TORONTO – Some of the big American media companies that participated in the Let’s Talk TV initiative pulled no punches when evaluating the perils of a possible mandated pick and pay subscriber model in Canada.
Representatives at Walt Disney, Turner Broadcasting, Viacom and A&E Television Networks (AETN) declined to appear at the September 8th hearing, but had plenty to say in their submissions to the CRTC.
Disney, the world’s second largest broadcasting company in regards to revenue, discussed how broad distribution makes for better “channel packaging” for growing advertising, quality production, lower subscriber fees and long-term planning. The mass media company also pointed to a 2004 Federal Communications Commission report in the U.S. that found that under a la carte model, few subscribers would actually experience a reduction in their fees for multi-channel programming.
“The U.S. economic analysis demonstrates that a pure a la carte model would cause the most harmful effects”, stated Susan Fox, vice president, government relations at The Walt Disney Company in its submission. “We recommend that, at a minimum, BDUs and programming services should continue to be allowed sufficient pricing flexibility to determine the appropriate pricing for each packaging option. Otherwise, it will result in inevitable pressure on the CRTC to intervene in the form of attempted price controls at the retail level.”
Viacom Inc., which has global media brands in more than 160 countries, said that it thinks that there’s nothing wrong with the current Canadian system. The American company points out that the Commission acknowledged that the Canadian broadcast industry is successful and thriving, employing about 60,000 people, and supports a wide range of over 700 Canadian and non-Canadian services.
“The current system provides BDUs and programming services with options voluntarily to respond to changing consumer demands whether those are for a la carte or package distribution,” said the submission authored by Keith Murphy, Viacom’s SVP government relations and regulatory counsel. “As the Owen Report (commissioned by Viacom for this proceeding) confirms, mandating pick and pay will reduce revenues and increase costs of programming services, leading to less production, lower quality and the withdrawal of some programming services from the market. This is a consumer welfare death spiral.”
AETN made it clear that being part of a bundle has helped it rank in the Top 10 cable networks (including Canadian and non-Canadian and all genres) for both prime and total day. That success has allowed Canadian BDUs to bundle A&E with a number of new Canadian specialty channels in basic or expanded basic tiers, which has helped to build those new channels.
“As a threshold matter, there is a general disconnect between the value subscribers place on programming services and what those subscribers are willing to pay to receive them as stand-alone channels,” wrote David Zagin, president, distribution for AETN. “Industry data in the U.S. made available to AETN shows that, among viewers of the average enhanced basic tier, the average perceived value was $1.02 per network, but fewer than half viewers would be willing to pay as much as a dollar per month for the programming if it were offered separately, and 40 per cent were either unwilling to pay anything or would not pay as much as 50 cents a month.
“This dynamic is a significant factor in why an a la carte system would harm a great number of programming services and diminish viewer choice.”
TBS made it unanimous amongst the American media companies who lined up against mandatory pick and pay in Canada. It also revealed that it had seen a decline in its Canadian subscriber numbers after allowing Canadian BDUs, primarily in Quebec, to distribute its channels as part of “discretionary theme packages and pick-packs”.
“In our respectful submission, the manner in which BDUs package and price programming services are matters that should be left to the marketplace to decide,” said Rich Warren, EVP of content negotiations and strategy at TBS. “They should not be imposed by regulation.”
Simultaneous Substitution
Disney said that it supports simultaneous substitution for Canadian broadcasters and believes it should be enhanced with non-simultaneous substitution in order to “preserve the integrity of program rights”. Disney owns 80% of ESPN Inc., which in turn owns 20% of Canadian sports networks TSN and RDS.
Disney did acknowledge that distant U.S. signals in Canada makes it difficult for the copyright owners and the Canadian broadcasters that pay for the licence, noting that copyright owners cannot fully monetize programs on U.S. signals imported into Canada, and Canadian broadcasters are unable to leverage exclusive program rights.
“If Canadian broadcasters cannot protect the integrity of copyright licences, they will not be able to afford to acquire program rights,” said Disney’s Fox. “This will inevitably encourage the North Americanization of program rights and will result in the end of a separate and distinct market for Canadian program rights to U.S. program, which the Commission has consistently acknowledged helps to subsidize the creation and acquisition of Canadian programs.”
Increased Access to Foreign Services
AETN and Viacom also support increased access to non-Canadian services. AETN said that by adding foreign services, BDUs can better meet the demands of subscribers and therefore keep them in the established broadcasting system.
Viacom proposed that a new class of foreign service be authorized by the CRTC.
“The new class will create a foreign Canadianized service,” said Viacom's Murphy. “In exchange for taking on Canadian programming expenditure requirements, this new level of authorized foreign service will be permitted to Canadianize its service to be more relevant to Canadian subscribers and to source Canadian advertising.”
Elimination of Genre Exclusivity and Canadian Preponderance
Both Viacom and AETN support the proposal to eliminate genre exclusivity and Canadian preponderance. Both companies said that the elimination of genre exclusivity will create more competition in the popular genres, which will then force incumbents to step up their game and create more quality programming.
The two companies also agreed that the removal of the Canadian preponderance rule will give distributors more flexibility to meet the demands of their subscribers.
Cartt.ca will break down the skinny basic issue next as part of our ongoing Let's Talk TV series.
– Cartt.ca staff
