CRTC should adopt “back-stop” approach to regulating specialty TV: Cogeco lawyers

Two Cogeco Inc. lawyers are calling for an overhaul of the way specialty TV channels are regulated by the CRTC, which has up until now made decisions, they say, that have created an unfair "specialty service caste system." Yves Mayrand, Cogeco’s VP of corporate affairs, and Caroline Dignard, director of legal affairs, argue that it is time for the CRTC to adopt a "back-stop" approach to regulating specialty channels. Appearing last month at the New Developments in Communications Law and Policy conference in Ottawa, they said the "back-stop" approach has "potential for meaningful reform" by refocusing the regulatory framework for specialty services on a few key rules of higher value. Those few key rules include undue preference or undue disadvantage regulations, related-party transactions rules, and enforced reporting and disclosure. Mayrand and Dignard argue that the back-stop approach is the way to go because it falls between the extremes of interventionism and a more hands-off approach. Under the non-interventionist approach, the CRTC would become involved only in issues such as ownership change, ensuring specialty services file reports, and the imposition of minimum Canadian content exhibition and expenditure requirements. An interventionist approach would involve increased commission involvement in contractual issues, such as its recent call for comments on an audit framework (CCR, April 8/04). "The CRTC has openly acknowledged that the way in which it regulates the Canadian broadcasting system is being challenged by technological change and powerful new market forces. It has not, however, engaged as yet in a comprehensive review of the present regulatory framework for specialty programming services," note Dingard and Mayrand in a paper written for the conference. "This framework crafted incrementally over the last 20 years, is very detailed, complex and already difficult to manage." Current rules have created a "specialty service caste system," they argue, which has resulted in increased regulatory lag, growing confrontation between the various actors within the Canadian broadcasting system, an increasing number of commercial or competitive disputes, the emergence of court litigation in commercial or competitive disputes, and more political appeals to Cabinet on CRTC decisions. Different specialty TV channels in Canada have different privileges depending upon whether they have mandated basic carriage, have dual status, have modified dual status, are Category 1 or Category 2 diginets, or are on the list of foreign services eligible for carriage in Canada. The pair also note that various specialty TV channels benefit from linkage rules, the one-per-genre policy that prevents competition (except among Category 2 diginets), and regulated wholesale rates. "The specialty service ‘caste’ system, as we call it, results from the combined effect of mandatory distribution orders issued by the CRTC pursuant to paragraph 9(1)(h) of the Broadcasting Act, a number of sections of the Broadcasting Distribution Regulations, the D&L (distribution and linkage) Rules, and the eligible satellite services lists," Mayrand and Dignard note in their paper. "These rules provide differential carriage, distribution and service linkage privileges, and hence market penetration and bargaining leverage, for various sub-groups of specialty television services. These differential privileges were created on the occasion of the successive waves of specialty service licensing, with the level of regulatory protection essentially decreasing with each new wave of licensed specialty programming services." Generally, those specialty TV channels licensed later, such as the diginets, have less favourable conditions. The authors ask, "In any event, are specialty programming service incumbents indefinitely entitled to preferential treatment for distribution on analog cable by the sole virtue of incumbency or date of original licensing? Conversely, are diginets condemned indefinitely to inferior carriage and market penetration on cable?" They further point out, "The use of legacy analog tier carriage, distribution and linkage rules for specialty programming services as a tool to favour (or disadvantage) certain specialty programming services not only raises issues of fairness as between cable distributors, who have them, and DTH and MDS distributors, who do not, but also arguably goes against at least one objective of the Canadian broadcasting policy and three objectives of the regulatory policy set in the Broadcasting Act, not to mention the CRTC’s own desire to ensure the transition of the Canadian broadcasting system to fully digital transmission and distribution." Not surprisingly, the two other panelists - with broadcasting backgrounds - at the session, entitled Regulation of Specialty Services, vehemently opposed the "back-stop" approach. "At the (Canadian Association of Broadcasters), we don’t believe in the back-stop approach. We would prefer to look at the regulatory system as a series of boxes," Luc Perreault, VP of communications and regulatory affairs at Pelmorex Inc., said. He added, "You have one box, which would be the cable operator’s box, one box that would be DTH, one box that would be programming, etc. and then the CRTC would be there to manage the relationships between the players in each one of these boxes." He further noted that in other countries, such as France, where the back-stop approach had been adopted, most of the specialty TV services are now bankrupt. Perreault also criticized Mayrand and Dignard’s paper for not touching on the role of marketing in the TV broadcasting sector. "What is the role of the (broadcasting distribution undertaking), if not to market the bouquet of services? This is where the challenge lies," he stated. Rob Malcolmson, a lawyer with Goodmans LLP who used to work for Headline Media Group Inc., also criticized the call for a back-stop approach. "If the must-carry, dual status, and modified dual status rules and there are no regulations for digital carriage, what happens?" he asked. "It seems to me what happens is that cable becomes the gatekeeper. The cable industry will decide who carries, who, how and for how much, and in my mind this breaches a fundamental principle of the system (reasonable carriage for the programming services)." Canadian Cable Television Association acting president Michael Hennessy stated in the question and answer session, "I’m troubled that we’re so dismissive of the idea that we can’t have increased competition across genres amongst Canadian services - that it would be such a threat to the system (given that there would still be a preponderance of Canadian services)…What we’re really saying is that if that is a threat, then people are being forced to acquire programming that they don’t value in a more open environment." But Perreault responded, "(In the interests of choice) why don’t we let in Dish Network and DirecTV? This will give the consumers more choice in distributors. But I don’t think the market (in Canada) is big enough and strong enough for so many players in the market. It’s the same for a sports service, a weather service, and for information services, etc."

CRTC should adopt “back-stop” approach to regulating specialty TV: Cogeco lawyers

Broadcast | May 21, 2004

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