OTTAWA – The CRTC has ruled that Telus has placed OUTtv at a competitive disadvantage by marketing the Category A service more like a B service, by making it an optional package on its Optik TV service. It found that Telus violated undue preference regulations related to the packaging and marketing of OUTtv Network Inc. by providing operators of other programming services a preference, contrary to section 9 of the Broadcasting Distribution Regulations. It has given Telus until February 8 to provide a detailed marketing plan on how it will remedy the unfair advantage.
The decision sets a new precedent in that the CRTC has usually left it to BDUs and Category A services to negotiate how channels will be packaged. In the decision the Commission notes that in recent years it has liberalized certain aspects of packaging in order to give BDUs greater flexibility in the manner in which they create and offer their packages in order to respond to consumer demand.
“At the same time, the Commission has recognized the important role of independent Category A services in the Canadian broadcasting system and the need for additional regulatory safeguards to address potential anti-competitive actions they may face, particularly with respect to their carriage on vertically integrated entities,” it writes. With this decision the CRTC has indicated it will continue to leave packaging of services largely up to BDUs, but that it will take a hands-on approach to the marketing of services where it appears there has been undue preference given.
“The Commission’s decision is very important for independent broadcasters and Category A licenses in particular. It affirms that the marketing architecture chosen by the BDU forms an integral part of their obligations under the Code,” says OUTtv COO Brad Danks. “We have long argued that in many cases the actual marketing and presentation to the consumer is more important than the composition of the channels in the package. This was one of those cases where Telus created a disadvantage in their marketing which the Commission identified as creating an undue preference against OUTtv. We look forward to working with our friends at Telus to come up with a solution consistent with the Commission’s ruling.”
OUTtv is Canada’s only national Gay and Lesbian television network and operates an independent specialty Category A service. OUTtv says its service is “designed to meet the needs and interests of Canada’s gay, lesbian, bisexual, and transgender (GLBT) community and their allies, and also to act as a bridge between the GLBT community and a larger audience.”
It argues that its service’s mix of movies, drama, reality, travel and lifestyle programming is similar to shows such as E! and Slice that other BDUs often package together with OUTtv, but which Telus has not.
In its application, filed on March 20, 2012, OUTtv alleged that Telus had subjected it to an undue disadvantage or had given other programming services an undue preference, contrary to the provisions set out in section 9 of the Broadcasting Distribution Regulations (the Regulations). It further charged that Telus’ distribution arrangements for OUTtv disregarded clauses 4 and 6 of the Code of conduct for commercial arrangements and interactions since it was not “distributing OUTtv in the best available package of programming services consistent with OUTtv’s genre and programming” or providing OUTtv “comparable marketing support as it has provided or will provide to similar programming services.”
OUTtv has been packaged on Telus’ distribution undertaking since 2009 in a package called “Lifestyle Extra.” OUTtv had requested its service be placed in the “Lifestyle” package also offered by Telus. It argued that although both packages are consistent with its genre and programming that the “Lifestyle” package is the best package because it has significantly higher market penetration. Telus operates its IPTV-based Optik TV in parts of British Columbia, Alberta and Quebec.
Since the “Lifestyle” package is included in Telus’ two main customer bundles, (“Medium” and Large Choice”) and “Large” (“Large Choice”), and receives the majority of Telus’ marketing, OUTtv argues it was placed in a competitive disadvantage by being placed in the Lifestyle Extra bundle.
Telus responded that it has neither subjected OUTtv Network to an undue disadvantage, nor has given an undue preference to other services. It further submitted that its packaging and marketing of OUTtv on Optik TV is not inconsistent with the Code of Conduct.
The carrier argued that the “Lifestyle” theme was too large for a single package, which made it necessary to split it up into two distinct packages within the theme or genre in order for it to be comparable in size and cost to all the other theme packages that it offered. Telus indicated that the choice of services for each of the packages is entirely based on the best grouping of the “genre within the genre.”
It further indicated that the “Lifestyle” package contains services that are more educational, informational and instructional in nature, while “Lifestyle Extra” includes more entertainment programming, talk shows, reality-based programming and dramatic programming.
OUTtv provided the Commission with financial estimates that demonstrated it was experiencing a substantial loss in revenues by virtue of OUTtv being placed in the lower penetration “Lifestyle Extra” package rather than in the “Lifestyle” package, due to lost subscription fees. OUTtv Network further submitted that lower penetration rates also deprive it of the opportunity to showcase its service to a larger audience and, consequently, receive additional revenue from advertisers.
The lower subscriber base it has a result of it placement means it does not have the revenues required to improve the quality of its Canadian programming in keeping with its regulatory requirements and to compete effectively with other Category A services. It further argued that a lower overall subscriber base makes it more difficult to implement changes to its programming delivery and digital distribution infrastructure (for example, its planned launch of a high definition service).
With regards to marketing, Telus maintains that customers have a choice of theme packages (with the exception of premium movie services and third-language services) that are priced identically. It further noted that, as of February 2012, it was only in the “Large” bundle that the “Lifestyle” package was offered explicitly.
Telus maintains that while the inclusion of “Lifestyle” in the “Large” bundle might be viewed as a preference, it is certainly not an undue one as reflected by the relatively low number of Optik TV subscribers who choose the “Large” bundle when compared to those who select either the “Medium” bundle or a self-created bundle. It further submitted that it made changes to Optik TV’s bundles to give subscribers even more choice by being allowed to choose or swap out any theme package in both the “Large” and “Medium” bundles.
It added as a result of the unprecedented growth rate in the number of Optik TV subscribers, Telus forecasts a considerable increase in OUTtv Network’s revenues year-over-year in its current theme package.
It concluded it has no motive to favour one Category A service over another since it neither owns nor is affiliated with any programming undertaking. It stated that it has maintained the packaging best suited to OUTtv’s programming and that penetration levels for all services are the result of customer choice alone.
OUTtv countered that Telus did not support its contention that the “Lifestyle” package contains services that are more “educational, informational and instructional.” It argued that most of the premium content on all of the services in the “Lifestyle” package is more entertainment-orientated than educational, informational or instructional.
It added that any increase in its service’s penetration due to the growth in popularity of Optik TV would come at the expense of other BDUs, on which OUTtv has more favourable packaging arrangements and higher penetration, which would therefore not result in a net benefit to OUTtv Network.
In its decision the Commission noted that Telus’ website offers consumers specific recommendations for theme packages for each of the “Large” and “Medium” bundles under the “We suggest” drop down menu. Under this website display, the “Lifestyle” package is recommended for both bundles, while the “Lifestyle Extra” package is not recommended for either bundle.
“The penetration numbers filed by Telus for this proceeding demonstrate that a large number of its customers subscribe to the “Medium” bundle, and a smaller but significant number of customers subscribe to the “Large” bundle. The Commission therefore considers that Telus’ marketing of the “Lifestyle” package within the “Medium” or “Large” bundles, whether as default inclusions or suggestions on the website, gives the services that are included in the “Lifestyle” package an advantage or preference when compared to the services included in the “Lifestyle Extra” package, a package that includes OUTtv,” writes the CRTC.
Therefore it concluded that Telus has subjected OUTtv Network to a “disadvantage and has given operators of the programming services placed in the “Lifestyle” package a preference.”
The Commission further noted that the “Lifestyle” and “Lifestyle Extra” packages are similarly constituted, each having the same number of services overall and the same number of independent Category A services, all within the same theme.
“It is important to note that both packages are available to Telus customers at the same price. The Commission therefore considers that OUTtv Network’s complaint rests solely on the discrepancy in the relative penetration levels of the packages.”
While the Commission acknowledged that Telus’ packaging of OUTtv in the lower penetration “Lifestyle Extra” package has had a material adverse impact on OUTtv Network’s revenues that this is insufficient in and of itself to support a finding that the preference and disadvantage caused by the packaging of OUTtv are undue, or that OUTtv has not been placed in the “best available package” in accordance with clause 4 of the Code of Conduct, as claimed by OUTtv Network.
Requiring Telus to place OUTtv in the “Lifestyle” package in the circumstances would unreasonably undermine Telus’ overall packaging flexibility and lead to less choice for consumers ruled the Commission.
“Further, the Commission considers that the differing penetration levels of packages should not be sufficient in and of itself to sustain a finding of undue preference or disadvantage. Such an interpretation could lead to the placement of all independent Category A services in the most highly penetrated packages, which would run contrary to the Commission’s above-noted policy objectives.”
It concluded it is “unable to find that either the preference or the disadvantage regarding the packaging of OUTtv in the “Lifestyle Extra” package is undue and contrary to section 9 of the Regulations.”
The Commission noted that while Telus’ recent changes to its marketing approaches, including giving its consumers the express ability to swap theme packages within the bundles, “appear to be a step in the right direction … [it] considers that Telus has not gone far enough in its marketing of the “Lifestyle Extra” package to address the effects of the historical marketing preferences offered to services in the “Lifestyle” package.”
“Telus continues to maintain an uneven playing field between the two packages since its website currently recommends the “Lifestyle” package for both the “Medium” and “Large” bundles, whereas the “Lifestyle Extra” package is not recommended in either bundle.”
More importantly, the Commission considers that the overall marketing of independent Category A services, and of OUTtv by Telus in the present case, should ensure that these services have a reasonable opportunity to be exposed to subscribers.
“Telus has not provided OUTtv with marketing support comparable to that provided to other similar services, namely, those offered in the “Lifestyle” package, in a manner consistent with clause 6 of the Code of Conduct. The Commission also concludes that Telus’ failure to market OUTtv in a manner comparable to that for other similar services has had, and is likely to continue to have a material adverse impact on OUTtv Network and a negative impact on the achievement of the Canadian broadcasting policy objectives.”
It concluded that in regard to the marketing of OUTtv, Telus has subjected OUTtv Network to an “undue disadvantage and has given an undue preference to operators of the services in the “Lifestyle” package, contrary to section 9 of the Regulations.”
Telus now has until February 8 to file a detailed plan demonstrating how it will remedy this undue disadvantage and preference.
“More specifically, the commission directs Telus to file a detailed marketing plan that highlights how it intends to market OUTtv and/or the “Lifestyle Extra” package, including the amount of financial support it will provide for the promotion of OUTtv and/or the “Lifestyle Extra” package.
