Disney says pick-and-pay hurts TV broadcasters

GATINEAU, Que. —Walt Disney Co. on Monday warned the CRTC against a move toward pick-and-pay television. Susan Fox, Disney’s vice-president of government relations, told the commission that having broad distribution benefits channels by allowing them to maximize advertising revenues, gives them the certainty necessary for long-term planning and allows them to “redirect consumer marketing and retention expenditures into higher quality and more diversified programs to better serve viewers.” Speaking as part of the CRTC's two-week hearing reviewing the TV industry, Fox said that when the Disney Channel was first launched in the U.S., it was as an à la carte service. “Notwithstanding the strength of the Disney brand, penetration hovered at a low level” while subscriber turnover was high, and the company had to allocate “a significant portion of its sales revenue toward customer marketing and promotion.” “This led to a vicious cycle, because without attractive original programming, the service was unable to attract and retain a wide subscription base. Without a wide and loyal subscription base, the service was forced to spend more on marketing and promotion,” she said. When the channel began to be offered as an expanded basic service in 2000, it was able to spend money previously allocated to marketing on content, leading to higher-quality programming and improved ratings, Fox said. An argument that has been put forward against pick-and-pay is that if the TV system is unbundled, U.S. channels would choose to leave Canada. Fox wouldn't go as far as to say Disney would stop doing business in Canada. “I realize that’s been a topic from last week and previously, and hopefully it won’t surprise you that I’m not here to say, and I don’t think it’s appropriate to say, we’ll exit a market,” Fox said. “What I can say if that as we look at the overall arrangement and whether it makes sense for us, certainly the regulatory environment is an aspect of that.” In response to a question about how important the Canadian market is to Disney, Fox said that “it’s very relevant and growing.” She said the company has, over the past 10 or 20 years, “come to rely on, and focus much more on international distribution. And Canada is a very large part of that.” Representatives of Manitoba Telecom Services Inc. took the opposite view of pick-and-pay Monday, encouraging the CRTC to adopt the model in Canada. "We believe that pick-and-pay model is necessary to ensure the survival of the Canadian broadcast system," Paul Norris, MTS' vice-president of brand and consumer marketing, told the commission. "Unless consumers are able to exercise choice within the regulative system, they will increasingly abandon it." MTS touted how its television customers choose from several small theme packages, though it's an offering that has encountered much resistance from the content providers they do business with. "Many programmers blame MTS' small theme groups for low penetration, but the fact is our customers are exercising the flexibility we have offered and are making decisions to buy, or not buy, programming," Norris said. "More than one large programmer has expressed concern that if every distributor adopted MTS' packaging, many of those services would go out of business. In effect, the programmers are saying they do not like the transfer of control to consumers. Respectfully, we believe that less fragmentation of programming among services would strengthen the Canadian broadcasting system." Norris said pressure from broadcasters has resulted in the average size of MTS' theme packages growing from four channels in 2005 to almost six now. MTS told the CRTC that it favours keeping the main conventional U.S. over-the-air channels on basic cable, unless specific regulations are enacted that prevent media companies from abusing their leverage. Greg McLaren, MTS' manager of TV content, said 90 per cent or more of its customers would likely opt for a discretionary package that included the U.S. conventional networks, often called "4+1" in reference to NBC, CBC, ABC, Fox and PBS. Media companies from Canada and the U.S. would pressure broadcast distributors to ensure many of their specialty channels got into that first level of discretionary programming, given how popular it would be, he said. "We think, over time, we'll be in a situation where customers can have two choices; they can have skinny basic or they can have skinny basic with this enormous extended basic package, and everything that's not in the extended basic package will go away," McLaren said. MTS also came out against price caps for basic cable and penetration-rate cards that contain "make whole" guarantees for broadcasters. Disney's Fox also told the CRTC Monday that getting rid of simultaneous substitution, as the CRTC has said is considering, would “significantly” diminish the ability of Canadian broadcasters to license U.S. programming. She said that “we are concerned that without simultaneous substitution, Canadian broadcasters will have no means to protect and monetize the program licences that they acquire to broadcast Disney programs in Canada.” “In such a scenario, while Canadians might still have access to some of this programming, it would only be via signals captured or imported from the U.S,” which would result in audience and revenue losses for the Canadian channels, and an inability to monetize content for the U.S. channels given the drop in demand for U.S. programming from Canadian broadcasters that would occur, Fox said. “We believe that repeal of simultaneous substitution would lead to the end of a separate and distinct Canadian market for U.S. programming and that would be an unfortunate result of a well-intended regulatory measure,” she said. Fox said that, due to piracy, Disney has changed its licensing practices to roll out content faster internationally. “If a viewer wants to see our content, and can’t see it on a legitimate source … we recognize that some viewers may watch our content on sources that aren’t legitimate, and therefore we want to reach consumers where they are in a legitimate way,” she said. “The notion of having a slower roll-out of content for the first season in the U.S., and waiting to roll out original content internationally, is more challenging because non-U.S. markets can obtain the content through other means.” In July, Disney announced a deal with Netflix Inc. that will see Walt Disney Studios’ movies appear on Netflix’s Canadian streaming service as soon as eight months after they hit the theatres. That’s quicker than the 18 months to two years that’s been typical. The Wire Report reported, at the time of announcement, that the deal would most directly affect TMN, which is owned by BCE Inc.’s Bell Media division, and Movie Central, owned by Corus Entertainment Inc. Last week, Canada’s largest media and telecommunications companies appeared at the hearing. Quebecor Inc. focused its appearance largely on the threat it says over-the-top (OTT) services pose to Canada's broadcasting industry, BCE Inc. executives said local television stations need a second revenue stream and Rogers Communications Inc. spoke about the need to adapt to an increasingly OTT world, among others. Netflix is scheduled to appear on Friday, the last day of hearings. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and editing by Derek Abma at dabma@thewirereport.ca

Disney says pick-and-pay hurts TV broadcasters

Broadcast | September 15, 2014

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Disney says pick-and-pay hurts TV broadcasters

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