TORONTO – While the CRTC has only just gathered opinions on how digital migration of specialty services might happen, Rogers Communications and six other programmers have already hammered out their own framework.
The new deal, called “historic” last week by RCI CEO Ted Rogers, outlines how the country’s largest cable company and the six biggest broadcasters will handle the migration of analog specialty services to digital. It was submitted to the CRTC under its call for proposals for a digital migration framework, PN 2005-1.
RCI vice-chairman Phil Lind, along with Rogers, first met with the chief executives of Alliance Atlantis Broadcasting (Phyllis Yaffe), Astral Television (John Riley), CHUM Ltd. (Jay Switzer), Corus Entertainment (John Cassaday), CTV (Rick Brace), and Global Television (Kathleen Dore) January 18th to come up with an acceptable framework for the migration all know must happen.
Even though it’s agreed digital migration is going to take place, doing it without blowing up the reliable subscription revenue produced through analog tiers is key, from a programmer’s perspective.
Rogers, on the other hand, was in search of a modicum of certainty as it continues its transition to an all-digital network – as well as the ability to immediately begin offering theme packages to its customers, RCI’s vice-president, regulatory, Ken Engelhart, told www.cartt.ca in an interview last week.
Key elements of the deal include:
* The ability to begin offering any and all analog specialty channels in theme packages with digi-nets right away, so long as the old analog tiers are also maintained.
* New theme packs must have a minimum of five and an average of seven channels.
* A prohibition on a-la-carte selling of the channels.
* Rogers will be allowed to shut off an analog tier when 95% of a tier’s customers have digital cable in their homes (the current threshold set by the CRTC where it would consider digital migration is currently set at 85%).
* Continued support for genre protection.
* Analog specialty services would have the right to re-negotiate affiliate agreements if subscriber levels for services moved to theme packs dropped by more than 5%.
* A few high definition clauses, which will be covered below.
“We thought it was better to have certainty,” said Engelhart, “so we agreed with the six programmers (plus Rogers Media, which was also included in the deal) that once we got to 95% of the homes, we could just simply do it, say, with tier III.”
And, even though 95% “is a huge number,” adds Engelhart, “it’s something we can deal with.”
So, if 95% of the people who buy tier III have a digital box, Rogers would be able to shut off the analog stream. With tier III penetration in the 60% to 65% range and digital box penetration at 30% now, growing by 15% a year, explains Engelhart, “you could start to look at migrating tier III in a couple of years.” In fact, he believes all tiers will be migrated to digital in five years.
Unbeknownst to customers, those with digital boxes are already seeing their channels in digital as Rogers has the capacity, with a fully re-built 860 MHz system, to duplicate all of its analog channels in digital.
That means theme packs are coming to Rogers customers, and soon. While the agreement says broadcasters have to agree to their channels being bumped into a theme pack, “we’re going ahead with that right now and we’re hopeful that before the end of the summer we will have the analog services included in our digital theme packs,” he added.
Some theme packs, depending on their structure, would likely improve the fortunes of some digi-nets, adding subscribers thanks to being tied to more mature specialties.
The Rogers position here isn’t entirely consistent with the rest of the cable industry either. Nor is the position of the six programmers completely parallel with the rest of the broadcast industry. Indeed, the Canadian Cable Television Association and Canadian Association of Broadcasters’ submissions to the CRTC on digital migration differ in some areas with the deal made by their largest members.
“The rest of the cable industry, I think it’s fair to say, doesn’t think this is a deal that works for them. So, at this point, it’s just a Rogers agreement,” says Engelhart.
On the CAB side, its submission says that the services have to be “made whole” in any BDU digital migration. That means if any cable company wants to put channels into digital theme packs – where for example a specialty service is in a 60% penetrated tier and is moved to a 40% tier – then there must be a corresponding increase in the wholesale rate paid to the specialty service to make up for the difference. There is no made whole language in the Rogers agreement.
The Rogers deal says “it’s not our fault people are buying theme packs. It’s your fault. You’re the ones who let ExpressVu and Star Choice and others create theme packs,” says Engelhart. “Don’t blame us now that the customer has a demand for theme packs. If they go to our theme packs, that doesn’t hurt you any more than if they go to ExpressVu’s theme packs and fair is fair, you should allow us to do what the competitor is doing.
“They said, we take your point, but at the same time, it may be that some of these other competitors are paying more than you are, because they are delivering less penetration, so you should pay more if you end up delivering less penetration – and that’s the way the deal is structured,” he explained.
“If our penetration declines, (the broadcasters) would – either by re-negotiating or by imposing a rate card – have an ability to adjust our rates to what comparable BDUs pay on the market.”
Described as a three-to-five-year transitional deal, the framework also contemplates the impact of high definition, too.
Rogers has agreed that it will carry a specialty channel’s HD feed once it gets to 50% HD content in prime time, an advantage over the CRTC’s requirement of 50% across a channel’s entire schedule before it would become a must-carry.
“In a spirit of compromise, we agreed that it would be 50% in prime time and we also agreed that if we did migrate a tier from analog to digital that the number would drop to 25% because we’d have so much freed up capacity that we really should carry more Canadian HD specialties,” says Engelhart.
Also, with the specialties worried about losing genre protection if they don’t roll out HD fast enough (as the CCTA’s submission calls for), Rogers has decided to set that issue aside for now.
“We said, let’s not hold that stick over their heads for this three-to-five-year transitional period,” he added. “(But), if in three or four or five years though, they have not yet gotten around to putting on high def, then it’s time for the Commission to look at whether they shouldn’t lose their genre protection because by then there will be so many high def TV sets in the market that customers will feel that they’re really missing something if they’re not getting services in high def.”
Both sides are now hopeful that the Commission will recognize and approve the deal, rather than try to tinker with it, even though a CRTC decision on migration and HD specialties is not expected until 2006.
“My hat is off to the Canadian programming industry for their willingness to work pro-actively and co-operatively to prepare for this inevitable transition,” added Ted Rogers.
“It makes sense… to go to the Commission with a joint recommendation than to just argue in front of the commission ad nauseum about such important matters.”
– Greg O’Brien
