Cogeco concerned about losing CTV programming under vertical integration

GATINEAU, QUE.—Independent cable companies laid out some of the “broken windows” they say they've suffered under vertical integration Thursday. Examples of the impacts of vertical integration started to arise at the commission's hearings in Gatineau after the top vertically integrated players said earlier in the week that concerns are based on fears more than evidence of anti-competitive behaviour. Commissioner Peter Menzies told officials from Cogeco Cable Inc. Thursday that the commission heard a lot about the incentives and opportunities for wrongdoing that vertical integration creates, “but we haven’t seen broken windows yet.” Menzies added: “It’s fear of broken windows.” “We have broken windows,” Louis Audet, Cogeco’s president and CEO, replied. Yves Mayrand, Cogeco’s vice president of corporate affairs, added that his company has had trouble renewing carriage for BCE Inc.'s CTV programming. “Now that it has acquired CTV, Bell wants to be able to withdraw signals of its conventional and specialty television services, including sports, from competing distributors.” Maynard said Cogeco hasn’t received notification that its signals will be pulled but that the termination of its agreement was confirmed. “Foreclosure of non-replicable programming services such as TSN and RDS would seriously harm Canadian consumers and completely undermine competition in the Canadian broadcasting distribution market,” he said. “This is not a theoretical problem. We have been formally notified by Bell of the termination of our affiliation agreements for the CTV services, including TSN and RDS.” Michael Fiorini, vice president and general manager of distributor Cable Cable Inc., said his company had received termination notices for “must carry services” from Bell and a new contract offer “for almost their whole bucket of programming services.” He said the notice contained rate increases and penetration requirements that would damage his company’s profitability. “So, yes, the boogeyman is real,” he said. “I expect to see … similar demands from the programming undertakings owned by the other integrated companies. I expect to see significant rate increases, combined with restrictive packaging conditions, across the whole range of services owned by the integrated companies, with a cumulative result that will almost certainly place our company in jeopardy.” Earlier this week, Michael Hennessy, senior vice-president of government and regulatory affairs at Telus Communications Co., said vertically integrated carriers earn more revenues from their wireline and wireless carriage services. Broadcasting assets can serve as a loss-leader for large companies if they use exclusive content as a perk to sell their distribution services, he suggested. “It makes good business sense to sacrifice the content revenues for the sake of their carriage business,” Hennessy said. Also on Thursday, Jim Deane, Access Communications Inc.’s president and CEO, recounted a dispute with Rogers Communications Inc. over the company's Sportsnet service, in which Rogers cut off Sportsnet HD and regional feeds in February 2009. Deane said that if upcoming negotiations with Bell Media Inc. don’t go well, Access could lose high-profile services like TSN, RDS and CTV News Network. “Bell can shut our company down by withdrawing a large portion of our television offering, even for a short period of time. In fact, if Bell were to pull just the TSN service during the Rough Riders’ football schedule, they could kill our business very quickly,” he said. Deane said the commission can’t prevent that from happening and lacks adequate response tools. “We have no effective recourse,” he said. Bell defended the exclusivity of content on some platforms this week, saying vertically integrated companies have resurrected the broadcast industry and are the best way to ensure innovation and competition against global players. The company said the fact that mobile subscribers have another video screen option is not a regulatory problem. “The suggestion that every single Canadian has a right to every single bit of content that exists on whatever device they might happen to choose is a preposterous thought,” Wade Oosterman, president of BCE's Bell Mobility, said Tuesday. Kevin Crull, president of Bell Media, acknowledged this week that the company is seeking rate increases as distribution contracts expire for TSN and the sports and news genres are deregulated. In broadcasting regulatory decision 2008-100, issued in October 2008, the CRTC deemed news and sports specialty channels as competitive and said that, effective this year, the genres will no longer be regulated with guaranteed carriage. The CRTC decision allows TSN's rates, which were previously regulated, to increase Sept. 1. “On the fair market value, with TSN, you have a service that has fully 100 per cent more viewers than the next closest sports service in Canada, yet it’s priced lower than that service,” Crull told reporters Tuesday. “TSN has 65 events annually that have more than a million viewers. The next closest competitor has eight events annually.” Crull said Bell surveyed customers and looked at distributors’ revenues from the service, as well as comparable rates in Canada and the U.S., before starting negotiations for new distribution contracts. “It is absolutely a price increase. When you hold a service flat for 20 years and costs go up as they have, naturally there’s going to be a price increase on the service,” he said. He added that the increases will be gradual. “We’re actually easing distributors into the market value. I would tell you that the market value of the service today is the price that we’re seeking in four or five years. What they asked us to do—in fact in many cases they said, ‘We understand the market value, it’s much, much higher, don’t make us go to that immediately in 2011, ease us into it.' That’s what we’ve done.” mburgess@thewirereport.ca

Cogeco concerned about losing CTV programming under vertical integration

Broadcast | June 24, 2011

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