Cable bill increases due to more 9(1)(h) orders would trigger cord-cutting, distributors say

A $2 monthly price hike is enough to push TV subscribers away from the regulated broadcast system if the CRTC forces broadcast distributors to carry more channels on basic service, the country’s largest broadcast distributors said, citing new national polling data. In comments filed with the commission this week for its consultation on mandatory carriage, broadcast distributors Rogers Communications Inc., BCE Inc., Bragg Communications Inc., Cogeco Cable Inc., Shaw Communications Inc., and Telus Corp. said mandatory carriage fees resulting from more 9(1)(h) orders would lead to higher monthly TV bills and cause customers to downsize their subscriptions or cancel them altogether. They said the availability of free or inexpensive content online gives consumers too much choice outside the regulated broadcast system to justify higher prices. “We may be nearing the tipping point where attempts to add regulatory protections has a negative effect over all,” Telus said in comments filed with the CRTC this week. “If the Commission mandates too many services in the basic package through the issuance of mandatory distribution orders, this may drive consumers out of the regulated system.” In January, the CRTC launched a public consultation on 22 broadcasting applications that asked for mandatory orders to carry their specialty channels. Those applications were filed under section 9(1)(h) of the Broadcasting Act, which allows the commission to require broadcast distributors to carry cable channels “on such terms and conditions as the Commission deems appropriate.” Telus, Rogers and Shaw cited survey by research firm the Strategic Council, which polled 1,200 television subscribers in February about their attitudes on the commission’s 9(1)(h) consultation and the possibility of ordering more channels onto basic cable. The survey, which had a margin of error of plus or minus 2.8 per cent 19 times out of 20, found that 52 per cent of respondents said they would “likely” cut back on their specialty TV channels or reduce their packages if their monthly basic service bills rose. Twenty four per cent of the survey respondents said they were “very likely” to cut back their specialty channels under those circumstances, compared to 28 per cent who said “somewhat likely,” 14 per cent who said “somewhat unlikely,” and 10 per cent who said they were “very unlikely” to do so. The survey’s question about cord-cutting did not provide a dollar amount for a possible monthly price increase. Other questions in the poll suggested that additional mandatory carriage orders could raise cable bills by $1.99 in English markets and $1.51 in French markets. Channels that receive mandatory distribution orders from the CRTC benefit because all broadcast distributors must carry, or in some cases offer, those channels, normally on basic cable, which increases the channel’s subscription and viewership numbers, driving up subscriber and advertising revenues. Mandatory 9(1)(h) carriage means broadcast distributors must pay a monthly, per subscriber wholesale fee to the specialty channel owner, a cost that the distributors say they will pass on to their TV customers. “If BDU subscribers are required to pay for services that do not have broad appeal or that do not serve an exceptional public interest function, the Canadian broadcasting system will become increasingly ghettoized,” cableco Rogers said in a CRTC filing Wednesday. “It will be the platform for unwanted and unwatched programming services that a dwindling number of Canadians will continue to pay to receive in their homes,” the company said. The survey cited by the broadcast distributors said 79 per cent of respondents “disagree with the notion of mandatory distribution of the services” after seeing a list of the channels that had applied for a 9(1)(h) order, including Sun News Network, faith channel Vision TV, The Natural Resources Television Channel, and Canadian movie channel Starlight. When respondents were asked about each of the channels individually, each of the channels received at least 19 per cent more opposition than support, according to the poll results. “The findings suggest that consumers are opposed to the mandatory inclusion of any service in the basic package on principle,” the Strategic Council said in its polling report. “They simply do not want to be required to receive and pay for any of the services tested on a mandatory basis.” Applicants for 9(1)(h) carriage, such as Quebecor Media Inc., argue that a commission order granting mandatory distribution would have minimal impact on consumers and could make the difference between a profitable service and one that goes under. Quebecor, which has asked for mandatory distribution for its Sun News Network channel, said its requested wholesale monthly fee of 18 cents per subscriber per month in the English-language market and 9 cents per subscriber per month in the French-language market could help make the specialty channel profitable by 2017. The company projected a loss of $17 million for the channel in 2012. “Should the cable and satellite providers choose to pass the full cost of Sun News to their customers, the financial impact on the basic service would be negligible—only $2.16/year per household,” Quebecor said. To make a profit, broadcast distributors will usually charge retail TV customers double the wholesale carriage rate that they pay the specialty channel owner, one broadcasting insider said. Right now, 10 channels receive mandatory distribution from the CRTC on basic cable. Those include The Weather Network, the Aboriginal Peoples Television Network (APTN), and the Cable Public Affairs Channel (CPAC). Under separate regulations, the signals of local, over-the-air TV stations must be carried on basic TV packages, for which the stations don’t receive fees. Telus said a CRTC order requiring broadcast distributors to put more channels on basic TV would create additional “hard costs” related to the installation of infrastructure like signal encoders. Bell said in its comments to the CRTC that ordering new channels onto basic would create “capacity issues” for its direct-to-home satellite TV service. “It will also remove considerable flexibility in Bell TV’s ability to create attractive programming packages for consumers with services that they have expressed a desire to have rather than ones that are forced upon them through a mandatory order,” the company said. Bell said none of the broadcasters that applied for mandatory carriage demonstrated that their channels meet the commission’s criteria for such an order. That criteria, established in CRTC decision 2010-629, says the commission will grant mandatory distribution orders “on an exceptional basis” for channels that are of “exceptional importance … to the achievement of the objectives of the Broadcasting Act.” The policy says applicants must prove their channel makes an “exceptional contribution to Canadian expression,” demonstrates an “exceptional commitment” to original Canadian programming, and that Canadians have an “extraordinary need” for it. “ mandatory distribution order is an extraordinary and exceptional regulatory measure that should be used sparingly by the Commission,” Bell wrote on behalf of its Bell Aliant, Bell Media and Bell TV divisions and subsidiaries. “Granting such an order has a negative impact both on consumer choice and the affordability of the basic package and as such, the Commission must be fully satisfied that the Applications are qualified to receive 9(1)(h) status.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Cable bill increases due to more 9(1)(h) orders would trigger cord-cutting, distributors say

Broadcast | March 1, 2013

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