Canadian Heritage commissioning study on value of Part II broadcast fees

Apparently in response to longstanding concerns by broadcasters, Canadian Heritage this month issued a request for proposals to conduct a wide-ranging study of Part II licence fees. The news isn’t necessarily good for private broadcasters and their lobby group, the Canadian Association of Broadcasters (CAB), however. The tender notice for the project notes that it will build in parameters such as the value of simultaneous substitution rules to broadcasters in assessing the value of a broadcast licence. Companies wishing to win a contract to study the fees have until April 7 to submit their proposals outlining the methodology that would be used to determine the value of a broadcast licence. The department won’t say any more than what has been made publicly available in the tender to keep the process as fair as possible. But, sources within the department state that the study has been sparked by pressure by the CAB, which argues that the Part II fees are an illegal tax (CCR, Oct. 31/03, Oct. 16/03), and which has brought the issue to court (CCR Update, Jan. 29/04). There have been no developments on the legal case since its was filed, according to CAB VP of communications Pierre Pontbriand. The CAB had not returned calls by press time for comment on the study. Some bureaucrats within the department argue that the amount that the broadcasters pay in Part II fees is nothing compared with the protection that is granted to them in the form of simultaneous substitution regulations and other rules such as the one-channel-per-genre provision that protects Canadian-owned analog and Category 1 digital non-ethnic specialty TV channels. The tender for the project issued by Canadian Heritage notes that, "To begin to understand the different methodologies that could be used to assess the value of a broadcasting licence, the study must at least determine and outline how to quantify: What is the present economic value to licence holders of simultaneous substitution rules? Correspondingly, the study should consider what it costs broadcasting distribution undertakings (BDUs) to provide simultaneous substitution." Canadian Heritage notes in its request to potential bidders, "Part II fees, to which the proposed study relates, constitutes 1.365% of a broadcasting undertakings’ gross revenue in excess of an applicable exemption level. The Part II fees paid by broadcasting undertakings are deposited to the (federal government’s) consolidated revenue fund and their publicly stated purpose is to: 1. earn a fair return for the Canadian public for access to, or exploitation of, a publicly owned or controlled resource, i.e. broadcaster’s use of the broadcasting spectrum; 2. recover, for the government of Canada, Industry Canada’s costs associated with the management of the broadcasting spectrum; and 3. represent the privilege of holding a broadcasting licence for commercial benefit." For 2003-04, the CRTC collected $102.5 million in Part II fees from both TV and radio broadcasters as well as distributors, according to the CRTC Performance Report, covering the period ending March 31, 2004. More than half of that total, however, is paid by distributors, and not broadcasters. Canadian Heritage director of innovation Alan Zimmermann tells Canadian Communications Reports that the call is a first step in re-evaluating the Part II fees, and that the department won’t pre-determine the outcome at this early stage of the process. "Part II licence fees exist. I think what we’re trying to do is get better information on what the value of the broadcasting licence really is, and that’s all. I think we have to sort of know what the value is in modern terms, in today’s terms, before you can start saying this shouldn’t be, or it should be that," he says. "The broadcasters have been talking about this for a long time (Part II fees), and so I would say (the study) is related to that more than anything." The CAB has been lobbying for changes to the Part II fees since 2001 (CCR, Oct. 26/01). The CRTC has consistently stated that while it collects the Part II fees, which are due by November of each year, on behalf of the government, it has no power to change them. Zimmermann states that the last time that the value of simultaneous substitution was examined was back in the late 1980s or early 1990s, and that factors such as new technologies may have changed how much a broadcasting licence is worth. "What we’re trying to get, I suppose, is different types of methodologies that we can use to really assess the value of a broadcasting licence, what the commercial value of a broadcasting licence is and sort of update our information," he notes. "What we’re trying to do here is get an idea of how you go about measuring the value of a broadcast licence. I mean, we have been looking at this for some time now, and one of the things that has become clear is that it’s not an easy question, and that there’s a lot of factors involved in holding a broadcasting licence. In fact, it gets more complicated with new technologies and the convergence of new technologies. So what we’re trying to do is find out how we go about studying this stuff first of all, and then from there actually undertaking a study that will use one of these methodologies that will hopefully come out with a value." Canadian Heritage notes in its request for bids to undertake the Part II fee study that the federal government made a commitment to examine the issue in its response to the Our Cultural Sovereignty: The Second Century of Canadian Broadcasting report released in November 2003 by the Clifford Lincoln-chaired Standing Committee on Canadian Heritage (CCR, June 20/03). A similar commitment was also made in the government’s response to the Third Report of the Standing Joint Committee for the Scrutiny of Regulations, Report No. 73 – Broadcasting Licence Fees, which was released in March 2004. "The goal of the proposed study is to determine the different methodologies that could be used to assess the economic value of broadcasting licences held for commercial benefit," reads the request for bidders to undertake the study. "This study’s results would assist in determining the degree to which fees paid for the ‘privilege’ of holding the licence are proportionate to the benefits they yield to the licence holders." The proposed study, notes Canadian Heritage, should also look at the various licence types and how they are affected by the size and characteristics of the markets for which their licences are issued. The department also suggests that the study look at the economic value that the media companies ascribe to their broadcasting licences, and attempt to quantify the various determinants of value that flow to licence holders. The department points out that the study must determine and outline how to quantify not only the value of simultaneous substitution rules but also the economic value to licence holders of the regulations set out in section 19 of the Income Act, the economic value of publicly-owned radiocommunications spectrum to which broadcasters are given access, and should also consider such issues as protection from competition, subsidies for the purchase or creation of the required Canadian content, and priority carriage and placement rules. The study is to also compare Canada’s practices with similar Organization for Economic Co-operation and Development (OECD) countries, and examine how other jurisdictions assess fees for holders of broadcasting licences. Canadian Heritage expects to spend a month or so evaluating the proposed methodologies after the April deadline, and then commissioning an actual study by the end of May. Zimmermann expects that a final report could be ready as early as the end of July.

Canadian Heritage commissioning study on value of Part II broadcast fees

Broadcast | March 29, 2005

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