Consumers will suffer if Vision TV’s wholesale rate increases, distributors say

As expected, broadcast distributors are opposing Vision TV's request for a 3-cent increase to its wholesale rate, saying neither they nor their subscribers should be unnecessarily subsidizing the organization's broadcast operations. The distributors argue that they are burdened with their own increased costs of doing business, and should not have to generate more revenue for the specialty TV broadcaster. Given its dual status carriage and its substantial viewer following, non-profit Vision TV should be able to fulfill its mandate without a wholesale rate increase, they argue. If the wholesale rate is approved, the distributors say that cost would be passed on to their subscribers. The Canadian Cable Television Association (CCTA) fears that some of the revenue generated by the proposed rate increase would go toward cross-subsidizing the development of Vision's affiliated for-profit digital channels, Category 1 One: The Body, Mind and Spirit Channel, and Category 2s Celebration and the Christian Channel. For example, the CCTA notes that the $2 million that Vision TV plans to invest in digital upgrades would be of greater benefit to its diginets. "The CCTA submits that it would not be appropriate for the CRTC to grant increases in the wholesale rate for a service distributed primarily on analog cable where there is any risk that the increases will be used to recover expenses that benefit a discretionary digital-only service," the cable association states in its June 19 comments to the CRTC in response to Vision TV's application for a rate increase. The distributors are also leery of Vision TV's desire to put some of the money it would gain from the rate increase into a proposed reserve fund. According to Vision TV's figures, excess revenues of about $8.2 million would be generated by the rate increase. Vision proposes putting about $5.9 million of that into a reserve/reinvestment fund, while the remaining $2.3 million would be used for new capital expenditures. The Canadian Cable Systems Alliance (CCSA), representing small cablecos, however, tells the CRTC that "it is not appropriate to impose an increased cost on cable distributors who lack choice as to distribution of the service, and on consumers who must purchase the service, as a means of increasing the licensee's cash reserves." The CCSA also notes that Vision TV has a large pool of uncollected debts and suggests "the improvement of liquidity through the collection of accounts is fundamentally an internal business matter which distributors and consumers should not be expected to address." Vision has asked the CRTC to allow it to increase its wholesale rate to 11 cents from 8 cents per subscriber per month so it can preserve balance and diversity in its programming, which are essential to fulfilling its mandate - Broadcasting Public Notice 2002-25 (CCR, May 23/02, Dec. 19/01, Nov. 22/01). Vision says it has "pursued and exhausted all internal remedies to its financial crisis." But distributors accuse Vision TV of forecasting unreasonably low growth in advertising, not justifying the reserve fund it proposes creating with monies from the rate increase, and failing to take into account shared operations with and management of its digital channels. The CCTA notes that Vision fails to incorporate into its financial projections additional revenue of $3.7 million mentioned in a previous Vision TV application but ignored in this process for management services paid by its affiliated channels. Bell ExpressVu LP points out in its submission that the growth in direct-to-home (DTH) satellite TV subscribers has delivered an average increase in revenues to Vision TV of more than 30 per cent per year since 1997. It also points out that Vision TV's revenues from broadcast sales and donations have increased by more than four per cent since 1998, while advertising revenue has grown by more than 13 per cent since 1998. ExpressVu further notes that Vision TV's expenses seem to be "inconsistent and out of phase" with its revenues. "Sales and promotion expenses grew an average of 26 per cent and administration expenses by over 18 per cent per annum…(while) interest expense is rising, yet no new borrowing appears to be projected," the DTH operator states. The distributors argue that Vision TV is already being given preferential treatment as it is carried in most basic packages. "…In a competitive marketplace, our company has limited ability to recover a rate increase for services in our universal package," ExpressVu states. The CCSA argues that a 3-cent increase when applied to a channel broadly distributed on the basic service represents a "significant financial burden" to cablecos. "The CCSA submits that this increase would come at a time when independent cable operators are financing the implementation of new digital technology, contracting for the distribution of mandatory Category 1 digital services and incurring the expense of satisfying their obligations under the new minority language distribution rules," states the organization's June 19 submission. Edouard Trépanier, VP of regulatory affairs at Vidéotron ltée, argues in his company's submission that there are two options available in circumstances like this one. He tells the CRTC that if a rate increase is approved then cablecos should not have to carry so many "required" channels in the basic package because it becomes too costly for the consumer. If rate increases are granted, Vidéotron recommends that cablecos be allowed to choose the channels they want in the basic package to ensure the tastes of each community are met without costs being prohibitive. The second option, Trépanier states, is for distributors and broadcasters to collectively work together to keep each channel priced as low as possible to allow for the distribution of as many channels as possible to basic subscribers. He suggests that channels are beginning to cost too much, and proposes that the wholesale rate should be lower for channels attracting fewer eyeballs - a recommendation that won't fly with most broadcasters.

Consumers will suffer if Vision TV’s wholesale rate increases, distributors say

Broadcast | July 4, 2002

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