IT’S NO WONDER THERE couldn’t be a CAB submission to the CRTC on the TV policy review.
While there is some agreement on what must be done to alter the course of conventional television in Canada, along side the regularly substantial chasms in opinion between the usual suspects – distributors and broadcasters – there are also substantial variances between fellow broadcasters on what must be done to secure the future of conventional television stations and companies.
So, for this most important of policy reviews, the Canadian Association of Broadcasters had to step aside and tell its members that since not enough common ground could be found among them for a joint submission, they were on their own.
Now, we’re just in the foothills of conquering this gargantuan paper mountain (actually, most of it is digital, whew!) and while we were able to get our hands on several submissions prior to deadline, CTV declined to send theirs in to Cartt.ca and we weren’t able to get the submissions from CBC, Bell Canada, Shaw Communications, Quebecor or Cogeco in time. We’re also tracking down other submissions from CFTPA and ACTRA, too.
However, we speed-read the submissions of: Rogers Communications; CanWest Global; CHUM; Alliance Atlantis; the Canadian Cable Systems Alliance; High Fidelity HDTV; a consortium of seven independent conventional broadcasters; another group of independent specialties; and a new association called The Telco TV Association of Canada.
The documents have not yet been made public by the CRTC but that is expected soon and while the Commission outlined what it wants to look at in its own way beginning on November 27th, the contentious issues are (no surprise):
1. Fee for carriage of over-the-air broadcast signals.
2. Small broadcasters vs. large broadcasters and out of market signals
3. HD/digital transition.
4. Advertising flexibility.
5. Transaction benefits.
6. The effect of the CBC
Fee for carriage
CanWest Global CEO Leonard Asper has been the most vocal on this issue to date and the company’s 169-page submission (not counting appendices) reflects this, big-time. CanWest proposes that broadcast distribution undertakings pay a fee of $0.50 per subscriber per month to all local OTA broadcasters which broadcast from the BDUs’ regions.
They did their research on this one. The CWG submission digs out a 35-year-old document which says that broadcasters should be paid. "In 1971, the Commission already anticipated the impact cable distribution might have on the financial health of the conventional television market," reads the CanWest submission. "In a document entitled ‘A single System – Policy Statement on Cable Television,’ the Commission concluded the following:
"Stated simply the fundamental relationship is: television stations are the suppliers, and cable television systems are the users.
"Thus, the basic principle involved is: one should pay for what he uses to operate his business. Even if there were no damage or if the cable television systems increased profits of the television stations this principle would still be true. For example, the popularity of musical selections will be enhanced by exposure on radio stations – but not only are the stations not paid for this exposure, they must pay for the use," reads the submission.
"The task of the Commission must be to relate the fundamental philosophical idea of payment for services rendered and for use made, with the pragmatic realization that, without this payment, in the long run the very stations on which the cable systems depend may no longer be able to provide them those many services.”
The CanWest proposal would mean Rogers in Toronto would pay for six signals (Citytv, CFTO, Global Toronto, SUN TV, CH Hamilton, and A-Channel Barrie). At 50-cents per sub per month and about 900,000 subscribers in the GTA, that would be an additional $32.4 million paid per year. Collectively, it would mean about another $250 million going to Canadian broadcasters, nation-wide, says CanWest.
Rogers, of course, opposes such a fee in its submission, as does the CCSA, which says in its letter: "So long as a television broadcaster’s service is available to viewers ‘over the air without charge’, it is inequitable to impose a wholesale fee for the same service on BDUs. To do so is to unfairly disadvantage Canadians who take such a service through a BDU."
Under the CanWest plan, however, many of the CCSA systems would not have to pay any wholesale fee since they do not fall under the contours of a private local station’s signal. But, taking a look at Mountain Cablevision, for example, which serves about 40,000 customers in Hamilton, it would likely have to pay for five of the six local stations that Rogers pays for, or an extra $1.2 million a year.
The CCSA and Rogers also caution that negotiations on an international level, at WIPO (World Intellectual Property Organization) could be affected. "Imposition of a fee for service for OTA broadcast services could set a very unfortunate precedent with respect to retransmission consent that could substantially harm Canada’s position in ongoing negotiations at WIPO of a proposed broadcast treaty. Acceptance by Canada of a US-style retransmission consent regime would be disastrous for Canadian BDUs, and in particular independent cable companies," says the CCSA, which fears its member companies would then have to pay similar fees to American broadcasters, too.
CHUM insists the time has come for a wholesale fee for carriage of broadcast signals and that international considerations should be dismissed. "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 – immediately in analogue, and then into the transition to digital/HD.
"It is clear that the Commission has jurisdiction to do so… and that a subscriber fee for conventional television should not be confused with broader copyright issues surrounding a signal right. Given the glacial pace of international copyright reform, the signal right is a separate issue that may take a decade to come to fruition," reads CHUM’s report.
"Conventional television has more obligations (e.g., priority programming, local and regional commitments, news and non-news commitments) with a more costly and antiquated delivery system than specialty television yet does not have the same tools to compete… A subscription fee model for conventional television will be critical to restoring the health in the sector that will be necessary for the digital transition, but it should not be tied specifically to that transition."
Some of CHUM’s specialty service brethren don’t feel the same way, however. A consortium of independent specialties: APTN; Channel Zero (Movieola, Silver Screen Classics); Fairchild Television; S-Vox (VisionTV); Stornoway (ichannel, Pet Network); ATN; Ethnic Channels Group; and TV5 said a fee for carriage for conventional broadcasters will constrict their market.
Such a price increase to consumers which BDUs would inevitably pass through to consumers, means "Canadians will find it more difficult to afford the additional expense of discretionary services whether offered in tiers, theme packs, or a la carte. The Independent Specialties and other niche services will find it even more difficult to attract subscribers and grow their audiences as the price to consumers escalates.
"Alternatively, in an increasingly competitive market, BDUs may opt to maintain pricing in order to retain customers. Such a strategy will not be pursued to the detriment of distributors’ profit margins. BDUs will look for savings elsewhere if subscription fees are being paid to conventional broadcasters. The most likely place to achieve those savings will be in reductions to the pass through fees paid to Independent Specialties. Channels not affiliated with a BDU and without the leverage of association with international brands are the most likely targets for reductions in wholesale rates," writes that consortium.
At Alliance Atlantis, it said: "If a fee for carriage for over-the-air networks puts pressure on pay and specialty subscriber rates, or consumers drop tiers to continue to afford basic services, there will be a direct negative impact on our sector’s Canadian programming spending."
The most withering criticism of the fee-for carriage model came from High Fidelity HDTV, a new Canadian digital broadcaster with four all-HD channels. "There is absolutely no good reason for OTA broadcasters to be permitted to charge subscriber fees, and most certainly the additional but normal and reasonably foreseeable business costs that they may incur in transitioning from analog to digital is not a good reason," says the company.
"The Commission should not be swayed by the whining that the cost of producing high quality content for Canadians in HD is a serious problem. If a small company like High Fidelity HDTV can do it, surely the multi-billion dollar conglomerates can also."
Small versus large and out of market signals
We’ve covered how the small specialty service companies differ from the large broadcasters on one issue. However, a consortium of seven independent over-the-air broadcasters collectively serving 17 markets (Jim Pattison Group, Standard Broadcasting, Newcap, Norcom Telecommunications, Radio Nord Communications, Télé Inter-Rives, and Thunder Bay Electronics) says they should be treated differently than the larger broadcast groups (CTV, CHUM, CanWest).
They want the small market local programming fund currently collected from Canada’s two DTH companies to remain. Without it, the 17 stations are barely profitable, says its submission. The fund (which is 0.4% of gross revenues from Star Choice and Bell ExpressVu) was established to compensate small local broadcasters for the satellite companies’ delivery of so many out of market signals into its local communities. In these small towns, DTH penetration is high, ranging form 31% in Kamloops, B.C. to a whopping 66% in Lloydminster, AB.
The small broadcasters want the fund kept beyond its three year mandate which expires this year, to make sure it applies to independent broadcasters only, that all small local broadcast signals be carried on DTH and that the regs distinguish between them and the stations owned by CTV, CanWest and CHUM. The group wants the CRTC to "(c)ontinue on an indeterminate basis the current distribution prohibition on DTH operators preventing them from distributing to subscribers within the Grade B contours of independently owned small market television stations the programming services of licensed Canadian television stations that are located within the same time zone and are affiliated with the same network as those stations who are distributed by the DTH operator and consider extending this prohibition to all independently owned small market television stations."
No way, says CHUM. All small market broadcasters should be regulated the same, no matter who owns them. "CHUM continues to submit that all small market stations should be treated equally. Otherwise, we are creating a disincentive for larger groups to serve smaller communities," says the company.
"The size of the corporate group does not change the challenges of small market broadcasters. The high cost of local programming, viewer erosion to distant signals, lack of DTH carriage and lack of interest by large national advertising agencies are all shared challenges.
"It is now time for the Commission to standardize local commitments by all local players just as they have standardized the commitment to primetime priority programming."
The large broadcasters also want all of their signals carried on DTH, too.
HD transition
There’s some common ground here between broadcasters and small cable companies. Both agree that resources should be spent on creating great content and not building expensive new facilities to serve the approximately 12% of the population who get their TV off-air and who are not likely to be among the leaders converting their homes to high definition.
"Our current analysis shows that conversion of all of our transmitters to HD at this time would cost approximately $61 million in addition to $38 million in operating costs over ten years," says CanWest (CHUM says their conversion to HD of all 12 of its stations would be $50 million). "Given this analysis, CanWest believes that broadcasters should have the option to develop their own HD OTA plans in order to carefully assess the feasibility of building out HD infrastructure in markets where it would make sense to do so.
"We also believe that a number of options may be available to extend television service to those who continue to rely on OTA viewing following the cut-off date. In our view, these will require careful consideration by all stakeholders – broadcasters, BDUs, consumer groups, and government."
CanWest proposes an analog spectrum shut off date of 2011, which isn’t far off Rogers’ 2010 request. Telco TV has asked for 2012.
The CCSA said it best by writing: "(T)he broadcasting system and the public interest will unquestionably be served better by directing broadcasting revenues to the creation of new Canadian HDTV programming than by direction of such revenues to creation of an HDTV transmission infrastructure that, in large part, would replicate the distribution infrastructure that has already been put in place by the BDUs.
"It is worth asking how the creation of a new OTA HDTV transmission infrastructure to serve an already small and diminishing number of Canadian households, many of which will be the very last to purchase HDTV receivers, will contribute to the ability of Canadian OTA broadcasters to compete with the increasing flow of compelling offshore HDTV programming."
Rogers, on the other hand, doesn’t want to see the requirement for OTA broadcasters to actually broadcast over the air go away.
"OTA stations are licensed to broadcast their signal over-the-air to 100% of households within their measured contours. In return, they are guaranteed priority carriage and simultaneous substitution. To relieve OTA stations of the requirement to transmit their signal over-the-air would fundamentally change the nature of these undertakings. Essentially, some local stations would become specialty services, with significant implications for Canadian viewers and for the achievement of broadcasting policy objectives," it says.
Advertising flexibility
Substantial agreement here. The submissions from CanWest, CHUM and Rogers all call for the Commission changing the advertising rules to allow sponsored programming and increased product placement.
For example, in 2004, Global Television aired a home improvement series which was completely sponsored by Canadian hardware and renovation chain RONA. Under the regs it was deemed an infomercial and did not count towards Global’s Canadian content, even though it was an all-Canadian reality show with product placement.
The main shift here would be to change the regulations so that the 12 minutes an hour of ad time allowed would only be concerned with what airs during the commercial breaks and not what’s pushed during a program.
"(V)iewers/consumers have come to accept and expect product placement, brand integration, virtual insertion, and sponsorship as a matter of course," reads the CanWest submission. "Indeed, we are hard-pressed to list many viewer complaints in this area.
"Such acceptance is probably due to, and reflects, the explosion and popularity in recent years of foreign and domestic reality programming that includes obvious and up-front product/brand displays and tie-ins (e.g., Survivor; American Idol; Extreme Makeover: Home Edition; Canadian Idol; The Apprentice; Oprah; The Amazing Race; Rock Star: INXS and Supernova; and the grand-daddy of all product placement shows, The Price Is Right).
"In this regard, we point to this year’s panel discussion on media consumption at the National Cable & Telecommunications Association (NCTA) show in Atlanta, Georgia. According to Greg O’Brien of Cartt.ca, that panel included ten college students and the following statement: What about product placement in TV shows," reports CanWest.
"Does that offend? Nope. The opposite. Bring it on, they said. ‘I think product placement is awesome,” said 22-year-old electrical engineering major Kristen. ‘You’re going to watch the show anyway even if the (product) is there and you pick up on it. Companies should put their products in there.’"
The specialty services input on this was that any new ad rules coming from this review must be applied to their sector, whose review is coming in 2007.
Transaction benefits
Have to go. CHUM’s submission is rather forceful on the matter, even going so far as to say that the fact it is still paying benefits from its 2004 acquisition of Craig Media contributed to the fact it had to be sold to Bell Globemedia (pending regulatory approval).
With CHUM’s conventional broadcast assets having lost $68 million over the last decade and its flagship – Citytv Toronto – only marginally profitable, it should not have to pay a tax of 10% on a business transaction such as buying Craig.
The Commission should not view what happened to Craig and now CHUM as isolated incidents. CHUM’s purchase of Craig was an attempt to reverse the financial decline CHUM’s conventional television division was experiencing by creating a block of stations large enough to compete," says the CHUM report. "However, the problems proved to be too much to overcome. We are not in the middle of an economic cycle from which conventional television will emerge. In contrast, what is occurring is a seismic shift in the way in which conventional television stations operate brought on by a number of factors: increasing programming costs; changes in the advertising market; loss of tuning to out-of-market stations; regulatory constraints; and the impact of new technology."
In short, cutting 10% out of a multi-million dollar deal is not affordable. When radio stations change hands, benefits paid are just 6%. When cable companies are bought, there are no benefits requirements. "In our view, the current benefits policy may have had some desirable outputs, but it has impeded CHUM’s ability to channel investment to assets with financial challenges," says the company.
"Specifically, the benefits that were paid, and continue to be paid, on CKVU-TV in Vancouver and the Craig assets, have hindered our ability to turn the corner on those properties.
"It is clear to all stakeholders that the transactional nature of the benefits policy creates an environment that is unreliable and unsustainable, building false expectations in the system instead of certainty."
The CBC affect
The CHUM submission saved some harsh words for the public broadcaster, laying its decision to sell partly at the feet of changing CBC strategy. When the CBC – during the NHL strike and since it ended – began airing Hollywood blockbusters, that hit Citytv hard, since it has long relied on airing such movies in prime time.
"CHUM did not have the financial wherewithal to invest, and market coverage across which to amortize, the programming that would allow us to compete on the same level as other larger private broadcasters," it says. "Nor did we have the ability to compete with the CBC which has driven up the price of US block-buster feature films, an important staple of the Citytv prime-time programming schedule."
"Not only (has the CBC) driven up the price of programming – specifically hit US feature films – but simply put, they are charging market rates for high-end sports and US programming, and dumping other advertising inventory in the marketplace, thereby creating a subsidized market disturbance.
"While there have been many calls to de-commercialize the CBC, the Commission should review the economic impact the CBC has on the advertising markets and should, as a first step, return the CBC’s advertising limits to six minutes per hour in their next licence renewal," reads the CHUM letter.
Watch for more from Cartt.ca on the TV Policy Review as more submissions are released. Think we missed anything? Let us know at editorial@cartt.ca or 905-523-5820.
