GATINEAU – It will surprise no one that the cost of sports television are front and centre for so many of the submissions to the CRTC’s TV Policy Review
Telus, for example, called the amount of cash being sent to various leagues and teams for the rights to live games “irrational” and has requested the CRTC address the soaring price of sports services and eliminate penetration-based rate cards in sports packaging.
Lined up on the side of Telus, are Shaw Communications, Cogeco and Canadian Cable Systems Alliance members, distributors who own no sports channels. While vertically integrated companies like Rogers and Bell defend how their sports channels are packaged, Quebecor Media, owner of Videotron and the TVA Group and its sports services, discussed the need for programmers and distributors to work together.
The Telus submission (which mentions the word “sports” 175 times in 97 pages) comes eight months after the consummation of the biggest media deal in Canadian history, Rogers Communications’ massive $5.2 billion, 12-year purchase of the National Hockey League’s national TV and digital broadcast rights for all regular season and playoff games starting in October 2014.
“The spiralling costs of sports content rights is being fuelled by irrational bidding by the sports services and their owners,” stated Telus. “In Canada, there is a sports duopoly: TSN is vertically integrated with Canada’s largest communications providers, BCE Inc., and Sportsnet is vertically integrated with Canada’s largest voice and data communications service provider, and the holder of the most wireless spectrum, Rogers Communications.
“This irrational bidding is only enabled by a business model which allows sports services to recoup their costs across a larger subscriber base, to the detriment of consumer choice. This has been referred to as a ‘sports tax’.” – Telus
“It is an international phenomenon that sports programming services are bidding ever-increasing amounts for the rights to sports content, and that they are essentially betting on consumers willingness to pay even more for sports content in the future than they do now. This irrational bidding is only enabled by a business model which allows sports services to recoup their costs across a larger subscriber base, to the detriment of consumer choice. This has been referred to as a ‘sports tax’.”
Telus added that sports specialty providers know they have to recoup their investment primarily from BDUs and their customers, which translates into minimum penetration guarantees or economic incentives to obtain broad distribution, and then a demand for a very high price for lower levels of penetration, which makes it economically unfeasible to offer a sports service anywhere but in a basic cable package.
“Telus submits that in their continuous attempts to out-bid each other on the acquisition of sports content rights, Canada’s sports services have over-estimated the willingness of Canadians to pay for their services. Telus notes that only about half of the Canadian TV subscribers are willing to pay for sports services above and beyond what is already available over the air on channels like CTV, Global, Citytv and CBC.”
“In this perfect test environment, Telus notes that the penetration of the sports theme pack offered by Optik TV is in the range of 50%, meaning that only about half of the Optik TV subscribers are willing to pay for services that provide sports programming.” – Telus
Telus reached that 50% conclusion based on the number of consumers who subscribe to Optik TV’s sports theme package, which includes The Sports Network (TSN) and Sportsnet. Optik TV’s Essential (basic) does not include sports specialty channels. The sports theme pack is provided at the same price ($9) of all the other theme packs. “In this perfect test environment, Telus notes that the penetration of the sports theme pack offered by Optik TV is in the range of 50%, meaning that only about half of the Optik TV subscribers are willing to pay for services that provide sports programming beyond what is available on conventional over-the-air television stations.
“Since it is highly unlikely that Telus subscribers are any different from other Canadians regarding their propensity to enjoy sports programming (which indicates actual willingness of consumers to pay), it can thus be said that the natural penetration of TSN is closer to 50%, much lower than the minimum penetration levels sought by it and other sports services.”
Telus added that the only reason TSN, the No. 1 sports specialty channel in Canada, enjoys “an average industry penetration of 87%” is because it is part of the basic package of its affiliated distributor, Bell TV, and many other distributors.
According to Cogeco, both TSN and its French-language sister, Réseau des sports (RDS) both dramatically increased their wholesale rates in 2013, with TSN climbing from $1.35 in 2011 to $2.55 while RDS rate increased from $1.45 in 2011 to $2.85 last year. Of course those rates were determined before TSN and RDS lost the NHL national package to rival Rogers.
Eastlink, a member of the Canadian Cable Systems Alliance which often stands on its own in the regulatory arena, discussed the protected status a channel like TSN would have in a basic or highly penetrated tier, despite having no NHL national broadcasts.
“In reality, both channels have contracts that preclude us from allowing customers to choose between these channels, since providing such choice would come with a severe financial penalty.” – Eastlink
“For example, one might expect that with TSN’s loss of a valuable hockey content TSN’s popularity would decline and move to Sportsnet,” stated Eastlink’s submission. “In reality, both channels have contracts that preclude us from allowing customers to choose between these channels, since providing such choice would come with a severe financial penalty – so regardless of the quality of content, customers must still take the service. This is the fundamental issue customers have – the perception that they are paying for channels that do not offer content they want or are interested in.”
Telus states that there is no link between the wholesale rate sought by sports specialty services and the willingness of consumers to pay.
“In this regards it is ironic to note the comments of Mr. David Purdy, Senior Vice-President of Content for Rogers Communications Inc, who raised the concern in 2012 that bidding on sports programming is reaching unsustainable levels,” reads the Telus submission. “Mr. Purdy noted in an interview with Cartt.ca that the entry level price for cable is closing in on $40 a month, with ‘a huge portion of that (being) attributed to the local or national sports that are in those packages…The problem we have as a cable industry is we’re fearful that the entry level price point for subscription television is going to be so high, predicated on the need to have sports in the package, that we’re going to start having people bypass that.’”
Independent BDU representative CCSA contends that penetration based rate cards come into play in the distribution of sports services, holding smaller BDUs hostage in order to reach penalty-free levels, which usually forces BDUS to include sports channels in a basic package, limiting customer choice. It is the CCSA’s contention PBRT packaging combined with the high costs of sports programming leaves the current system vulnerable to cord cutting.
“The simple answer is that those who choose to subscribe to premium sports content, even at very high prices, can do so,” states the CCSA submission. “What is not acceptable is that a very broad base of BDU customers should lack choice as to whether they buy these services and, in effect, subsidize consumption by the true sports fans.”
Cogeco added that in a more flexible environment which fostered more choice there would be no “credible” reason for the CRTC to shield those who wanted sports services to pay the full cost. “Sports services are licensed as Category C competitive services and they cannot in our view meet the Commission’s criteria for mandatory distribution on the basic service under subsection 9(1)(h) of the Broadcasting Act,” the company’s submission said.
The BDU added that the rapid increase of sports rights has been made possible because sports programmers correctly assumed the prices would be passed on to the BDUs and ultimately to subscribers. Cogeco believes that once sports services are no longer packaged on the highest penetrated tiers and have to stand on their own in a pick-and-pay format or on a BYOP basis, there will be more transparency and ultimately more discipline on bidding for sports programming.
Shaw proposed a “Market Guidelines to Maximize Customer Choice and Flexibility,” and recommends a basic package should be available that would not include sports services. This would “support more robust customer choice.” Shaw added that sports services may have to transition to “premium services.”
Rogers, on the other hand, refers to the research it commissioned by Oliver Wyman, (Appendix B on this page) who estimates 35% of customers would gravitate to unbundled pricing if given the opportunity. Wyman estimates 30% of that group would select sports channels from the options available. The Rogers submission states those numbers would represent a 25% drop in consumer penetration, which would have an obvious negative impact on subscription and advertising revenue.
“The result will be a higher premium paid by sports fans for sports programming bought on an a la carte or pick-pack basis. In short, the more that customers move to unbundling options, the more this will directly increase the cost of sports services.” – Rogers
“The result will be a higher premium paid by sports fans for sports programming bought on an a la carte or pick-pack basis,” stated RCI. “In short, the more that customers move to unbundling options, the more this will directly increase the cost of sports services.
“For these reasons, we agree with the Commission’s proposal to allow BDUs to offer and promote, alongside a la carte and pick-pack options, packages that represent the best choice and value for Canadians. The inclusion of sports services in large curated packages with broad penetration will help to ensure affordable access to sports programming by a majority of Canadians.”
Bell believes the CRTC should not mandate skinny basic packages, as well as allowing BDUs the option to carry sports services in their basic packages to keep the overall costs down for subscribers.
Quebecor Media, owner of Videotron and the TVA Group, warns the Commission that any transition to strictly a pay and pick system would be harmful to programming services and have a major impact on BDUs and their customers. QMI added there is a limit to price hikes that subscribers will accept in exchange for greater freedom of choice, estimating the household budget for their customers for television entertainment is an average maximum of $50.
“If the principle of risk-sharing is not taken into account and the risk is not appropriately divided between BDUs and programming services, the approach advocated by the Commission will increase the cost of programming services, particularly that of the sports channels.” – Quebecor
“If the principle of risk-sharing is not taken into account and the risk is not appropriately divided between BDUs and programming services, the approach advocated by the Commission will increase the cost of programming services, particularly that of the sports channels,” says the QMI submission.
“Therefore, unless interactions within the broadcasting industry are rebalanced so that BDUs do not have to bear the cost of the “build-your-own-package” model alone, television viewers will have to increase the budget they allocate to accessing the television channels they want. This could accelerate the trend towards cord-cutting and threaten the sustainability of Canada’s broadcasting system.”
– Cartt.ca staff
This is the ninth story from our ongoing, summer-long breakdown of the official submissions made to the CRTC for it's Let's Talk TV, TV Policy Review. The first eight are linked below.
Different rules for different language markets
Genres have long been monkeyed around with. Do they still need protection?
Is basic bloated? Does it need a diet?
Pick and pay in Canada strikes out with U.S. media heavyweights
U.S. border stations want to use Let's Talk TV to wrest cash from Canadian BDUs
Should Yankee go home? The changing role of U.S. channels in the Canadian broadcasting system
No “Netflix Tax”, company warns CRTC
Snap Judgements: Everyone wants more choice – tied to a lot of ifs, ands, buts…
