CRTC calls for comments on possibility of regulating programmer audit rights

While saying they endorse the principle of audit rights for specialty TV services, distributors oppose the Canadian Association of Broadcasters’ (CAB) framework on the matter. That framework was included as an appendix in a CRTC process announced March 31 that calls for comments on the possibility of amending the Broadcasting Distribution Regulations to add provisions governing the audit of affiliation payments (Broadcasting Public Notice 2004-20). The audits are used to verify the number of subscribers to each specialty TV channel to ensure that distributors pay programmers the right amount in wholesale fees. "Where something can be improved and where it works in the interests of all the parties involved in a way that is better and simpler going forward, then it is hard to disagree with improvements like that," says Bell ExpressVu LP president Tim McGee. "But that clearly is not what is found in our view in the first form of the framework, which we saw was not a balanced document and perhaps wasn’t intended to be. It did not achieve that purpose so we welcome the opportunity to make more formal submissions on this." The CAB framework states that programmers should have the right to audit distributor subscriber numbers once a year, to audit the affiliate’s records for the preceding three years, where necessary, and to send either staff or third-party auditors to conduct the audits. As well, the framework states that the distributors should be assessed an interest charge where the audit uncovers a shortfall in remittances, and that within 60 days of notification by a programming service of its intent to audit, the affiliate must agree to a mutually acceptable date to start it, and that discrepancies in payment will be resolved and settled within 30 days of the affiliate receiving the auditor’s report. Along with requesting comment on the CAB framework, the CRTC poses such questions as: If the commission decided to include audit provisions in the regulations, what would be the most efficient and effective mechanisms for conducting such audits? Who should select the auditor? How often should programmers be permitted to audit distributor records? What types of information should an auditor have access to in the course of performing the audit? Michael Hennessy, acting president of the Canadian Cable Television Association (CCTA), focuses in on section 3 of the public notice, which states "the commission notes that many of the issues raised in the proposed audit framework are business-related issues that might best be negotiated by affected parties on an individual basis." "They’ve recognized that many of the things that the CAB is proposing are business issues, and that to the extent that we can sit down and come up with some mutually acceptable solutions, that’s probably easier for them than trying to sort it out on paper," Hennessy notes. "We sent two messages to the commission. One, that we are prepared to recognize the audit right, and two, that some of these issues are best resolved through discussion and not necessarily ending up as regulation," he adds. "I think the regulations are starting to become so complex because we keep dumping principles and business issues like this into them, and that tends to make things too stringent." But the CAB sees things differently. "We felt it was necessary to bring up a different kind of approach and have the CRTC work toward a resolution," says Pierre Pontbriand, VP of communications at the CAB. He notes that some programmers have had trouble with their audits under current conditions. Audit rights that have been negotiated with distributors are often included in affiliation agreements. The CAB framework states that where audit provisions exist within existing affiliation agreements, they shall take precedence over the provisions contained within the proposed framework. There have been a number of recent high-profile cases involving disputes over wholesale rate payments. For example, Shaw Cablesystems earlier this year launched a lawsuit against CTV Inc. in an attempt to reclaim almost $6.5 million it says it overpaid in wholesale fees to TSN and more than $1.9 million it paid to Discovery Channel (CCR, March 11/04). And in November 2002, Astral Media pulled its Family Channel from Vidéotron ltée’s cable systems after the cableco unilaterally cut in half the rates it was paying for the channel (CCR Update, Nov. 13/02). Comments in the CRTC process are due May 17, 2004.

CRTC calls for comments on possibility of regulating programmer audit rights

Broadcast | April 8, 2004

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