WITHOUT A DOUBT, THE highest profile issue CRTC commissioners will tackle beginning next week’s policy hearings on broadcast distribution undertakings and specialty services is fee-for-carriage. That is, paying a new subscription fee for over-the-air broadcast stations.
As the rules now stand the regulatory bargain is such that cable and satellite and telco TV must carry conventional local TV stations low in their channel lineups and must substitute Canadian signals over top of American ones when the programming is the same. We’ve come to know that part as simultaneous substitution. In return, distributors have not ever had to pay the broadcasters a subscription fee for their programming, which also benefits from a more stable, farther-reaching signal with the help of satellite, telco TV or cable distribution.
(What’s a little unusual though, is that less than a year ago, when the Commission released its new conventional television policy, it dismissed broadcasters’ requests for this new fee saying evidence to support such a change didn’t exist. Then, to have it front and centre on this new agenda so soon is a little jarring.)
However, with the proliferation of specialty channels – not to mention the explosion in other places consumers can find video entertainment – fragmenting what was once a large, enormously profitable, stable mass market advertising medium, conventional television is feeling the margin squeeze (PBIT margins these days is in the mid-single-digits) and they want the CRTC to force broadcast distribution undertakings to pay them a new subscriber fee, at least 50-cents per subscriber per month – per local signal. Not an insignificant addition to the cable bill, especially in larger centres.
Also – with a deadline of August 31, 2011 to remake themselves into HD broadcasters, more resources are required, add the broadcasters.
If passed through to consumers, which any new fee most certainly would be, customers in major metropolitan areas (they have the most OTA signals, after all) could be looking at new charges in the $4 to $5 per month range by some estimates. A chart provided to Cartt.ca by Rogers shows Toronto subscribers each paying an extra $5.50 a month on the low end (50-cents), or as high as $16.50 a month at the higher end ($1.50 per signal).
The broadcasters, however, say that any new fee doesn’t have to be passed on – that the BDUs can easily absorb it on their own. “If they decide to pass that on to the consumer, then that’s their business,” said CTVglobemedia’s vice-president, government and regulatory affairs, David Goldstein.
For Rogers, just in the city of Toronto, that would mean an approximate $60 million hit at $5.50 a month – a new cost we figure Mr. Rogers will be quite reluctant to simply absorb.
Whatever the rate ultimately decided (and $0 is on the table, too), it’s high time cable started paying for what it uses and what it sells, say the conventional broadcasters. “They have built their business on the backs of broadcasters for over 30 years now,” said Paul Sparkes, CTVglobemedia’s executive vice-president of corporate affairs. “And a good business at that. Look at where Rogers is today, look at where Shaw is today, look at where Videotron is today. These are big companies… And they’ve moved from traditional delivery of television services into internet, into telephony, into mobile services.
“So, they’ve been able to take our signal, for free, package it, and provide the consumer a service, which you and I pay for every month. And the broadcaster does not get any of that back,” Sparkes continued, adding that its research shows Canadians think CTV and Canwest do get some cash from cable companies for their OTA channels.
When it’s pointed out that basic must carry, simultaneous substitution and a robust, stable signal has always been considered a pretty decent payment in lieu of cold, hard, cash, Sparkes is undaunted. “Let’s talk about simulcast for a second. We go to L.A. every year and we buy rights for Hollywood shows which we put to air, we sell advertising on… the cable companies portray this as a privilege. It’s not a privilege, it’s a right. Simulcast is a right that we have because we own the rights to these shows within the country. If they want to get rid of simulcast, then block out the U.S. signals,” he said.
Ken Englehart, Rogers Communications vice-president, regulatory, has a single-word he used repeatedly in our recent interview when we talked fee-for-carriage: “Outrageous.”
“People don’t buy cable television service to get the over the air stations for the most part,” he said. “When cable TV launched, the reason a viewer subscribed was to get signals that didn’t come in clearly over antennas and to get, after a while, specialty channels that were only available on cable.
“For these guys to try and argue that the nine local services in Toronto are worth $9 or even $4.50 a month to customer is outrageous. In the U.S., we have a pretty good idea of what these things are worth because the regulatory regime says you can either have must-carry or you can negotiate a fee, but not both.”
CTV and Canwest want the new fee and to keep all their existing rights, too. Videotron, on the other hand, whose parent company owns broadcaster TVA, says broadcasters should be able to maintain must-carry or demand a fee – but not both.
The way it is now, say the BDUs, the system is a mutually beneficial one where carriers get popular programming to offer on basic cable and the broadcasters get simsub as well as broader local distribution than their transmitters can provide. “We pick up their signals and distribute them without fuzzy pictures and in a high quality and in a larger geographic area than where they can be picked up locally,” continued Englehart. “So, that is a benefit to them because it makes their advertising much more valuable. At the same time if they’re saying that cable should pay for carrying our signals, I could argue broadcasters should pay me for the bandwidth they’re chewing up.”
In its submission to the CRTC on this proceeding, Telus simply calls any such fee a new tax on consumers who should not be forced to pay more for something they already get – and can get elsewhere (rabbit ears) for free. “In their joint submission, CTV and Global argue that BDUs have built a business ‘based on the exploitation of free programming provided by local OTA broadcasters.’ Telus finds this statement laughable,” it reads. “Cable grew because it increased choice and the system grew along with it.”
It’s not quite that simple, though. While at Cartt.ca, we stand behind what we said about consumers not standing for such a new fee, we’re not unsympathetic to the demands on local broadcasters especially in the face of the ever-changing electronic media world.
“I know fee for carriage is a flashy subject,” says CTVgm’s VP government and regulatory affairs, David Goldstein. “But I think what we’re talking about here is rebuilding the integrity of the local television signal and the local television service.”
Broadcasters face a number of programming requirements such as minimum hours of local news and using independent producers for priority programming that can gang up to make their business a costly one – one that faces increasing margin pressures every year (although revenues continue to inch up, however slowly. Prime time ad rates for popular shows have yet to fall, even though overall audience levels have.).
“Our expenses are continuing to rise. We still have to go down to L.A. and buy the shows, we still have to go in our local markets that we serve and provide the local commitments that we do. At some point, and I think we’re at that point, the system can only handle so much stress,” said Sparkes. “There has to be a give. The cable companies have built a very successful business off of our backs. They have taken our signal for free – one would call that in a jokingly way, a friendly pirate.
“They sail the great ocean of our industry and they take things and they make money off of them and that’s great if you can get away with it, but we’re asking the CRTC now to rebalance and recalibrate the system because it’s just not fair. They are taking money from the consumer and the consumer believes that they’re paying for this. (BDUs) are building their business on it, and we’re not getting anything,” emphasizes Sparkes.
And while local news was a profit centre for years, that’s just not true anymore for broadcasters. Canwest, for example, is consolidating much of its local production in a few centres, as Cartt.ca has reported. Small cities like Timmins, Ontario (pop. 45,000) that once had its own six o’clock news show have long had a regional reporter or two providing the odd news story from the city from a broadcast centre in Sudbury, 300 kms away.
“This may sound flippant, but at some point, key decision makers and policy makers that affect the Canadian broadcaster decided that a script writer in (Toronto) is more important to the Canadian broadcasting system than a copywriter in Saskatchewan,” explains Goldstein. “Once upon a time, people said local news was profitable and will take care of its own… and it’s the various genre priority programming that requires the subsidy.”
Plus, policies say 75% of that priority programming spend must be done with independent producers “And local news was left sort of high and dry,” notes Goldstein.
A big part of the problem, though, is that spend in Los Angeles, say the BDUs. Bidding for top shows gets more fierce between Canwest and CTV every year, which impacts their margins dramatically, But it’s a vicious cycle because without those top 10 shows, broadcasters can’t command the ad rates they wish to maintain.
Where the BDU argument falls down hardest, however, is when it insists a new fee such as this one would drive off customers. All of the large publicly traded BDUs cable companies have been increasing their cable rates by around 5% a year for the past few years and have lost precious few customers. In fact, most have gained basic subs.
So, to claim the cost would drive people away is a little fallacious. The fact that our Commission is instituting such a new fee it is what will anger them.
“Just by those (price increase) actions alone, they demonstrated how elastic the demand curve is for their own product,” explains Goldstein. “Part of their reply to us is that tens of thousands of people are going to flow out of the system, but they have demonstrated themselves through regular price increases it’s not meant a falling off of subscribers.”
Another aspect to consider with this argument is that fact that Rogers, with both the OMNI and Citytv OTA networks, has not asked for a fee for its broadcast stations. In fact, company founder Ted Rogers believes in the conventional platform, having paid over $500 million in the past 24 months for City and other stations that have become or are launching as OMNI.
“Why would we have spent half a billion dollars on a broadcasting property that we think we can turn around without fee for carriage if the over the air sector is, as they say dead?” asks Englehart.
“They say profits are going to go down, down, down. Well, already they’re wrong. And secondly, are you going to listen to a bunch of economists or to Ted Rogers spending half a billion dollars on an over the air broadcast network that he thinks will be a money maker for him? I think the latter is more compelling as proof of where the over the air stuff is going.”
— TOMORROW WE TAKE A deeper look at genre protection, or as Shaw Communications calls it, Canada’s “genre monopolies.”
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