CRTC vertical integration rules encourage OTTs to buy sports rights: Gourd

OTTAWA—The CRTC's new vertical integration framework will require major Canadian broadcasters to sell their valuable sports programming rights to Canadian and foreign over-the-top online competitors, Alain Gourd, chair of an industry-led working group on over-the-top services, said at a telecom conference in Ottawa Thursday. Speaking on a panel at the Canadian Telecommunications Forum in Ottawa, Gourd, an independent broadcasting consultant and chair of an industry working group of 30 executives studying over-the-top services, said the CRTC’s new regulatory framework governing vertically integrated companies may have given too much of an advantage to online content providers such as Netflix Inc., Google Inc., or Apple Inc. He pointed to paragraph 22 of the CRTC decision, which requires broadcasters to sell the rights to their new media content if that programming is “designed primarily” for television. “Rights for such programming shall be acquired on terms that allow them to be made available to competitors as part of a licensing agreement, or other such arrangements, thereby ensuring the availability of the programming to consumers of competing distributors on fair and reasonable terms,” the CRTC decision said. This means foreign-owned over-the-top providers like Apple or Google could licence new media sports rights from Bell Canada Enterprises Inc. and Rogers Communications Inc. “An , particularly if it’s defined as a distributor, is a competitor,” Gourd said at the conference, hosted by Insight Information. “I’ve double-checked that with some CRTC staff and with some legal firms and it appears that indeed there is a strong probability that over-the-top services, both Canadian and foreign, have … right.” Gourd pointed to highly profitable, coveted sports programming rights as an area where over-the-top services are likely to seek to exercise that right, and warned that it could encourage advertisers to shift away from traditional broadcasting to online services. If foreign, over-the-top providers start getting into the business of live sports, they could also begin to bid for exclusive rights, which would put upward pressure on the cost of sports programming for traditional broadcasters, he said. “They won’t go for culture products, they’ll go for the blockbusters, the winners,” Gourd said, pointing to programming like Toronto Blue Jays baseball games (to which Rogers has the rights) and Montreal Canadiens hockey games (for which Bell has the rights). Rogers began offering its TV subscribers online access to Blue Jays games earlier this year before the new CRTC guidelines were released Sept. 21. The company said it offered the online streaming rights to competitors but that none had shown interest for the 2011 baseball season. Bell has also started giving its subscribers early access to behind-the-scenes content of Canadiens games earlier this month. Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, said he disagrees with Gourd’s assessment of the policy. He said paragraph 22 of the ruling is intended to ensure that vertically integrated carriers do not make online programming content exclusive to their own mobile or Internet subscribers. “If I had a website that was only available to Rogers' high-speed customers and to no one else, that would be improper,” he said in an interview. “But if I’ve got a website that a Rogers’ high-speed customers can go to, a Bell Sympatico high-speed customer can go to, a Videotron high-speed customer can go to, and a Telus Mobility customer can go to, absolutely I’m allowed to have an exclusive website because different Internet providers and different mobile providers can access it.” Engelhart added: “As long as I’m not keeping it from the customers of other Internet services and other mobile services, I can have an exclusive [online service.” Paragraph 22 in the CRTC decision notes that providers cannot offer their broadcast content online “on an exclusive or otherwise preferential basis in a manner that is dependent on the subscription to a specific mobile or retail Internet access service.” Drew McReynolds, an analyst with RBC Capital Markets, said that if Gourd’s interpretation of the vertical integration ruling is correct, it would add another layer to an already complex issue surrounding competition between over-the-top services and traditional broadcasters. “It just throws some additional uncertainty onto the whole issue,” McReynolds said. Gourd said that although over-the-top services remain unregulated by the CRTC, they could still enter the commission’s dispute resolution process if a Canadian broadcaster withheld online content designed for TV or if a licensing agreement could not be reached. The CRTC said its provision requiring non-exclusivity online is intended to benefit consumers. “The Commission considers that this approach will ensure that the most popular programming is available to consumers subject to normal commercial terms and that consumers will be able to receive their preferred programming from a variety of distributors,” the CRTC's vertical integration decision said. Canadian broadcast distributors also stand to lose if over-the-top services start to dig into the revenues they receive through cable, satellite or IPTV television subscriptions. Gourd said a private coalition recently commissioned a study to determine if Canadian subscribers to over-the-top services were turning to “cord-cutting” to save costs on traditional broadcasting services. He said he expects that report to be turned over to the CRTC during informal, private consultations this month. “The CRTC, I feel, expects that with this confidential setting, some information that might not have been filed last summer may be filed this time,” he said. nkyonka@thewirereport.ca

CRTC vertical integration rules encourage OTTs to buy sports rights: Gourd

Broadcast | November 4, 2011

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