Producers ‘shocked and stunned’ by terms-of-trade elimination

The CRTC’s decision last week up to eliminate an agreement governing contracts between independent producers and large broadcasters has angered and surprised the Canadian Media Production Association (CMPA). “What this fundamentally means is that if the commission is going to abandon safeguards to protect against the abuse of market power by vertically integrated carriers in broadcasting, then that is going to lead to a substantial diminishment of the independent production sector,” CMPA president Michael Hennessy said in a phone interview. “It’s going to force almost all the remaining producers into a subservient-service production role and diminish any opportunities for having any kind of significant independent production sector in the country.” The terms of trade agreement was signed between the CMPA and large broadcasters in 2011, following pressure from the CRTC to reach a deal. The regulator had warned at the time that if the parties did not reach an agreement, it would impose one. In a decision released Thursday as part of the Let’s Talk TV review of the television system, the CRTC said it would “allow programming services to apply to remove requirements to adhere to a terms of trade agreement, effective 29 April 2016,” because it was “no longer necessary” for the commission to intervene in the relationship between broadcasters and producers. “The Commission considers that broadcasters and producers now have the clarity and experience they need to negotiate any future agreement among themselves,” the CRTC said. “We are shocked and stunned,” Hennessy said Friday. He added that if there had been a “fulsome proceeding” on the issue, “the commission could have made whatever determination they want.” But the CRTC never identified terms of trade as a core issue in the Talk TV review, Hennessy said, adding that “you cannot do something that’s so fundamental to the viability of the independent production sector without giving them a reasonable opportunity to comment.” CRTC spokesman Denis Carmel said in an email that “terms of trade were mentioned by many of the participants at the hearing, including by M. Hennessy.” In a press release Friday, the Directors’ Guild of Canada and Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) said the CRTC’s decision was “a potential disaster in the offing.” “Allowing broadcasters to petition for the removal of terms of trade from their broadcast licences destroys the ability of content creators to negotiate respectful intellectual property rights with Canada’s huge vertically integrated media conglomerates,” the release said. The terms-of-trade agreement outlines how broadcasters and independent producers share revenues from projects the broadcasters commission as well as licence fees the broadcasters pay to producers. Norm Bolen, a consultant and the former head of the CMPA, said in a phone interview that before terms of trade, producers had no choice but to accept broadcasters’ demands on issues such as international distribution or licence terms. “The broadcasters gave them a licence fee, they gave all their rights up the broadcasters and they had no rights themselves, including having to invest 100 per cent of their tax credits in the productions,” said Bolen, who negotiated the agreement during his time at the CMPA. With the terms-of-trade agreement, producers gained “certain minimum rights back. … For instance, they got to keep 25 per cent of their tax credits out of the production to use for the capitalization of their business. They got to keep international distribution rights,” he said. Hennessy said that without the protections in the agreement, an independent producer becomes “really just another non-unionized employee for the vertically integrated companies. The independent in independent producer comes from the fact that we’re supposed to be able to retain and exploit our intellectual property." In its decision, the CRTC noted that, during the hearing, Rogers Communications Inc. said “terms of trade are counter-productive to the creation of Canadian content,” and encouraged the commission to reconsider whether such an agreement was valuable, necessary or effective, asking it not to require broadcasters to abide by the agreement as a condition of licence. The decision noted that Rogers argued that broadcasters “are restricted in how much money they can recoup from productions they help to finance,” and “reluctant to underwrite made-in-Canada innovative and creative concepts and ideas that are unproven, unless they are given some added incentive (e.g., extended licensing terms or increased revenue and profit-share opportunities).” Rogers did not respond to a request for comment on the decision. Neither did BCE Inc., while Shaw Communications Inc. issued the same statement it did immediately after the CRTC's TV directives on Thursday, stating that the decision “is a complex and comprehensive document that has impacts on our business that need to be assessed.” Rogers has criticised the terms-of-trade agreement in the past. In 2013, Rogers Media president Keith Pelley said the agreement was one-sided in favour of independent production companies. He added that under the terms of trade, the cost of licence fees can make Canadian content more expensive than American, and told The Wire Report at the time that the “biggest challenge” with the agreement relates to revenues from foreign distribution. In its decision, the CRTC said “there is often little to no long-term monetization of much Canadian programming, at least in part because most independent producers lack the capacity to support long-term exploitation and export of content,” while broadcasters “do not have an incentive to promote its long-term exploitation and export, since the international rights are often held by producers under the current terms of trade agreements between these parties.” Bolen said the CRTC’s decision on terms of trade “baffles” him. He said he agrees with the CRTC’s aim to make production companies stronger and ensure Canadian content is distributed widely around the world, but the terms of terms of trade “did exactly that.” He said the decision to remove terms of trade is “completely, utterly counter-intuitive. It’s wrong-headed, it’s misguided.” Bolen also noted that when the CRTC issued a notice on the hearings, it didn’t indicate that terms of trade would be included as part of the discussion, and if it had been clear the agreement was on the table, “many interested parties” would have argued against its elimination. “In order to have due process, a regulator should ensure that the process that they undertake is very clear about what’s on the table,” he said. Bolen said that “a number of production companies are just going to go out of business because they can’t function without having access to rights,” he said. “The big vertically integrated companies are going to get stronger, they’re going to own more of the rights, and they’re going to crush the independent producers who are trying to survive in this international, competitive environment.” As part of the decision last week, the CRTC also eliminated genre protection, writing that “services that wish to offer programming from formerly protected genres may do so immediately," though some limitations remain in place for mainstream sports channels. Bolen said because any channel can now run any kind of programming it wants, U.S. content will become more expensive. “It’s going to mean even more emphasis on high-level foreign programming on Canadian schedules,” he said. The CRTC also reduced quotas for Canadian programming. The requirement that over-the-air channels broadcast at least 50 per cent Canadian programming in the evening will stay in place, while the requirement that 55 per cent of all programming be domestic is being eliminated. New rules for specialty channels will require an overall rate of 35 per cent Canadian content, and no specific requirements for prime time. Previous rules varied from channel to channel. For channels owned by large companies, these changes will take effect for new broadcast licences issued on or after Aug. 31, 2017, and Sept. 1, 2018 for independent broadcasters. Bolan said that he wasn’t as concerned about the changes to Canadian content quotas because the CRTC isn’t changing the spending requirements. As a result of the change, he noted, the broadcasters “will probably do fewer programs and bigger budget programs. That’s going to be an interesting thing to see how that shakes down.” He said it will result in “fewer production companies,” as many of those companies making lower-budget content will disappear. “So it will favour a kind of consolidation in the production sector. So you are going to see more and more smaller companies gobbled up, the talent will be gobbled up by the bigger companies, and there will be less opportunity for these small- to medium-sized businesses to succeed in the environment,” he said. “So it’s kind of Darwinian, in that it will squeeze our smaller entrepreneurs and favour the bigger entrepreneurs.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Producers ‘shocked and stunned’ by terms-of-trade elimination

Broadcast | March 17, 2015

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Producers ‘shocked and stunned’ by terms-of-trade elimination

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