Broadcasters, BDUs at odds over proposed wholesale code

While many broadcasters and TV providers expressed support for the CRTC’s proposed changes to its wholesale code, which governs carriage agreements for TV channels, they took differing positions on whether the code should be mandatory and whether it should ban minimum penetration and revenue guarantees. In March, the CRTC said it would consult on a revised wholesale code of conduct, which would come into effect by September and “clarify the wholesale relationship between cable and satellite companies and broadcasters, and ensure the fair negotiation of terms and conditions for the distribution of channels.” Interventions were due Monday. The CRTC said at the time that the proposed code would not allow agreements that “set minimum penetration or revenue guarantees,” among other prohibitions. It also noted that some broadcast distributors have asked the CRTC to prohibit unreasonable penetration-based rate cards (PBRCs), but said that the CRTC is “of the view that PBRCs should be the subject of negotiation between programmers and BDUs based on the notion of shared risk." It added that PBRCs "that cannot be justified on a commercial basis or that are anti-competitive will be considered ‘unreasonable.' ” Penetration-based rate cards allow distributors to package specialty channels as they see fit and require them to pay more for a channel if its subscriber penetration rate falls. They were instituted in 2012, after BCE Inc. suggested the system during a carriage dispute, and are now “predominant” in the industry, The Wire Report reported last year. In its submission, the Public Interest Advocacy Centre (PIAC) called on the CRTC to ban minimum penetration and revenue guarantees, with no exceptions. It also said the regulator should be more specific about what it considers “unreasonable” volume-based and penetration-based rate cards. Rogers Communications Inc., which has both media and broadcast distribution divisions, said that while it supports an enhanced code, some of the CRTC’s proposed measures would “unduly restrict the parties’ ability to negotiate commercially reasonable affiliation agreements, which would ultimately result in few benefits for customers.” It also said the proposed code should not be mandatory, but instead act as a guideline. “Rogers believes that many of the Code’s provisions will be difficult to apply in every case. The precise meaning of words like ‘unreasonable’ and ‘fair market value’ often would only be determined following Commission intervention as part of a dispute resolution process,” it said. The company also said it “does not believe that it would be appropriate to impose an outright ban or prohibition on minimum penetration, subscription or revenue guarantees. There may be instances where flat fees or minimum guarantees are fair and reasonable” and may be acceptable to both the TV provider and broadcaster involved, Rogers argued. It also said that the code should only apply to online services, such as TMN Go, which are "authenticated to the linear service." “In our view, online services or programs that are offered direct-to-consumers, without authentication, should be excluded from complying with the provisions in the Code because the providers of these services do not have direct commercial relationships with BDUs,” it said. “Moreover, many of the provisions in the proposed Wholesale Code are simply not relevant to direct-to-consumer digital media services that are delivered online,” it said, naming provisions related to analog service or build-your-own packages. Rogers added that such services also directly compete with over-the-top offerings from companies like Netflix Inc., which are not subject to the wholesale code. Last year, it launched the streaming service Shomi with Shaw Communications Inc., available to either their Internet or TV customers, which does not require authentication to linear TV service to access. Shaw, also a vertically integrated company, said that the code should be more of a guideline than a regulation, arguing that “a principles-based approach to the Wholesale Code will guide negotiations instead of shackling them, preserving the flexibility that is critical to the commercial-negotiation process.” It said that the CRTC should “avoid asymmetrical treatment” of vertically integrated broadcast distributors. “In particular, the application of section 8 of the Code unfairly subjects VI BDUs to far more onerous requirements. VI BDUs should not be precluded from offering programming services in a manner which ensures that customers can enjoy maximum choice and flexibility.” In its submission, the vertically-integrated Bell said some provisions in the code, including those regarding minimum penetration and subscription levels, purport “to dictate the terms and conditions upon which programming services must provide to BDUs the copyrighted programming they own or for which they are the exclusive licensee.” The Broadcasting Act, it said, does not give the CRTC the “jurisdiction to regulate the commercial terms and conditions on which programming services must make their copyrighted material available for distribution” and that it is the Copyright Act that gives broadcasters “the exclusive right to determine” whether and how to make the programming they own the copyright for available for transmission through broadcast distributors. “In drafting the Code, the Commission must be careful not to cross the jurisdictional divide from broadcasting to economic regulation and copyright,” it said, adding that the CRTC should either amend the code so that it does not cross that line, or implement it as a guideline. It also said the CRTC should not “impose an outright prohibition on both renegotiation triggers and minimum penetration or subscription levels,” which can, in some cases, benefit both sides. Cogeco Cable Inc., a TV provider with no broadcast division, on the other hand said that conditions that impose “minimum penetration guarantees or other forms of revenue guarantees that insulate programming services from variation in revenues are patently contrary to the objective of a market-driven consumer-friendly environment.” It said that the CRTC should consider as commercially unreasonable any terms that require the broadcast distributor to compensate the broadcaster for “actual or estimated loss of advertising revenue resulting from a decline in subscriptions for the programming service,” or that require “full compensation for loss of subscription revenue resulting from a decline in subscribers for the programming service.” Another non-vertically integrated telecom, Telus Corp., said that it “wholeheartedly” supports the commission’s attempt to prohibit minimum penetration or subscription levels,” but that the wording of the proposed code isn’t sufficient to “fully protect against the various forms of revenue guarantees.” It said that some broadcasters have “devised more subtle contractual provisions which have the same effect but which wouldn’t be captured by the prohibition as currently written in the draft Wholesale Code” and said that the CRTC “must not leave the door open to the same result being achieved by other means.” Independent broadcast distributor and ISP VMediaInc. said the code was “crucial” because of the high degree of vertical integration in the market. It said that in the U.S., a company like Walt Disney Co. “wakes up in the morning thinking only about how to get more people to watch Disney content, on whatever platform possible, to maximize revenues,” while the head of a company like Verizon Communications Inc. is only concerned with people purchasing content from their company. A market like that doesn’t need regulation, it said. “In Canada however, the head of a wakes up in the morning thinking about only one thing, despite the fact that the VIE is both Disney and Verizon in this market: how to get more customers to purchase the VIE’s triple- and quadruple-play offerings,” V Media argued. “And that is a mission which obliterates any real choice or competition in the marketplace,” it said. Independent broadcaster Blue Ant Inc. wrote that it believes the code, as proposed by the CRTC, should need very little change. “If anything, our fear is that through the process of intervention by various parties, the strength of the Code will be watered down, and its provisions muted, narrowed, or rendered ineffective.” Broadcaster Corus Entertainment Inc. was more critical of the code than some of the other companies, stating that it could prevent broadcasters from earning a reasonable rate of return on their investment. It said that “the reality is that world class programming associated with strong brands require significant investments,” and that a reasonable rate of return is already difficult in Canada, a country with a small audience. It said that in the past few years, “content acquisition costs have in some instances increased fourfold,” and that programming costs will continue to increase in the near future. It added that investments in programming will become even more important as pick-and-pay is established, creating an environment where “competition will increase for compelling content and drive up costs.” “In this challenging environment we need to recognize that what is needed are stronger variable rate cards so that we may protect and help grow our significant investments in content and the Canadian television system,” Corus wrote. “Anything less will impede our ability to succeed in an unbundled environment.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Broadcasters, BDUs at odds over proposed wholesale code

Broadcast | May 8, 2015

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Broadcasters, BDUs at odds over proposed wholesale code

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