It has been argued in the media that “Cable companies have built profitable businesses based on the exploitation of free programming supplied by local broadcasters without giving any of the proceeds back to the stations.”
Nothing could be further from the truth. Over-the-air television stations receive advertising revenue and they need cable to get to more eyeballs with better pictures. Cable’s capital investment to provide the bandwidth that carries local stations costs literally billions of dollars and the broadcasters do not pay a cent for the use of this network. In addition, cable gives the broadcasters a low channel position and provides simultaneous substitution.
These benefits greatly increase the ad revenue that broadcasters earn and cable provides them all at no cost. The broadcasters themselves estimate the incremental annual revenue from simultaneous substitution at $271 million. Without cable, the broadcasters’ ad revenue would be far lower. Again, cable does not receive a cent from this broadcaster revenue.
It is also not true that cable companies have built profitable businesses based on the distribution of local signals. Because the local signals are available free with rabbit ears, they are not an important determinant of value for cable customers. Cable was successful because it brought in clear distant U.S. and Canadian signals and offered specialty channels, which are not available over-the-air. Cable operators that only offered free over-the-air signals would not have much of a business. In fact, 15% of Canadian TV households do not subscribe to cable or satellite. These people watch the free over-the-air television stations without paying for them.
Broadcasters have claimed that not a cent from cable and satellite bills “went to local television stations.” Cable and satellite companies paid over $152 million last year to the Canadian Television Fund. These funds are collected through a 5% tax on revenue and are dispersed to Canadian local broadcasters as well as to their specialty channel divisions to produce shows with Canadian content. Millions more go to private funds which also have the effect of subsidizing the programming that local television stations purchase.
Global acknowledges that cable bills will increase if broadcasters enjoy fees-for-carriage. However, they argue that the increase in consumer bills will only be “about $2.40 per month” on average. Well, the math just doesn’t add up. Global and CTV have proposed a 50 to 70 cent monthly fee for each local channel. In Toronto, 11 broadcast channels on cable (we exclude provincial broadcasters TVO and TFO, and re-transmitters) would qualify – at 70 cents per channel resulting in an increase of $7.70. Other large cities would see similar increases.
Global has stated that in the U.S. “a fee mechanism has already been put in place for local stations.” In the U.S. a local station can either receive mandatory carriage or a fee but not both. When the U.S. stations ask for a fee, in 99% of the cases, the U.S. cable operator declines to pay and agrees to remove the local station. Is this the system that Global is advocating? No. They want mandatory carriage and a fee – in other words, a tax.
This debate is about whether subscribers should pay higher bills so that some of Canada’s most profitable corporations can be more profitable. Don’t forget that it was just last year that CTV bought more over-the-air stations from CHUM. They wanted to buy even more than allowed under CRTC rules! While CTV bought the A Channels, Rogers bought five CITY stations for half a billion dollars. If these are money losing assets as Global argues, why are they attracting such a lot of bids?
Global claims without a hint of irony that the issue of fee-for-carriage “has been debated for almost four decades.” Well, the answer remains the same as it has for the last four decades – fee-for-carriage is a bad idea.
Ken Engelhart
Senior Vice President, Regulatory
Rogers Communications Inc.
