Cogeco says its carriage fees with Bell Media rose 37% from previous agreement

MONTREAL—The “horse trading” of content and channel carriage rights between large, vertically integrated broadcast companies increases wholesale carriage fees for independent distributors, putting them at a competitive disadvantage, Cogeco Cable Inc. executives told CRTC commissioners. Company executives, appearing at a CRTC hearing Wednesday, said Cogeco’s carriage agreement with Bell Media, when renewed last year, rose 37 per cent from the previous multi-year deal. Louis Audet, chief executive of Cogeco, said vertically integrated broadcasters—which own both broadcast assets as well as broadcast distribution networks—“horse trade” the carriage of each others’ channels, rather than negotiating wholesale carriage fees, which raises wholesale carriage prices for independent distributors that have no channels or program rights to trade. “The vertically integrated players make deals amongst themselves, whereby the money goes in circles, such that one recovers from the other what he has just consented to the other. Who remains holding the bag? The non-vertically integrated company and its consumers,” said Audet, whose cable TV company does not own broadcasting assets. “This is telling us that market power and vertically integrated companies agree to have the wholesale rates go up. That’s market power, and it’s horse trading,” Audet said. Cogeco executives appeared before commissioners at a hearing on BCE Inc.’s reworked application to acquire Astral Media Inc., a radio station and specialty channel owner, after the CRTC denied an initial application last fall due to concerns about BCE’s market power and competition in the marketplace. Audet said the CRTC’s dispute resolution process, called final offer arbitration, did not fully resolve the company’s carriage issues with Bell Media, a division of BCE. Following a more than year-long dispute that the CRTC helped resolve through final offer arbitration last year, Cogeco’s carriage fees for Bell Media’s 29 specialty channels rose 37 per cent from its last agreement with Bell, Audet said. At the same time, he said, Bell Media’s revenues rose. “We’re not vertically integrated. We haven’t had any horse trading. In fact our consumers are carrying the full brunt of this,” Audet said. Cogeco and other broadcast distributors are calling on the CRTC to outright reject BCE’s reworked application to purchase Astral for $3.38 billion. They say BCE should not own Astral’s stable of specialty channels and radio stations, including “must have” pay channels The Movie Network, TMN Encore, and their HBO programming. Cable company Bragg Communications Inc., operating in Eastern Canada as Eastlink, also appeared Wednesday, and joined Cogeco, Telus Corp., Rogers Communications Inc., and small, independent distributors that have said BCE, with its “must have” premium sports and entertainment channels, has an incentive to ask for excessively high rates to gouge its competitors or stop them from accessing Bell’s content for their TV, online and mobile platforms. Lee Bragg, chief executive of Eastlink, told commissioners that the company has had an easier time negotiating deals with other broadcasters than it has with BCE, which he said is motivated to not reach rights agreements with competitors. He said if BCE continues to grow in size it would make more sense for Eastlink to "exit early," indicating a possible sale, while the company still has "reasonable valuations." Natalie MacDonald, vice-president of regulatory at Eastlink—which this year launched a mobile wireless carrier and an online and mobile TV service called Eastlink To Go—said the company cannot reach a deal with Bell Media for video-on-demand rights to the company’s content. “While we currently have access to TMN and other Astral services, we are gravely concerned about the prospect of all future negotiations regarding these services taking place with Bell,” MacDonald said. “Our recent experiences suggest that any such negotiations will likely result in us being unable to access those services on reasonable terms at reasonable rates.” “You have an animal here that has decided it’s no longer playing by the rules,” Audet added Wednesday. “You have ample evidence. We’re not the only testifying to that.” CRTC Chair Jean-Pierre Blais acknowledged Cogeco’s comments and contrasted the impacts of the channel horse trading to “reverse MFN”—a reference to the most favoured nation trading principle—in which parties opting out receive different treatment. “You talk about the horse trading. It’s almost like reverse MFN, right?” Blais said. “This almost seems to inflate it .” Blais asked whether the vertical integration issues should be addressed separately, referring indirectly to the CRTC’s plan for a public consultation this year about consumers’ television services. “If it is such a system-wide issue, would it not be best dealt with in a broader policy scope, than on the margins of a specific transaction?” Blais said, adding that issues affecting prices for consumers may be best dealt with “in a bigger, broader context.” Blais also asked Cogeco for its view on Rogers’ suggestion Tuesday that the commission require BCE to further divest some of the Astral TV channels. The chair asked whether it would be a solution to order BCE, as part of the CRTC’s approval of the deal, to divest “must have” channels TMN, TMN Encore, and Super Écran. Yves Mayrand, vice-president of corporate affairs at Cogeco, said that would result in “protracted litigation” as BCE and Astral fought the decision in court. “It would be extremely difficult to remove these crown jewels from the transaction and have that decision enforced without the possibility of litigation,” Mayrand said, adding that the CRTC should deny the application instead. Blais acknowledged there is a broader problem in the sector “even without approving this transaction,” and asked for ideas on how the regulator could address it. Audet said fining powers at the CRTC would be an important tool. At the hearing Monday, BCE chief executive George Cope rejected competitors’ complaints about high distribution fees, and said the company’s model is to license its content to as many distributors as possible. “Our model fails if we don’t distribute this content through every one of those channels. Our stock will be hammered, the business will fail,” Cope said. Bell spokeswoman Jacqueline Michelis told The Wire Report in a statement Tuesday that its competitors “would rather have regulatory intervention supersede market negotiation” and that the company has offered “extremely reasonable” rates for the on-demand rights to its content. BCE executives told commissioners Monday that the company’s new application addresses the CRTC’s concerns about market power and viewership shares. They referred to the company’s agreement with the Competition Bureau, announced in March, under which BCE will sell off 11 specialty channels to Corus Entertainment Inc. “Together Astral and Bell Media will account for 35.7% of English language viewing. That’s 1.7% more than Bell Media’s current share,” Michelis said. The hearing continues Thursday with Quebecor Media Inc. and other interveners. BCE and Astral will repsond on Friday. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

Cogeco says its carriage fees with Bell Media rose 37% from previous agreement

Broadcast | May 8, 2013

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Cogeco says its carriage fees with Bell Media rose 37% from previous agreement

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