Heritage briefing note for Moore plays up consumer interests, questions CRTC data

The Heritage Department emphasized the interests of consumers and questioned CRTC data about the health of the over-the-air television industry in a politically sensitive cabinet memo about fee for carriage last year. The Wire Report obtained the memo, for Heritage Minister James Moore and dated April 9, 2010, through an access-to-information request. Part of the briefing note is an analysis of a CRTC statistical report released just before the commission’s March 22, 2010 value-for-signal decision. That decision put forward a new regulatory mechanism for cable and satellite distributors to compensate over-the-air broadcasters for the carriage of their signals. The CRTC proposed that broadcasters receive the right to open negotiations with distributors under the threat of pulling their programming. “The Department also uses this data and has observed that the CRTC does not always present the data in a complete manner,” the briefing note for the minister said, noting that a CRTC press release about the statistics appeared to exaggerate the poor financial health of over-the-air television stations. It noted that a CRTC release about the statistics referred to a 10 per cent decrease, from 2008 to 2009, in advertising revenues for the conventional television sector. “ the CRTC release did not mention the profitable financial results for other broadcasting services such as pay and specialty television services and pay-per-view, often owned by the same groups that own the less profitable OTA services; yet the CRTC does include the revenues and profits that cable companies realize from all their profitable telephony and Internet business lines,” the memo said. It said that, in 2009, 44 per cent of cable revenues were derived from telephone and Internet services—revenues that amounted to just 29 per cent in 2005. The Heritage Department memo, titled “CRTC announces new group-licensing framework and issues its report on the implications of fee-for-carriage on consumers,” came just after Bell Canada had complained about the same data in a letter to the commission—which was copied to Moore’s office. The memo added that measuring broadcasting distributors’ financial health using profits before interest and taxes (PBIT) does not take into consideration “the high capital costs” that cable and satellite television services “have made and continue to make upgrading their systems.” It said the commission’s use of PBIT for satellite and cable distributors “shows an exaggerated level of profitability when compared to a less capital-intensive industry like OTA television.” The department said a better measurement of profitability would be the return on average net fixed assets (RANFA), but added that data is not available to calculate RANFA for broadcasting distributors. The note also said that, during the previous year, the Conservative government and the CRTC increased subsidies for over-the-air broadcasters through the Local Programming Improvement Fund, the Canada Media Fund, and a 2009 legal settlement between the government and broadcasters over whether they should be required to make regulatory contributions called Part II licence fees. These initiatives contributed about $862 million to the broadcasting industry, the department said. Last year, major communications companies Shaw Communications Inc. and Bell Canada Enterprises Inc. made moves to purchase two of Canada’s largest, private, conventional television broadcasting groups, Global Television and CTVglobemedia Inc. In an email statement, Mike Woollatt, vice-president of government relations at CTVglobemedia Inc., said over-the-air television broadcasting must be considered as a “stand-alone business.” “ must be profitable on its own in order to survive,” he said. “Suggesting otherwise implies that a company should run a loss in one line of business simply because it makes a profit in another.” The April 9 briefing note for the minister also provided a summary of the CRTC decision on value for signal, but government options for possible responses are blacked out. The briefing note, one of several obtained by The Wire Report, also identified consumer groups’ concerns, such as those of the Union des consommateurs, about the potential for increasing the cost of cable and satellite bills as a result of implementing a value for signal regime. “Individual consumers have started to write to you,” the memo said. The CRTC’s value for signal decision is now before the Federal Court of Appeal, which will rule on whether the commission has the jurisdiction to implement it. Another briefing note for the minister about value for signal, dated July 21, 2009, said the business model for Canadian English-language, private over-the-air television “is not sustainable. “It relies too heavily on the rental of popular, foreign, mostly American programming. And in the case of domestic content, there too the broadcasters lack the rights to exploit much of this programming. Given their reliance on commercial advertising as a revenue source, the current economic downturn has only brought into greater relief the weakness of this business model.” The July 21 memo included a section titled “Consumer perspective,” which noted that “A key element missing from much of the debate has been the perspective of consumers, including their willingness to pay more to the cable and satellite companies in order to generate additional revenues for local television.” The Wire Report previously reported that the Conservative government, although publicly reticent about the issue, is firmly against the fee-for-carriage policy proposal. Geneviève Myre, a spokeswoman for the Heritage Department, said in an email statement that it would be inappropriate to comment on the value-for-signal issue while it is before the Federal Court of Appeal. But she said that, “Industry-wide data analysis is part of our ongoing work” and that methodologies “and intended audience vary, as do the ways in which data can be both interpreted and presented.” The CRTC declined to comment for this story. But in a letter last year that responded to Bell's concerns, CRTC chair Konrad von Finckenstein said the commission disagreed with the company's arguments. He said the company had shown "misplaced" concerns about the numbers on cable company profits. sdoyle@thewirereport.ca

Heritage briefing note for Moore plays up consumer interests, questions CRTC data

Broadcast | January 24, 2011

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