Ongoing disagreements over wholesale rates continue to divide broadcast industry

Astral Media Inc. chair André Bureau is demanding that the CRTC impose a cost separation on broadcast distributors breaking down the numbers for television, Internet and telephony businesses as specialty channel broadcasters say proposed wholesale rate reductions by those companies will unfairly subsidize their rollout of non-television initiatives. "They should have a separate accounting for their programming and distribution, than for their telecom and their Internet. Because at the present time, (distributors) want us (broadcasters) to pay for all of it and I don’t think it is fair," he said during a panel discussion at the Canadian Association of Broadcasters (CAB) convention earlier this month. "Their shareholders should know what they are paying for and we should know. And the commission when it wears its distribution resolution hat should know where the money is going and what is the contribution of the programming services." He added that it was time for the CRTC to impose cost separation. "It’s easy, and it’s part of the tools that the commission has. They don’t have to change the Broadcasting Act to do it," he noted. But Dean MacDonald, executive VP and COO of Rogers Cable Inc., told Canadian Communications Reports that the request is simply a smoke screen intended to divert attention away from new market realities. MacDonald and Tim McGee, president of satellite TV distributor Bell ExpressVu LP, told CCR that changing market conditions indicate that lower rates are needed. Both also stated that distributors need some return or break as they are putting a lot of capital into growing the TV distribution business. "You look at how much set-top boxes are. Now we have to go to high-definition (HD) services, and we have video-on-demand (VOD) and all these services that Mr. Bureau has come to welcome. We’re making huge investments in the TV space," MacDonald responded. "He doesn’t want to drop his rates, so he’s throwing a whole bunch of things at the wall to see if he can keep us off his back." McGee told CCR that distributors have brought in hundreds of millions of dollars of new business to programmers that they would never have had if, for example, Bell ExpressVu had not invested heavily in a sophisticated distribution network. He added that distributors are tightening their belts and that programmers should do the same. "I take André’s comments with a grain of salt. We all have a role to play, and it’s just not right if the programmers aren’t taking costs out of their business," he said. "Obviously, programming is the single major element of our cost structure and of our product, but there are also fees to the regulator, and the costs of acquiring a customer is big in our business and the cable business. We have to run the business in a way where we’re not just going to sit there and cut cheques to our suppliers." MacDonald said that with more specialty channels available, the programming is becoming diluted and, therefore, the channels aren’t worth as much. "In terms of these rates, when TSN comes out and they have snooker and dog shows and darts on, I’m not really interested in paying as much for that product as I was maybe five years ago when that type of stuff wasn’t on," MacDonald pointed out. "There are more services available,…so the relevance and importance of an individual channel are lessened. We’re certainly not going to apologize for wanting to reduce rates if we feel that the value isn’t there or our margins are being pressed." With the ongoing battle between distributors and broadcasters over wholesale prices, it will be interesting to see the CRTC’s response to unprecedented wholesale rate increases of 29 cents and 30 cents requested respectively by Sportsnet and the Score during their licence renewal hearings earlier this year (CCR, March 27/03). CTV Newsnet is asking for a more modest wholesale rate increase of 8.5 cents. When the CRTC granted VisionTV a 2-cent wholesale rate increase this year, there were dissents from three commissioners (CCR, Jan. 30/03). The CRTC has already decided on the renewal of the specialty channels and the requested rate increases, but the decision still has to be written and released. During the specialty channel licence renewal hearings, some distributors such as Cogeco Cable Inc. called for the lowering of the wholesale rates of channels with "abnormally high profit margins" (CCR, June 5/03). As well, Vidéotron ltée has used many CRTC processes, including that involving VisionTV, to push for wholesale rate reductions, and the Quebec cableco has played hardball with programming suppliers. Vidéotron unilaterally cut in half the wholesale fees it was to pay Astral. It resulted in the broadcaster pulling the Family Channel from the cableco’s lineup (CCR Update, Nov. 13/02). The matter has since been resolved. Bureau argues that the new specialty channels have added value to the bottom line of distributors, rather than taking away from it. "They’ve had new services, Canadian and foreign, and they have increased the number of subscribers to that and enhanced their revenues," he said. "Yet they come to us and they say in order to establish some kind of equitability in the market, you should reduce your wholesale rates. …And we say why? Frankly why? Our wholesale rates for (Astral’s) services have not changed for the past 15 years. And whatever it is, it is passed on to the subscribers by the BDUs. …And don’t forget every year they increase their retail price. So why are they coming to us to ask for a reduction in rates to improve their margins?"

Ongoing disagreements over wholesale rates continue to divide broadcast industry

Broadcast | November 28, 2003

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