Fee-for-carriage, out-of-market tuning key issues in OTA TV broadcasting review

In tandem with a Section 15 order from the Governor-in-Council earlier this year (CCR, Sept. 13/06), the CRTC’s seven-year review of Canada’s over-the-air (OTA) broadcast industry places a lot of emphasis on technology’s impact on broadcasting. Faced with mounting competition from specialty channels as well as new media platforms, OTA broadcasters seemed bent on charging BDUs for what has hitherto been a free service, and exacting compensation from DTH providers specifically for their role in facilitating out-of-market tuning. Responding to the questions and issues raised in Notice of Public Hearing 2006-5, CTV Inc. urged the commission to introduce a subscription fee or fee-for-carriage arrangement for broadcasters as compensation for use of their signal by BDUs in both local and distant markets. Disagreeing with the CRTC’s characterization of the conventional broadcast system as "healthy," CTV senior VP of corporate and public affairs Paul Sparkes wrote that specialty services are garnering increasing numbers of viewers and more advertising dollars, to the detriment of conventional broadcasters. "Advertisers increasingly regard mass media advertising on private conventional television as being too expensive," Sparkes claimed in his submission. "Instead, advertisers seek more targeted niche consumers delivered by specialty services. Since 1999, the commission has licensed 100 new Canadian digital specialty services, thereby creating more opportunities for advertisers." Sparkes also pointed the finger at out-of-market tuning thanks to BDUs distributing multiple feeds from a same network. "The distant signal phenomenon means that CTV’s distant signals are cannibalizing CTV’s audiences in local markets," he wrote, adding that "the average digital household receives at least eight CTV feeds" according to research commissioned by the firm. In addition, CTV’s submission pressed the CRTC to compel DTH providers to distribute all originating local stations, and eliminate the 12-minutes-per-hour cap on advertising. Citing subsection 3(1)(t)(i) of the Broadcasting Act, CanWest MediaWorks Inc. noted that priority carriage for local programming is already mandated but not uniformly enforced by the commission. "As a result, there are still five CanWest stations not being carried by either DTH provider at this time," reads the broadcaster’s submission, which was penned by VP of regulatory affairs for television and radio Charlotte Bell. "In markets where DTH penetration has exceeded the 30% level, non-carriage has had a detrimental impact on our revenues." CanWest’s submission goes on to cite research conducted by its in-house CanWest Media Sales division showing that out-of-market tuning and distant signal reception cost the broadcaster $29.9 million in lost revenue last year alone. While simultaneous substitution provisions are already in place for cable BDUs, "we strongly urge the commission to enforce simulcast of identical programs broadcast simultaneously on all channels distributed by DTH and cable by whatever technical means possible," Bell wrote in her letter. In his submission, CHUM Ltd. CEO and president Jay Switzer called for greater measures to combat out-of-market tuning and an exemption from the digital migration policy framework for OTA. Like CanWest’s Bell, Switzer was unequivocal in his desire to see the commission allow OTA broadcasters to charge for carriage and viewership. "The commission should allow a subscriber fee model for conventional television and require fair remuneration for distant signals while maintaining priority carriage and simultaneous substitution," he said. "Canadians perceive the value, and in fact, already believe they are paying for conventional television services," Switzer continued. "Local television viewers have been subsidizing, through their basic cable bills, the roll-out of Canadian BDUs for decades. They need not continue to subsidize the BDUs’ foray into Internet, telephony and other assorted non-regulated industries." Although best known for its specialty offerings, Corus Entertainment Inc. does operate three Ontario OTA stations. Unlike CHUM, which has a similar mix of conventional and specialty TV assets as well as radio stations, Corus opposes a subscriber fee for OTA services, noting that it would likely give rise to "a zero-sum game" where the increased cost for BDUs would be passed on to subscribers, possibly harming Corus’ specialty channel revenues. However, like the other OTA broadcasters – CHUM included – Corus stood firm in calling for redress for out-of-market tuning, suggesting that substitution requirements be tightened and that a fund be set up to compensate conventional broadcasters for loss of advertising revenue. "Data analysis to quantify the impact on OTA stations suggests that the impact on PBIT margins is significant and may even represent nearly 10% of current margins," the Corus submission claims. Alain Strati, meanwhile, submitting comments on behalf of Rogers Communications Inc.’s over-the-air ethnic channels OMNI 1 and 2 (southern and eastern Ontario) and M Channel (Vancouver and Victoria), told the commission DTH providers looking to carry an over-the-air local-market signal should be compelled to carry all other signals from that market, including ethnic broadcasters. One group already being financially supported by the BDUs is the seven small-market broadcasters receiving money from the DTH Small Market Local Programming Fund. Since 2003, when the fund first began making payments, the broadcasters reported more than twice as much revenue and pre-tax profit thanks to benefits from the fund, leading them to conclude that the fund is more valuable than a fee-for-carriage arrangement in their instance. Nevertheless, the group of seven broadcasters - Jim Pattison Industries Ltd., NewCap Radio Inc., Norcom Telecommunications, Radio Nord Communications, Télé Inter-Rives ltée, Standard Radio Inc. and Thunder Bay Electronics Ltd. – also requested that DTH providers be compelled to offer priority carriage of local stations to their subscribers within the Grade B transmission contour of those stations. Cablecos Fight Fee For CarriageOn the cableco side, there was a resounding rejection of fee-for-carriage: it seemed a fait accompli to many BDUs that increased costs would be passed on to customers, and TV subscribers would in turn cut back on optional tiers and packages. Predictably, since it owns both cable and DTH BDUs, Shaw Communications Inc. told the commission that it vehemently opposes any notion of compensation for out-of-market tuning. "Shaw does not agree that a failure to monetize out of market tuning justifies regulatory intervention," the submission from senior VP of corporate and regulatory affairs Ken Stein reads. "Shaw does not accept that time-shifting decreases the value of advertising." "Specialty and pay television services do not transmit free over-the-air and thus consumers understand and accept the logic of an associated fee," Stein’s comments continued. "However, the signals of Canadian television stations are available to consumers free over-the-air. Canadians will resent and resist being forced to pay for these signals and many will find alternative sources of programming, including the black and grey market and Web-based services." The submission claimed that broadcasters already get a favourable deal from BDUs through priority carriage, simultaneous substitution, program deletion and other provisions. "A fee for carriage in Canada could only be supportable in the context of an otherwise deregulated, market-driven carriage framework," Stein concluded, adding that while conventional broadcasting’s current popularity is further fuel for arguments against fee-for-carriage, Shaw is not opposed to removing advertising restrictions on broadcasters to allow them to sell more advertising minutes. Bell Canada was more direct in its denouncement of a fee schedule for OTA broadcasters. "Bell categorically opposes the introduction of any form of a fee-for-carriage regime for OTA television signals in Canada. The OTA broadcasters have established neither a need for new funds nor a rationale as to why such funds, if in fact they were found to be needed, should come from BDUs and their customers." The submission continued to state that Bell would likely pass any cost increase due to carriage fees onto its end customers, meaning not just higher monthly cable and DTH fees for consumers but also a likely surge in subscription to grey and black market signals. Fee-for-carriage might have additional consequences, the Bell submission continued. For instance, US providers of programming might increase their licensing fees if Canadian OTA broadcasters are granted the ability to charge subscription fees, simply due to the fact that those OTA broadcasters can suddenly tap into a new revenue stream to pay for programs. Additionally, such an arrangement would have to be accompanied by changes to the priority carriage regime in order to not handicap BDUs, Bell argued. "If the subscriber fee is to be set using market principles in Canada, then BDUs in Canada must be free either to decline carriage of an OTA signal or to place an OTA service that demands a fee into a discretionary package," its submission reads. As for broadcasters’ claims that DTH service was leading to advertising revenue losses due to out-of-market tuning, Bell asserted that the phenomenon is a natural consequence of expanding the available universe of channels, and inevitable given the CRTC’s own licensing policies. Finally, the DTH and cable provider characterized broadcasters’ complaints about losses from out-of-market tuning as inaccurate: "Bell submits that broadcasters are able to monetize a significant percentage of out-of-market tuning, and that more could be monetized….Broadcasters continue to bring distant signals into markets in order to generate additional ad revenue. They do this for one reason only; they know that they will be able to monetize out-of-market tuning." In addition to Strati’s comments, Rogers Communications Inc. also approached the public consultation from the viewpoint of a BDU thanks to its sizable cable operations. It called for a loosening of the advertising restrictions on both OTA broadcasters and BDUs, and rejected the fee-for-carriage proposal. "BDUs already compensate producers and broadcasters under a highly complex and carefully crafted copyright retransmission regime," the Rogers submission reads. "It would not be appropriate for the commission to disturb that regime by setting a fee for carriage that could have the practical effect of establishing new broadcast rights." Cogeco Inc. opted to address only the fee-for-carriage issue, but broke ranks with other BDUs doing so. Caroline Dignard, the Montreal-based cableco’s director of legal affairs, told the commission that in light of increased competition from specialty services, her company lends qualified support to the idea of a fee-for-carriage arrangement, provided four conditions are met: the fee for retransmission rights be initially set at a reasonably low rate, and any future increases in the fee be measured; that a single fee be charged by over-the-air broadcasters that would cover the entire network, including all its affiliated and regional stations; that the fee be applied to all BDUs equally; and, finally, that public broadcasters be prohibited from charging such a fee. Representing Canada’s independent cable operators, the Canadian Cable Systems Alliance (CCSA) told the commission that "BDUs already pay separate compensation under the distant signal retransmission tariff to clear retransmission rights to television programming carried on distant signals." While specialty programmers are paid a fee in exchange for retransmission rights, extending that arrangement to OTA broadcasters would "amount to a double charge for clearance of such rights," the CCSA concluded.

Fee-for-carriage, out-of-market tuning key issues in OTA TV broadcasting review

Broadcast | October 11, 2006

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