GRANTING BELL THE RIGHT to buy Astral Media will make an already big company that acts badly, enormous, add incentive for it act even worse, which in the end will crush competition and choice in Canada. Therefore, the deal needs to be quashed altogether or tough new rules applied to constrain the biggest player in Canadian media, say final replies to the CRTC’s public proceeding into Bell Canada’s quest to buy Astral Media.
Those last written rejoinders to the Commission’s public proceeding into Bell Canada’s purchase of Astral Media (CRTC 2012-370) from intervenors were due into the Commission on Friday, September 21st. Bell gets final say this week as its last words are due September 28th.
Rogers, Telus, Cogeco, EastLink, Quebecor and the Canadian Cable Systems Alliance all say that their recent history of negotiations (or lack thereof) with Bell point to a scary future of higher costs and less choice for Canadian television consumers. They say Bell has not satisfied the burden of proof which CRTC regulations place upon it to show that the transaction is in the public interest. That requirement was something the Commission pointed out early and often during the public proceeding held the week of September 10.
The carriers mentioned above, all of whom compete with Bell on the retail side for subscription TV customers and buy a lot of programming from Bell Media on the wholesale side, used their final submissions to re-paint a picture of an anti-competitive vertically integrated company which has flat-out refused to offer content or has demanded unreasonable contract terms for that content, to the detriment of choice and price for Canadians in general.
As we noted in a story last week, it’s not that the forces against Bell/Astral say Bell is acting maliciously, it’s just that it acts as a vertically integrated company trying to maximize its income, should. The problem is that those actions, from a single, dominant player, have a chilling effect on the TV market in Canada – and adding Astral’s assets to the portfolio will exacerbate the problem, say the intervenors.
“Bell has withheld content from other distributors on various platforms and the explanation for this lies not in irrational behaviour but rather in the fact that it makes perfect commercial sense to selectively withhold content from competitors when it advantages a vertically integrated firm’s own distribution services,” says Telus in its final reply. “The point of raising these past transgressions is not to paint Bell as an evil or malicious corporation but rather to show how the incentives and opportunity created by vertical integration play out in the marketplace unless constrained. Bell can set extremely high prices, i.e. commercially unreasonable prices, for its content on a wholesale basis because there is no downside for Bell if competitors refuse to pay those prices. Refusal by competitors to accept commercially unreasonable offers means that Bell has a leg up in competing on the retail side by offering content not offered by its competitors.
“There is no doubt that there is more money to be made as a retail distributor of content to subscribers than as a wholesale provider of content to competing distributors,” continues the Telus submission. “Accordingly, it is quite rational to use some content rights to advantage the distribution arm of the vertically integrated entity. This truth applies to all platforms, whether television distribution, broadband or wireless. And Bell is a national provider of TV distribution and wireless distribution which means that it competes everywhere with every other provider on those platforms in Canada.”
Added Rogers: “Bell is the only major Canadian broadcaster that has refused to provide pay and/or specialty content for our video-on-demand (VOD), broadband and mobile video services on commercially reasonable terms… (E)very other major Canadian broadcaster, including Shaw, Corus, Astral and the CBC, have partnered with Rogers to enable consumers to access pay and specialty content on multiple platforms. Nothing that Bell said refutes this.”
In its final oral reply on September 14th, Bell executives noted Rogers On Demand has 2,400 hours of Bell Media content available through its cable VOD system. However, notes the Rogers submission, all of it comes from CTV’s conventional broadcast arm, and none from specialty channels like TSN, Comedy, BNN or Discovery. “Despite considerable effort on our part… we have not been able to secure content from Bell’s specialty services for Rogers Anyplace TV,” reads the Rogers reply.
Intervenors (and CBC) also objected to Bell’s introduction of a new French-language news channel as part of a new, sweeter, tangible benefits package (it relies on the assumption of the CRTC’s approval of a new category C licence, plus no one had the chance to evaluate it prior to the idea’s debut on September 10th, they say). As well, all protested not only Bell’s late inclusion of a new online TV viewing portal for authenticated pay TV subscribers as an intangible benefit to the transaction, but also of Bell’s insistence that it must own Astral’s TV assets in order to launch such a service – and to be able to compete with global buyers of popular programming.
“(I)f launching a multi-platform service is of such importance to the core business of distributors, then surely BCE and other distributors would pursue such an initiative regardless. Indeed, Shaw has announced the launch of such a service on its own,” reads Cogeco’s reply. “Moreover, there is considerable doubt that BCE’s ownership of Astral’s services represents the only means by which BCE could provide such a service, given Astral’s track record of making linear and nonlinear rights for its content available to distributors. It is highly likely that Astral would have proceeded with such a service regardless of the transaction, as Mr. Ian Greenberg indicated that such a service is core to Astral’s business and was already under development within the company.”
Bell’s assertion that it must be far bigger in order to buy content on the world stage is just an alarmist distraction that the Commission would do well to ignore, say the intervenors, as it is just not true. “The threat of foreign OTT providers is nothing but a red herring in this hearing, a bogeyman manufactured by Bell in an attempt to make its proposed transaction appear in the public interest,” says the Telus reply.
“More scale is not necessary to compete with OTT providers for rights to content. The multiplatform and on?demand rights are and will remain for the foreseeable future subsidiary rights to the television rights. Accordingly, Bell already has the advantage over Netflix, Apple and Google when negotiating for content rights.
If Bell weren’t so tightly holding onto its programming and would instead make its content more readily available to all Canadian subscription television providers, that would help the whole Canadian industry better compete against foreign OTT players, say the intervenors. However, Bell’s insistence in charging high rents for that content in the first place– and asking too much from other BDUs who want to provide more choice to their customers by unbundling TV channel packages in favour of some individual channel choices – will cause Canadians to pursue more flexible, cheaper OTT options as they present themselves here.
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The CCSA’s comments note that Bell’s new flexible packaging rate card (recently forced onto its members with the CRTC’s FOA decision in the summer) is patently inflexible with terms such “that CCSA members are being forced to remove services from discretionary digital packages to the basic service… Never before has CCSA been confronted with the proposition that it must completely guarantee a programmer’s linear television revenue base as a condition of carriage.
“CCSA agrees with Rogers’ inference that Bell is seeking to have competing BDUs guarantee its linear programming revenues until it can grow revenues from non-linear platforms to a degree that loss of revenues from the linear side is no longer a significant risk. In fact, Bell’s development of its mobile and on-line products focuses squarely on Bell’s direct ownership of the customer relationship. That is, competing BDUs are effectively being required to finance their own disintermediation. Even as they lose customers to Bell’s BDU, mobile and on-line services because of the packaging/rate constraints that Bell, as a program supplier, has placed on them, they must continue to guarantee Bell’s linear programming revenues.
“… Bell’s rigidity in packaging requirements has, in fact, created fertile ground for services like Netflix,” concludes the CCSA
It’s also worth noting that this hearing publicly confirmed that the wholesale rate card for Bell Media specialty channels which Telus, Cogeco, EastLink and the CCSA took to final offer arbitration (and which Shaw, SaskTel and others signed) has not yet been agreed to by Rogers, which backs the CCSA’s complaint that the rate card demands are unjust.
“Notwithstanding the outcome of the FOA the Commission conducted for Bell and CIDG, Bell’s proposal for packaging flexibility is not commercially reasonable. Bell’s rate card includes penetration-based rates and better-than-make-whole provisions that no other broadcaster in Canada could reasonably expect or demand. If we accepted Bell’s penetration-based rate card, Rogers would be guaranteeing Bell’s revenues on the linear platform for the duration of the agreement. That would be the case regardless of how many of our customers actually subscribe to Bell’s services,” reads the Rogers submission.
“This is the Catch 22 situation that we have referred to in this proceeding. If we give in and sign Bell’s penetration-based rate card, Rogers will get additional packaging flexibility, but we will have to set the prices for those packages unreasonably high in order to satisfy the penetration-based rates that we will have to pay to Bell. This will severely hamper our ability to compete with Bell TV and will also impact our ability to compete with OTT providers, which offer low priced options for specific programs. Yet, by refusing to accept Bell’s rate card, we have almost no flexibility in how we offer Bell's Category A services on our linear platform. We cannot even offer Bell’s services in smaller packages to match Bell TV's offering.”
What all this means is two things, the deal has to be killed completely (although Rogers only wants the Astral English TV assets divested) or new, tough, rules holding back Bell Media must be applied and enforced, tougher that the recently enacted vertical integration policy and its code of conduct.
Even talk of new regs, though, leave some cold since Bell isn’t adhering to the existing ones, claims EastLink. “The evidence submitted by numerous distributors who compete with Bell, and who had to negotiate with Bell for access to the former CTV specialty services, also illustrates that Bell will not comply with such policies,” reads the Halifax company’s submission. “As such, Bell’s subsequent willingness during the rebuttal phase to include the Code provisions into its conditions of license as a condition of approval of this transaction provides no assurance that Bell will comply with the Code. While Bell tells the Commission it is already compliant with the VI Code and policies, the facts bear out a different reality.”
Expect Bell to share a different set of facts and reality when it files its final, final reply on Friday.
