CRTC’s new ‘standstill’ policy draws interest from distributors seeking better carriage deals

The CRTC's new vertical integration policy is slowing down BCE Inc.'s carriage renewal negotiations with some broadcast distributors, including Telus Communications Co. and Cogeco Cable Inc., as carriers eye the commission’s new dispute resolution process for better carriage deals, industry sources say. The Wire Report consulted several industry insiders in background interviews who said BCE's carriage agreement negotiations for valuable channels like TSN—the price of which is rising due to deregulation and expired agreements—are being impacted by the CRTC's new policy. Under the commission's new vertical integration framework, Bell, a vertically integrated company with the single largest stable of specialty channels in the country, does not have the power to threaten to pull channels from other carriers during carriage disputes. The policy includes a “standstill rule” that says, during a complaint related to a carriage dispute between a broadcaster and a cable, satellite, or IPTV broadcast distributor, “both parties are to provide continued access to programming services and carriage” while the issue is before commission. Broadcasters must continue to offer their channels to distributors, and distributors must continue to carry broadcasters' channels, according to the terms of their last agreement. Any new carriage agreement reached through the CRTC's dispute resolution process would apply retroactively until the time when the last agreement expired. One source said that, under the new policy, distributors do not risk anything by going through the CRTC's dispute resolution process in an effort to seek a better rate. Negotiations have been under way for months to renew carriage agreements, and Bell has complained to the CRTC that the new policy is having an impact on the talks. In a letter to the commission on Oct. 5, Bell noted that, immediately following the release of the policy on Sept. 21, the company “had dealings with industry stakeholders relying upon their own interpretations of the VI Policy in the course of affiliation negotiations and other on-going business dealings.” Bell wrote that clarifications and changes to the policy are “urgently required” so that it is applied consistently and “to ensure that parties are encouraged to reach agreements on their own without the need to clog the Commission's docket with frivolous disputes.” Insiders say the new policy is affecting Bell's negotiations with Telus (which does not have broadcast assets), Cogeco, and other distributors, which they did not name. In an email response to questions, Bell spokeswoman Jacqueline Michelis affirmed “that the decision has unfortunately already affected negotiations with several BDUs besides the ones mentioned." Michelis said that, prior to the vertical integration decision, BCE subsidiary Bell Media reached agreements with more than 140 broadcast distributors, which is evidence that “the market was functioning.” Bell is now negotiating multiple-year carriage deals for packages of 30 channels. The agreements expired on Dec. 31, 2010. One of the top issues of discussion in the negotiations is the wholesale price of carrying TSN, the top-watched specialty channel in the country. Effective Sept. 1, the commission deregulated news and sports specialty channels, which means Bell can seek new, market-based rates in its renewed agreements for sports channels like TSN and RDS. For years, broadcast distributors have paid a regulated wholesale carriage rate of $1.07 per subscriber for TSN as long as the distributor positioned the channel in its basic package. Insiders speculate that the wholesale rate could increase to as much as $4 to $5 per subscriber. Kevin Crull, president of Bell Media, told reporters in June that the rate increases for TSN will be gradual and that “the market value of the service today is the price that we’re seeking in four or five years.” Bell noted in its letter to the CRTC that, if the commission becomes involved in rate-setting to resolve disputes, it should “apply a benchmark standard of 'commercial reasonableness'” and take into consideration factors such as the cost of program acquisition rights, which have rose significantly in the increasingly popular genre of live sports. One insider said that, through Bell’s earlier deal renewals, market-based rates have already been established for channels like TSN. Another industry source told The Wire Report that distributors that needlessly go to the commission to seek a better rate could be shooting themselves in the foot because the CRTC would see through the exercise and the company would risk dismantling goodwill it may have with the commission. The source added that carriage price is not the only issue at play, and that some distributors are concerned about negotiating access to rights for multiple platforms. In a submission to the commission for its vertical integration proceeding in the spring, Cogeco noted that Bell owns some of the most-watched specialty services in the country, including TSN, RDS, and Discovery Channel. It added that Shaw Communications Inc. owns the History Channel, the second-highest ranked specialty channel in Canada's adult TV market, and that Rogers Communications Inc.'s Sportsnet received the second-highest audience rating, behind TSN, in the winter and spring ratings of 2010. Vertically integrated companies, Cogeco wrote, have enough market power to set terms and rates for independent distributors to demand that they “meet unreasonable terms of carriage, packaging and retailing,” Cogeco wrote. “This is precisely the situation that Cogeco has encountered in its negotiations with Bell Media respecting the renewal of affiliation agreements for the programming services it owns,” Cogeco wrote. “t is evident that the cost of some popular services could increase more than 85% in 2011 relative to 2010.” Shaw announced this month that it reached a “comprehensive, market-based deal” with Bell to carry all 30 of its specialty services. On a conference call with investors last week, Shaw officials said the five-year carriage deal was reasonable and gives the company packaging flexibility. René Guimond, vice-president public affairs and communications at Cogeco, said in an email statement Monday that the company does not comment on private negotiations but that it will make its best efforts to “negotiate mutually agreeable affiliation agreements with all our program suppliers.” He added that agreements are normally concluded "without resorting to CRTC arbitration. However, if the terms and conditions appear to be unreasonable, we will not hesitate to take the dispute to the CRTC.” Independent broadcasters and distributors say they support a standstill provision because, without it, they would be reluctant to take a dispute to the CRTC for fear of retribution from bigger, vertically integrated players that own both broadcast and broadcast distribution assets. In its vertical integration decision, the CRTC said that “eliminating the threat of loss of service during ongoing disputes between programming undertakings and BDUs will aid in leveling the playing field during the negotiation process.” The move would also protect consumers from potential loss of service, the commission said. The standstill provision exists so that parties “will need to apply to the Commission only in instances where disputes cannot be resolved by the parties themselves,” the CRTC said. Telus said it would not be appropriate to comment on negotiations in progress. sdoyle@thewirereport.ca

CRTC’s new ‘standstill’ policy draws interest from distributors seeking better carriage deals

Broadcast | October 25, 2011

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us