OTT, CRTC deregulation, putting upward pressure on content costs: Bell

The presence of unregulated online competitors in the Canadian broadcasting market and a CRTC decision to open up sports specialty channels to competition have fuelled a “dramatic” increase in the cost of licensing content in Canada, BCE Inc. said in regulatory documents filed with the commission Friday. “he presence of foreign OTT providers is being felt by both broadcasters and alike,” Bell wrote in final reply comments for a CRTC proceeding on its proposed $3.38 billion acquisition of Astral Media Inc. “For broadcasters, this is evident when we bid for programming and for , the threat of cord shaving or outright cord cutting is increasingly real.” At a hearing this month, companies competing with Bell urged CRTC commissioners to block the company’s proposed acquisition. Bragg Communications Inc. and Quebecor Media Inc. said Bell could use its stable of English-language specialty stations to force unfair prices or unreasonable terms on competing broadcast distributors that want to carry Bell-owned specialty channels. In comments filed with the commission Friday, Bell said higher wholesale prices for carrying its specialty channels is coming from changes in the industry such as competition from over-the-top TV services like Netflix, as well as deregulation. “The television industry is undergoing fundamental change, bringing with it many significant challenges,” the company said. “hallenging economic conditions are pressuring household budgets and most notably, there is a slew of new competition emerging from foreign, unregulated OTT content providers.” In 2011, Bell said, Netflix outbid Astral for the “first run pay-window movie output” from American film studios Paramount Pictures Corp. and Twentieth Century Fox Film Corp. “And in the one case since the arrival of Netflix in Canada in which Astal’s TMN was able to renew an expiring output deal with a Hollywood studio, the cost increased dramatically as a result of Netflix’s presence,” Bell wrote. “In addition, Netflix’s acquisition of the rights to major strip programming in Canada, which has historically been a significant contributor to network revenue, has resulted in an audience decline to such programming,” the company said. Bell said licensing fees will climb higher following the “inevitable arrival” of larger over-the-top TV services in the “near future.” In comments emailed to The Wire Report on Monday evening, Netflix spokesman Joris Evers said the over-the-top TV market brings new platforms for content creators to sell their work. "This has increased demand for content and, as with any supply/demand type situation, prices may go up as a result of increased demand," Evers said. "We pay a fair price for content, but we’re not overpaying for anything. Keep in mind that Netflix only costs $7.99 a month, there’s a limit to what we can spend on content." The CRTC decision in 2008 to open up the sports and news broadcasting genres to competition have also fuelled “dramatically” higher content costs, Bell said. It said these higher licensing fees, as well as wholesale rates that remained unchanged for “over a decade” for its sports specialty channels, TSN and RDS, led the company to seek a “market price catch-up” on the rates it charges other distributors to carry those channels. “Due to these factors, the wholesale rate increase for our sports services was larger than historical norms,” Bell wrote. The CRTC's regulatory framework for vertically integrated broadcasters that the commission introduced last year and finalized in July has “created additional tension within the industry,” Bell said, adding distributors have leaned on the policy and its attendant carriage negotiation rules as a “substitute” for negotiations. During the CRTC hearing last month, Bragg and some of Bell’s competitors took issue with a new carriage agreement formula to allow competing broadcast distributors more flexibility to move popular Bell-owned channels to packages with lower penetration rates. In return for the packaging flexibility, Bell’s introduced a new “penetration-based rate option” that requires those distributors to pay more on a per subscriber basis if the penetration rates of those channels fall below a certain threshold. In its comments, Bell said the model carried significant risks for its Bell Media division and little risk for the competing distributors. “Decreasing penetration under the PBRO model will meaningfully lower revenue for Bell Media and will require us to cut programming costs and overhead to support more consumer choice,” Bell said. “At the same time, providing consumers with more choice costs the nothing, they are completely insulated—their retail pricing control maintains or expands their profits.” The Wire Report surveyed six industry insiders last month who predicted the Competition Bureau and the CRTC, which are reviewing the transaction, will not block it but are likely to apply conditions requiring Bell to divest some English-language specialty channels. Bell responded to industry concerns that the deal will result in a dominant market position allowing the company to effectively prevent competing distributors from carrying its channels. With a 17 per cent share of Canadian television subscriptions, Bell said, denying other distributors access to those channels would “eliminate” as much as 83 per cent of those channels’ potential viewers. Such a move would cause the company lost revenues from both wholesale fees and advertising, Bell said, adding: “Original content owners, such as the major Hollywood studios and professional sports leagues, will not allow vertically integrated programming services to reduce the value of their content by restricting access to that content.” Bell said denying or restricting competitors’ access to its channels could also cause other vertically integrated Canadian broadcasters to respond in kind by restricting Bell’s access to their channels. “As the vast majority of the content available on Bell TV comes from programming services not owned by Bell Media, this response would be crippling,” the company said. Bell urged CRTC commissioners to take a “long-term view” of the Canadian broadcasting system, arguing the acquisition is “a necessary step in the ongoing evolution” of Canadian broadcasting. “The very essence of this Transaction is to better serve the consumer, the viewer, the listener and content creators,” Bell said. “The only way this can be done effectively is for us to continue to find opportunities to work with and showcase the content of Canadian creators so that our content stands apart from all other creative output—domestic and international. This can only be accomplished by working collaboratively with all of Bell Media’s broadcasting distribution undertaking (BDU) partners to disseminate our content as widely as possible,” the company said. news@thewirereport.ca

OTT, CRTC deregulation, putting upward pressure on content costs: Bell

News | 10/01/2012 9:22 pm EDT

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