New distribution policy is already outdated under vertical integration, independents say

GATINEAU, QUE.—The rules set to come into force Sept. 1 under CRTC broadcasting policy 2008-100 should be reconsidered because they don't address the pitfalls of vertical integration, independent broadcasters told commissioners Tuesday. After a first week of hearings and early, agenda-setting appearances from the large, vertically integrated broadcasting distributors, independents dominated the final day of the commission's hearings on vertical integration. The Independent Broadcast Group (IBG), Zoomer Media Inc. and other independent broadcasting companies on Tuesday called for changes to the carriage rules for independent channels They said the landscape has changed given last year's transactions, which saw Shaw Communications Inc.purchase Global Television and BCE Inc. acquire CTV. Moses Znaimer, Zoomer’s founder and controlling shareholder, told commissioners that distribution policy 2008-100, which was released in 2008 but introduces regulatory changes Aug. 31, 2011, is a “sweeping reform” that needs review because it was not developed under a vertically integrated industry. “It’s the very fact of the vertical integration happening after your sweeping reform that causes us and any reasonable person to ask you to review that reform, not to throw it out entirely, but to make adjustments to some of the provisions,” Znaimer said. “ to allow a fair system where competition can actually flourish, not only in terms of the services, but who owns the services.” The IBG and Zoomer proposed a mandated penetration rate of 33 per cent for independent, “must carry” Category A services. That means vertically integrated carriers would be required to use their packages and channel lineup options to ensure the independent channels are available to one-third of the distributors' subscribers. CRTC chair Konrad von Finckenstein said the request is akin to “creating a right to existence, which is the very opposite of competitive systems.” Bill Roberts, Zoomer’s president and CEO, defended the proposal. “Short of moving them to basic per se, they should at least benefit from a conservative calculation of what the vertically integrated companies allow in terms of penetration for their services. own services range from 40, 50, 80 per cent,” Roberts said in an interview. The IBG also recommended a 1:1 linkage ratio for Category B pay and specialty services, so that vertically integrated broadcasters must offer one independent channel for every service carried that is affiliated with the company. Roberts said he could accept the 3:1 linkage ratio coming in the new distribution policy—which will require broadcasters to carry three unaffiliated services for each affiliated service—if the rule includes the carriage of at least one independent and is implemented on a “going forward basis” from October 2010, when the hearing was announced. Raja Khanna, CEO of independent broadcaster GlassBOX Television, also called for minimum penetration requirements for Category A services, saying that the new 3:1 linkage rule leaves the door open to agreements between vertically integrated distributors to carry each other’s services. “The current rules against self-dealing that were developed well before the Bell and Shaw transactions simply don’t reflect the changes in the broadcasting ecosystem that will incent these vertically integrated undertakings to distribute, not just their own services, but those of any other vertically integrated company, and to relegate independent broadcasters to low penetration tiers and unattractive packages,” Khanna said. Leonard Asper, former CanWest Global Communications Corp. president and CEO, defended the independents as the CEO of Fight Media Inc., which owns the Fight Network. Asper took aim at the vertically integrated companies' arguments that “if independent channels provided good programming, they would receive carriage and good placement.” He said this is rarely the case when the broadcasting distributor has a competing service. “The chicken and the egg that goes on behind the scenes is that BDUs will claim a service’s programming is inferior,” Asper said. “Their modus operandi is to first relegate it to lower penetrated tiers, thereby severely impacting revenue of the channel, which then forces cuts to program spending for that service. It is then that the BDU will cite the quality of the programming or the low audience numbers.” The deregulation of sports services has led to higher spending on those channels, Asper said. Distributors are making up for those costs by moving independents into tiers with lower subscriber penetration in order to pay less for the services. He also said vertically integrated distributors are applying for licences for services that are “remarkably similar” to unaffiliated and independent Category B channels. “If and when BDUs launch competing services to Category B services, they will also clearly be able to outspend the Category B services on programming, poach their existing inventory, and use content from their other channels to compete against the service,” he said. Asper supported the IBG’s 1:1 linkage rule for pay and specialty services. He also suggested a provision for genre protection for independents but only against distributors and foreign services. Independent broadcaster V Interactions Inc. said Tuesday that independents are squeezed between two giants in the French-language market—Astral Media Inc. and the vertically integrated Quebecor Media Inc. V Interactions co-president and CEO Maxime Rémillard said that, while Astral dominates the pay and specialty side, QMI subsidiary Vidéotron Ltée. controls distribution and the company's broadcaster, TVA Group Inc., is launching its own specialty channels. Without regulatory protection, it would be illusory to think small independents like V can contribute balance and diversity to the system, Rémillard said. V said it supports a requirement for distributors to carry one independent in the 3:1 linkage rule, but the company added that the linkage rule should also apply to competitive news and sports specialty channels—what the commission terms Category C services—to help independents. Most of the independents on Tuesday called for ex ante rules to deal with unfair treatment or undue preference issues—a measure that Khanna said is intended to save independents from starting “a fight we can’t afford to lose.” There were also calls for expedited dispute resolution, reverse onus and standstill provisions to protect independents. Pelmorex Communications Inc., which owns The Weather Network, said access to consumers through set-top boxes and the ability to deliver interactive television applications are essential. “As TV and Internet converge, access to consumers through the set box will be increasingly vital,” Paul Temple, Pelmorex’s senior vice-president for regulatory and strategic affairs, said. “Set-top boxes will enable BDUs to create viewer profiles and to develop and deliver interactive, dynamic content and advertising to our viewers. We are concerned it’s a Pandora’s box of potential undue preference.” Temple called for a “set-top-box neutrality” rule similar to the commission's net neutrality principles to ensure “equal and unhindered access to customers through set-top boxes.” This would mean granting access rights to the boxes, he said. Temple said Pelmorex is against content exclusivity, and made a case for more transparent data from vertically integrated competitors to allow for open monitoring of penetration rates. He said the data could be useful to determine cases of undue preference. The commission said Tuesday it will accept final written comments of no more than 10 pages from interveners before the deadline of July 8. It added that it is encouraging parties to file a draft code of “good commercial practices.” mburgess@thewirereport.ca

New distribution policy is already outdated under vertical integration, independents say

Broadcast | June 29, 2011

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