Canadian TV Regulators Delay New Carriage Fee Hearings

In a news release last week, the CRTC said it would push back its planned hearings on “group-based licensing of television stations” from Sept. 29 to Nov. 16 to give parties more opportunity to comment. The agency also backed off somewhat on the highly contested fee-for-carriage issue by indicating it no longer considered negotiated or arbitrated carriage fees a foregone conclusion. Instead, the CRTC said it “will examine de novo [from the beginning] the establishment of a framework for the negotiation of a fair market value of the conventional and distant television signals” carried by cable and satellite providers. “By proceeding this way,” it said, “the Commission will ensure a fair, open and transparent hearing and remove any uncertainty on its outcome.”

The CRTC’s move capped a week of tension in Canadian telecom regulatory circles, after Bell Canada took the unusual step of suing the Commission over the carriage fees. In a lawsuit filed in federal court, the phone company charged that the agency had overstepped its bounds in early July by formally signaling its support for negotiated or arbitrated carriage fees. Bell Canada, which owns the nation’s largest satellite-TV service, also accused CRTC Chairman Konrad von Finckenstein of pre-judging the matter before holding public hearings on the issues. Bell Canada dropped its suit last week after the CRTC postponed the local TV hearings. The company declined comment.

At issue is the broadcast industry’s proposal that cable and satellite distributors pay mandatory monthly fees of about C50 cents (U.S. 55 cents) per subscriber for the right to carry the local stations of each national TV network. Broadcasters say such carriage fees, which the CRTC estimates would generate more than C$352 million of annual revenue for Canada’s dozen or so conventional networks, would restore their profits and give them a second, more stable revenue source. Without such funding, the nation’s two largest private broadcasters, CTVglobemedia and CanWest Global Communications, have threatened to shut down several of their unprofitable stations.

Over the past few years, the cable and satellite industries have fended off the broadcasters’ calls for mandatory carriage fees by threatening to pass on any added costs to consumers through higher monthly bills. Cable and satellite officials have also argued that, even though their local stations may be struggling, the large national broadcasters make big profits on their other TV operations. In addition, cable and satellite executives say broadcasters already enjoy mandatory carriage, favorable dial placement and the right to insert Canadian commercials into the U.S. shows that they carry.

The tide turned in spring 2009 when von Finckenstein, seeking a compromise between the two warring industries, proposed the broadcasters negotiate carriage fees or other compensation with cable and satellite operators, much as they do in the U.S. In closed-door meetings with the major networks in May, the CRTC chief reportedly offered to consider changing federal regulations so the networks could enter arbitration with the distributors if a “fair market value” deal couldn’t be reached. Von Finckenstein also told the networks that they were “hammering a dead horse” by continuing to pursue the idea of imposed charges. “I think we need a different approach to this whole issue,” von Finckenstein told CanWest executives, according to the partial transcripts of the meetings that have since been released.

The carriage-fee issue is heating up again at the same time that the broadcasting and pay-TV industries have started sparring anew over funding for a new Local Programming Improvement Fund (LPIF) that the CRTC set up last October. Under the commission’s original plan, cable and satellite operators would have contributed 1 percent of their gross revenue to the fund, which is designed to subsidize TV stations in markets of less than 1 million people. In early July, the CRTC raised the fee to 1.5 percent as “a temporary measure for the upcoming broadcast year” because of the recession’s impact on the TV industry. As a result, the fee is now expected to raise more than C$100 million during the 2009-2010 TV season, up from the earlier estimates of C$68 million.

Unhappy about the higher charge, cable and satellite operators are responding by warning their subscribers that their pay-TV bills will soon go up because of the local programming fee. In a recent letter to its cable customers, for instance, Rogers Communications said their monthly bills will climb 1.5 percent next month because of the new fee. Rogers said it will break out the extra charge on its invoices as the “CRTC LPIF fee.” Although the CRTC has urged cable and satellite providers to absorb the extra costs rather than pass on the fee to subscribers, it lacks the power to enforce that suggestion.

The fresh outbreak of feuding between the pay-TV and broadcasting industries also follows the recent release of the CRTC’s second annual Communications Monitoring Report, which tracks the financial performance of the various industries. The report found that the revenue of private conventional TV broadcasters slipped 1.5 percent from C$2.17 billion in 2007 to C$2.14 billion in 2008. But specialty, pay, per-per-view and video-on-demand revenue climbed 8 percent from C$2.7 billion in 2007 to C$2.9 billion last year.