Independent broadcasters to propose changes to new vertical integration rules

Independent broadcasters say they are encouraged by the CRTC's new rules regulating a vertically integrated broadcasting sector but that they intend to propose some amendments to the regulations. “The actual implications of what the commission has done will require some thought,” Joel Fortune, counsel with the Independent Broadcast Group (IBG), said in an interview with The Wire Report. Following a decision Wednesday that introduced a set of new rules for large, vertically integrated broadcasters, industry insiders and experts said the more clearly defined carriage rights and operating relationships between broadcasters and broadcast distributors will offer independents more protection against increasingly powerful market players. Vertically integrated companies are those that have both broadcasting and broadcast distribution assets. Fortune agreed that the new policies are encouraging but said not all of the measures are guaranteed to be effective. He pointed to the new carriage rights provisions, which require vertically integrated broadcasters to carry one independent specialty channel for each of their own affiliated specialty channel. Vertically integrated carriers can pick and choose third-language independent specialty channels to fulfil the requirements for their own English-language channels, he said. Citing 2010 research conducted by the IBG, he said several of vertically integrated carriers already host a large number of third-language specialty channels and could conceivably add dozens of their own English-language Category B channels before being required to add more from independents. Fortune said they could add more third-language independent channels, which likely wouldn’t offer the same type of competition as English-language channels. Independent channels added to fulfill the rule should be in the same language as the affiliated channel—a position Fortune said the IBG plans to put forward during CRTC consultations on how to implement the new regulations. “It’s just a question of math,” Fortune said. “We support the initiative, but we think the math needs some fine-tuning.” Another potential concern for the independent broadcasters stems from the commission’s approach to resolving carriage disputes between broadcasters and distributors. The CRTC's standstill provisions guaranteeing carriage during disputes will aid independent broadcasters, but the costs of going through the dispute resolution process may be too high for smaller companies to bear, especially if they happen frequently, independents say. “It’s one thing for or to go toe-to-toe over dispute resolution, where they’re the behemoths and on equal footing, but for a tiny company … there’s no equal footing,” Bill Roberts, president and CEO of independent broadcaster Zoomer Media Ltd., said in an interview. The process can incur significant legal costs and independent broadcasters could find their channels “pushed into the stratosphere” of the dial if distributors retaliate for losing a dispute. Poor channel positions on the dial or in weak packages also result in declining viewership and revenues over the long run, he said. “Smaller players are simply not in the same position as larger players to protect ourselves if we go to the CRTC with a dispute,” Fortune noted. “If we don’t end up with firm rules, so much is going to depend on how the commission actually interprets and applies this code. We hope it doesn’t take a few sacrificial lambs.” Michael Hennessy, Telus Communications Corp.'s senior vice-president of regulatory and government affairs, said the new dispute resolution mechanisms provide the right incentive to ensure carriage agreements are struck before the CRTC gets involved. “It is the existence of that dispute resolution process that provides an incentive to negotiate,” Hennessy said in an interview. He described the commission's vertical integration ruling as “seminal” and said it is pivotal that the CRTC “put the consumer first and foremost.” Canadians have started cord-cutting—in favour of online, over-the-top services like Netflix—out of frustration over costly or inflexible cable packages, he said. But the commission's new provisions requiring distributors to offer more “pick-and-pay” options and make their services more flexible could help keep cable subscribers happy with their services Hennessy said, which ultimately means more revenues for independent broadcasters. “Satisfied customers are the least likely to cut the cord,” Hennessy said. “In my view, that is very good for broadcasters as well.” Serge Sasseville, Quebecor Media's vice-president of corporate and institutional affairs, called the CRTC's new rules unnecessary “hyper-regulation” and said the commission failed to consider how best to combat the growing threat that over-the-top online services pose to Canadian broadcasters and distributors. Sasseville said in an interview that new regulations preventing vertically integrated companies from maintaining exclusive rights to their own content on mobile platforms also puts them at a disadvantage against unregulated, foreign-owned, over-the-top services. He agreed with Hennessy that if broadcast distributors start losing customers to online services, independent broadcasters will also lose funds through direct payments for carriage rights and diminished returns on mandatory Cancon funding amounting to about five per cent of distributors’ revenues. “If the lose subscribers to the foreign … what will happen is the funding will diminish and there will be less Canadian programming,” Sasseville said. He said Quebecor is not asking the CRTC to start regulating online services but to roll back the regulations on Canadian distributors. “In this globalized digital economy, we are worried by the CRTC’s hyper-regulation,” he said. Roberts also alluded to the trouble that unregulated, over-the-top services could pose to independent broadcasters. Online services have started “a great tussle” in the industry and some people have started to predict the decline of traditional linear television services, a debate that is likely play out over the next five years, he said. He agreed that it may be too soon to tell whether the new vertical integration regulations will be enough to protect independent broadcasters over the long-run. “There are many independent broadcasters who are trying to come to terms with whether this glass is half-full or half-empty,” Roberts said. “It’s going to be a fairly lengthy process to understand how this new code or new guidelines are going to be interpreted. We’re going to need some test cases and I think those will be forthcoming once everything is done. That’s when we’ll really know if the glass is half-full or the glass is half-empty.” nkyonka@thewirereport.ca

Independent broadcasters to propose changes to new vertical integration rules

Broadcast | September 25, 2011

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