GATINEAU – A code of conduct for vertically integrated broadcast and distribution groups, content exclusivity on mobile and the need for a skinny basic package were the primary discussion points discussion during the fourth day of the CRTC’s examination of vertical integration.
EastLink noted during its opening remarks that access to content is a “critical driver” of not only its cable distribution service, but for all of its services, and therefore rules need to be established to ensure equitable access to content.
“Programming services dictate contract terms requiring distribution in high penetration packages, packaging requirements and, in some cases, with the right terminate the contract if subscriber numbers drop,” said Natalie MacDonald, VP of regulatory affairs at EastLink. “In other areas of our business, when a company relies on its competitors for access to key inputs, rules have been established to ensure access on fair and reasonable terms.”
The vertically integrated companies have argued that imposing any type of regulations or code would affect their ability to innovate, especially when it comes to mobile and new media. Cogeco Cable Inc. disagreed.
“Regulatory oversight simply means that there are clear and sound rules in effect, that the dominant players in the relevant market must remain honest and play by those rules, and that the regulator will uphold those rules when necessary,” argued Louis Audet, president and CEO of Cogeco. “It is not true that the regulatory oversight we have proposed would supplant market forces, undo business plans, stifle innovation or manage the business of vertically integrated groups, all of which are red herrings.”
Cogeco has proposed a set of ex ante “basic rules of engagement” that are transparent and would ensure fair access to programming. Yves Mayrand, VP of corporate affairs, used soccer as an analogy to explain the company’s position.
“You have rules that are set, the rules are known by all the participants, they’re known by the public that’s out there watching and the referee whistles and calls penalties when the rules are broken. We’re not asking for anything different than that,” he said, adding Cogeco is not advocating the CRTC get into the micro-management business. “All we’re saying is there are a certain number of basic rules that you will need inevitably to deal with disputes, if and when, they arise.”
Konrad von Finckenstein, commission chair, wondered why the company wouldn’t agree to the word “code” and instead chose to use rules and principles.
“I couldn’t say this with enough conviction and force. You should not treat these as expectations. You should treat them as rules to be followed and abided by everyone involved. The word code in CRTC hearings is a very dangerous word because in the past it was meant to mean a voluntary code. We’re not talking about a voluntary code. We’re talking about compulsory rules of how you play the game of soccer. That’s all,” added Audet.
Broadcast distributors appearing on Thursday spoke of current problems with vertically integrated firms. Regina-based cable co-op Access Communications’ president and CEO Jim Deane (who is also chairman of the board of the Canadian Cable Systems Alliance) related a previous dispute with Rogers Communications over Sportsnet, which resulted in the company having to pay much higher rates for the service. He also spoke of the severe and negative consequences if the company can‘t reach an agreement with Bell Media over rates for 29 CTV services.
“If negotiations with Bell Media don’t go well, my company could find itself facing withdrawal of a large number of services. There are 16 non-Category A services, including TSN, RDS, and the CTV News Channel, that Bell could withdraw at any time,” he said. “Bell can shut down our company by withdrawing a large portion of our television offering, even for a short period of time. In fact, if Bell were to pull just TSN service during the [Saskatchewan] Roughriders’ football schedule, they could kill our business very quickly.”
Exclusive content on new media platforms, particularly mobile, was also raised. For Cogeco, exclusives aren’t necessarily a bad thing, only when they exist in markets where there is a high degree of concentration. Queen’s University economics professor Roger Ware, an expert witness for Cogeco, noted that content exclusives don’t create too many issues when the programming and distribution markets are highly competitive. That’s not the case in Canada, he said, noting that exclusivity arrangements will have negative impacts on the market.
Mayrand noted that the Federal Communications Commission recognized the potential negative impact on the U.S. broadcasting system if there weren’t some provisions on exclusivities applied to the Comcast-NBCU deal. While Comcast didn’t have wireless business, it had a large online presence and the FCC saw fit to make some rules with that in mind. The same should hold true with the mobile platform said the Cogeco executive.
“If you let the horse out of the barn on mobile platforms, you will have, I can assure you, huge pains in trying to bring it back in the barn as if and when that becomes necessary,” he said.
CBC/Radio-Canada said the Commission needs to understand that the vertically integrated companies won’t “voluntarily” compromise commercial interests to support the objectives of the Broadcasting Act. Therefore regulation is necessary.
“Simply stated – vertically integrated companies have both the incentive and the opportunity to favour their own content and distribution services to the prejudice of unaffiliated companies,” CBC president and CEO Hubert Lacroix stated during his opening remarks.
The national public broadcaster agreed that ex ante rules are the best approach to dealing with the vertically integrated groups. A key part of the solution proposed by CBC would be to create rules that “require distributors to provide comparable terms to unaffiliated and affiliated services.” Mandatory written affiliation agreements filed with the Commission would be a solution, said the CBC.
The squeeze is coming, added Mike Fiorini, the general manager of Cable Cable (a company with 4,000 subscribers in and around Bobcaygeon and Fenelon Falls). “We have received termination notices for must carry services from Bell Media and subsequently have received a new contract offer [via the CCSA] for almost their whole bucket of programming services,” he told commissioners. “I can also tell you that this ‘first draft’ contains rate increases and penetration requirements that will seriously impair the profitability of my company’s BDU operation.
“So, yes, the boogeyman is real.”
As Cartt.ca noted yesterday, the discussion of a skinny basic has been a main theme. That continued Thursday.
CRTC chair Konrad von Finckenstein was “baffled” by Cogeco’s opposition to a mandated skinny basic package, noting that “it does not cut against you in any way and it is something that is consumer friendly and would hopefully keep them in the cable world, rather than going to the wireless or internet world.”
Audet noted that while the company offers smaller sized packages in its Quebec and Portugal markets, uptake has been “insignificant.“
“In the absence of demonstrated demand for this service….I think it would be unwise to prescribe the creation of such a package,” he said, adding that there is already a natural evolution to smaller packages taking place as cable systems migrate to digital. “This is happening practically speaking on a daily basis and we’re moving along with the market and we’re shaping market expectations as we go along and the market is shaping us when it does express its preferences.”
For EastLink, the experience has been the same.
Deborah Shaffner, president and COO of EastLink, said the company has offered this type of small basic package to subscribers without much success. “They want more not less,” she said. “We don’t believe it should be mandated.”
The hearing continues Monday as Corus Entertainment, the CMPA and some independent media companies face the Commission.
