Value for signal’s not dead yet—but it’s a little more complex

Value for signal probably isn’t dead. That’s what experts and industry insiders say following Shaw Communications Inc.’s purchase of Canwest Global Communications Corp. and BCE Inc.’s recently announced agreement to buy CTV Inc. But the purchase of the major broadcasting groups makes value for signal more complex, insiders say. For years broadcasters have argued they should receive compensation from television distributors for the carriage of their free, over-the-air signals. They argued that declining ad revenues, mostly due to audience fragmentation, signaled changing times for over-the-air broadcasters and the need for new revenue streams. The distributors argued strongly against any fees for the carriage of their signals, saying it would effectively amount to a new “tax” on consumers’ cable and satellite bills. The dynamic has changed now that two of the strongest voices for value for signal—Global and CTV—are owned by distributors who have opposed the regime. But industry insiders say this does not necessarily mean Global’s and CTV’s new owners will cancel out the positions of the broadcasters. In fact, some industry insiders told The Wire Report in background interviews that BCE and Shaw may have more to gain than to lose by putting some or all of their over-the-air stations on the negotiating table. Shaw will own Global’s 11 local, over-the-air television stations and Bell will own the 27 stations operated by CTV. Those stations will give Bell and Shaw significant clout—and potential “value”—under the CRTC’s proposed value for signal regime. The regime, put forward in a decision in March, gives over-the-air broadcasters a choice to negotiate for carriage compensation. Broadcasters can either keep their existing regulatory protections, such as free mandatory distribution and priority channel placement on basic cable, or they can choose to give up those protections to negotiate with distributors—with the power to delete the programming they own from “all signals distributed in their market.” Broadcasters could receive “value” for their signals by way of fees, carriage arrangements, or marketing and promotion services. The commission said carriage could be negotiated “on an individual station basis or as part of a broader negotiation with entire ownership groups.” Parties to the negotiations would be given a limited amount of time to conclude negotiations and the commission would “consider acting as arbitrator” if there is evidence of bad faith negotiations and both parties request it. Sheridan Scott, a partner with Bennett Jones LLP in Ottawa who worked at Bell when it originally acquired CTV in 2000 (which was later split off as a separate company in 2005), said in an interview the Shaw and BCE transactions will not change the revenue problems faced by local broadcasters. “People often run businesses that have competing goals,” Scott said. “When you’re looking at regulatory solutions, you’re looking at maximizing your benefits across the company.” But two industry insiders said they wouldn’t expect Bell or Shaw to elect to negotiate under the regime. It’s seen as too much of an inconvenience to enter grueling negotiations, and the viewpoints at the top of Shaw and Bell haven’t changed—at least not yet. Bell and Shaw would also have to pay for the carriage of other broadcasters’ over-the-air channels, and right now, they pay nothing. It’s expected that Bell and Shaw will conduct internal analyses to determine whether negotiating carriage of their over-the-air stations is worth it. Kaan Yigit, president of Solutions Research Group in Toronto, said by email he thinks there will be “a fair bit of internal discussions” before the companies determine their courses of action. “Nobody wants to have undesirable precedents set or a decision that can come back in a couple of years that hurts interests, so it’s like having to think about more chess moves ahead,” Yigit told The Wire Report. One regulatory source said the carriage of over-the-air stations could be thrown into the mix during negotiations that distributors and broadcasters enter to work out the carriage deals for specialty services. It could be a way for the major broadcasting groups to add “value” to some over-the-air signals without formally electing to negotiate under the commission’s proposed system. If necessary, they could still elect to negotiate. There remain many “ifs” before the CRTC’s value for signal regime can come into force. The proposed system must first receive clearance from the Federal Court of Appeal, where the commission referred its decision for a ruling on its jurisdiction to implement the regime. There are also questions about the kind of industry reaction that may follow a court decision that approves the regime. Some sources say approval of the decision would provoke intense industry lobbying of the Conservative government, encouraging it to issue a cabinet direction that effectively orders the CRTC not to implement the decision. Others suggest an approval from the Federal Court of Appeal could be appealed to the Supreme Court. There is also some concern about what would happen if CTV and Global elected to negotiate under their new ownership structures. In a comment submitted to the commission for its proceeding on the Shaw purchase of Global—which was written before Bell announced its purchase of CTV—Telus Corp. wrote that vertically integrated companies that own both broadcasting and distribution assets create “the potential to simply ‘trade off’ each others’ fees.” Telus wrote such companies could “skew the negotiations” on value for signal and have “the impact of artificially raising rates for unaffiliated broadcasters and BDUs , resulting in widespread overpayments and undue preference for the vertically integrated carriers.” Telus submitted that vertically integrated broadcast distributors should be excluded from participating in the value for signal regime “for at least two years” to allow time to establish a “history of negotiations” with independent broadcasters. The commission can then “review whether to allow vertically integrated broadcasters to participate in this additional revenue source,” Telus wrote. There are rules in place that would address issues of “undue preference.” Section nine of the Broadcasting Distribution Regulations says that no broadcasting licensee can give “undue preference to any person, including itself, or subject any person to an undue disadvantage.” Scott said that if the Federal Court of Appeal approves the commission’s value-for-signal policy, the regime can be tweaked as it is set up. If it is approved, the court will probably provide guidance to the CRTC on implementing the system according to its jurisdiction, she said. sdoyle@thewirereport.ca

Value for signal’s not dead yet—but it’s a little more complex

Broadcast | September 17, 2010

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