rates of the most profitable channels. In rebuttal comments on June 3, the last day of the hearing, CHUM president and CEO Jay Switzer stated, “At CHUM, we’re astonished by Cogeco’s assertion that the wholesale rates for MuchMoreMusic and Space should be reduced. Their success is mainly attributable to the quality programming on the channels, and they rank among the most profitable services in the country, demonstrating that they clearly pull their weight.” He added, “We also find it interesting that a distributor that has reaped the rewards of rate deregulation is looking for regulatory support to force its suppliers to lower the rates they charge. We note that Cogeco has not indicated a willingness to reduce what it charges subscribers should its proposal be accepted by the commission.” In written comments on the proposed rate increases, Cogeco suggested that the commission consider lowering “on its own initiative” the wholesale rates of channels that have “abnormally high profit margins” or those that have their licence conditions modified to reduce their commitments on Canadian program funding, production, acquisition or scheduling. Cogeco listed nine specialty services that it deems have enjoyed average high profit margins during their last licence term. At the top of the list is Le Canal Nouvelles (LCN) with a 43.4% average profit margin and at the bottom is TreeHouse at 19.6%. CHUM’s Space: The Imagination Station is ranked sixth on Cogeco’s list at 25.7%, and MuchMoreMusic is eighth at 22%. “During the hearing, the commission has been asking applicants what criteria (should be used to determine) whether or not a wholesale rate increase is warranted. CHUM has not applied to increase the wholesale rates of any of our services. However, in its intervention, Cogeco has argued and the CCTA (Canadian Cable Television Association) touched on it again this morning – the notion of wholesale rates of those services with ‘abnormally high profit margins’ should actually be reduced,” Switzer stated. “…MuchMoreMusic has one of the lowest authorized wholesale rates of any Canadian specialty service – 3 cents – making the service an incredible value for both distributors and subscribers. Approximately two-thirds of MuchMoreMusic’s revenue comes from advertising, a number that will grow to three-quarters over the next licence term.” Switzer pointed out that the Space channel agreed to a much lower wholesale rate than its authorized rate of 29 cents in order to secure widespread carriage in 1997. “Space has grown to be one of the most popular Canadian specialty services, and drives cable and DTH penetration. Like MuchMoreMusic, Space relies heavily on advertising revenue with only one-third of its revenue coming from subscriber fees,” he said. “To say, however, that Space has abnormally high profits is simply wrong. Space’s average PBIT for its first five years of operation was 21%, only slightly above the industry average of 19%. In fact, of 38 profitable services in 2002, Space ranked 26 in profit margin.” The CCTA and many distributors, including Cogeco and satellite TV operator Bell ExpressVu LP, have opposed the rate increases sought by CTV Newsnet, Sportsnet and The Score (CCR, May 8/03).

CHUM counters Cogeco request for rate decreases, as several channels seek raises

Broadcast | June 5, 2003

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