Canada shouldn’t follow ‘broken’ U.S. value-for-signal system, U.S. analyst says

A U.S. analyst is warning the Canadian broadcasting industry not to follow in the footsteps of the U.S. retransmission consent regime following a carriage dispute and signal blackout between News Corp. and Cablevision Systems Corp. “If Canada is following the broken U.S. model, they should think twice about it,” Jeff Kagan, an independent communications industry analyst in Atlanta, said in an interview. The U.S. retransmission regime gives over-the-air broadcasters the power to pull their signals if carriage negotiations fail. It is similar to the value-for-signal system now under consideration at the Federal Court of Appeal. The CRTC introduced a value-for-signal policy last spring, but referred the matter to the court for a ruling on the commission’s jurisdiction to implement it. Kagan suggested the American model gives broadcasters too much power and said consumers in the United States are facing rising prices but see next to no increase in value in their television services. “Cable rates have doubled in the last 10 years,” he said. In October, News Corp. pulled its Fox TV signals from Cablevision because the companies couldn’t agree on how much Cablevision should pay to distribute the channels to some three million subscribers in the New York City area. That left Cablevision customers without access to popular Fox programming for two weeks—including some of the World Series. Prior to the dispute, Cablevision paid News Corp. $70 million US per year to carry the over-the-air channels, but news reports said News Corp. wanted $150 million US. Kagan said broadcasters argue that they’re providing more value through more channels, but that doesn’t necessarily satisfy viewers. “The average customer only watches a handful of channels,” he said, adding people are paying more but for content they don’t want. He said it’s time for the industry to move to an a-la-carte system whereby customers can choose individual channels. If a customer doesn’t want a particular channel, they shouldn’t have to pay for it, he said. “It’s not a fair system the way it is now.” During the carriage dispute, Cablevision appealed to the Federal Communications Commission (FCC), but the regulator refused to get involved. The blackout ended with an agreement in November, but Cablevision complained it was forced to pay an unfair amount to broadcast the Fox signals. The Fox TV blackout also raised the possibility of new rules for the U.S. retransmission consent regime. Cablevision is now before the FCC arguing for more specific rules to deal with disagreements between distributors and broadcasters. Last week, a U.S. Senate subcommittee met to determine whether new regulations are needed to protect consumers and make the carriage negotiation process more transparent. Kagan said no matter how much consumers complain to the cable companies, they will still have to pay broadcasters to access over-the-air content. And when the over-the-air networks increase their carriage rates, the cable companies pass those costs on to subscribers through higher cable bills. David Ellis, a technology consultant and instructor at York University’s communication studies department, said the battle between News Corp. and Cablevision delivers a tough lesson for the Canadian broadcasting distribution industry. “Canada could learn that it’s bound to happen here ... and there’s very little the authorities can do about it,” he said. The difference is that, for Americans, television is just entertainment, Ellis said. In Canada, it has cultural importance. As a result, the CRTC may be more motivated to step in to help resolve the issue, he said. For Ellis, value for signal isn’t all that valuable. “I’ve never been persuaded this is a good idea,” he said, adding that over-the-air television viewership has been declining for years and that it’s too late to try to save the industry with regulatory changes. Martha Fusca, president and CEO of Stornoway Communications, said she questions who is intended to benefit from value for signal. It’s supposed to help fund over-the-air stations, she said, but now that cable company Shaw Communications Inc. owns Canwest’s broadcasting assets and BCE Inc. is acquiring CTV, it’s the broadcasting distributors that end up with the funds. “If you’re like Bell and you own CTV, you can pay yourself that fee,” Fusca said. If the Federal Court of Appeal approves the CRTC policy, it remains unclear whether Bell and Shaw would choose to enter value-for-signal negotiations for the carriage of their over-the-air channels. The companies are expected to conduct internal analyses to determine whether negotiating carriage is worth it. In an appearance before the House of Commons heritage committee last Thursday, CRTC chair Konrad von Finckenstein affirmed the commission’s support for value for signal. “We have said the broadcasters and distributors should negotiate for the value the signal that’s being distributed. We don’t see why the distributors pay for the specialty signals, but they don’t pay for the over-the-air signals,” von Finckenstein said. But he added that value for signal negotiations, if approved by the court, could take on a very different look in Canada than in the United States. “In the interim, we’ve had this vertical integration, where most of the major broadcasters are owned by the distributors. Those negotiations may take a totally different form than what you see in the U.S. It’s up to them to decide. All I do is set the scene if the court says we have the power to do so,” he said. Rita Cugini, acting vice-president of broadcasting at the CRTC, told the committee that the commission expects a decision from the Federal Court of Appeal before the end of the year. news@thewirereport.ca

Canada shouldn’t follow ‘broken’ U.S. value-for-signal system, U.S. analyst says

Broadcast | November 22, 2010

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