The CAB makes its case for audit rights

The Canadian Association of Broadcasters outlines why it feels the Broadcasting Distribution Regulations should be amended to provide for terms and conditions under which programmers could audit the records of distributors for the purpose of verifying the accuracy of affiliation payments. An excerpt of the association’s May 21 submission to the CRTC appears below. The CAB’s request was made in light of growing concern over the number of disputes coming to the commission relating to affiliation payments. According to the commission’s 2003 Broadcast Monitoring Report: "Utilization of dispute resolution mechanisms at the commission is increasing. In calendar years 2001 and 2002, 16 and 37 dispute resolution files were received respectively by the commission. In the first six months, the commission has received 29 complaint files." In total, between May 12, 2000 and Sept. 20, 2003, the commission received 83 dispute resolution complaints. Of these, the commission reported that it had more recently received 27 disputes involving request to audit BDU records to verify totals or accounting methodology for the carriage of programming services… Notwithstanding (the principles outlined in Public Notice 2001-66 and sections 9 and 12 of the Broadcasting Distribution Regulations) such safeguards, programmers continue to be frequently frustrated in their attempts to obtain independent verification of subscriber numbers and calculations, a situation evident in the growing number of disputes relating to affiliation payments that are currently before the commission. Moreover, the commission’s stated principle related to a programmer’s right to audit is silent on many key variables, such as the scope and the range of the audit, confidentiality, notice period and what is meant by "independent" verification, as well as on other key administrative considerations. The current regulatory safeguards lend themselves to differences in interpretation - differences that are seized upon by some BDUs to defer and delay any meaningful audit of affiliation payments. As such, the CAB submits that they should be augmented by an amendment to the regulations that clearly sets out the terms and conditions related to conducting audits of affiliation payments… …As the CAB noted in its Dec. 12, 2003 letter to the commission, the nature of the broadcasting business is unusual in that few other businesses operate without a clearly established mechanism to verify compensation received in respect of goods and services sold. Programmers do not have a direct relationship with their viewers, who are subscribers of the BDU. Therefore, it is difficult to directly verify that subscribers have actually received programming without the express cooperation of BDUs. Accordingly, in the absence of an audit, programmers are forced to rely solely on the statements provided by BDUs even though they may contain accounting errors. For many years, a programmer’s "right" to audit an affiliate’s records was simply a generally accepted industry practice. More recently, however, certain BDUs have refused to be governed by this industry practice… The CAB submits that programmers should select and pay for the services of a third-party auditor or staff. A BDU should not be permitted to unduly wield "veto" power over the programmer’s choice of auditor. …Programmers should have the right to audit affiliates once per year. Programmers should have the right to audit an affiliate’s records for the preceding three-year period, where necessary, to verify that payments remitted accurately reflect subscriber levels and contractual terms. A period previously audited should not be re-audited unless new information has surfaced, or there are probable grounds to re-audit. …The programmer’s auditor should have access to any documents, business processes or information systems involved in the processing of affiliate payment information... The auditor should have the right to retain copies of any documentation that directly serves to substantiate the auditor’s conclusions.

The CAB makes its case for audit rights

Broadcast | May 21, 2004

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