Académique Documents
Professionnel Documents
Culture Documents
Overview
1.
This is the Statement of Case filed on behalf of Bell Canada, Rogers Communications
Inc., Shaw Communications Inc., Cogeco Cable Inc., Videotron G.P., and TELUS
Communications Company (collectively the BDUs) with respect to the proposed
Distant Television Signal Retransmission Tariff (the Tariff) for the years 2014 to 2018.
2.
The Tariff was last certified by the Copyright Board for the year 2013 at a rate of $0.98
per premises per month for retransmission systems serving more than 6,000 premises.1
This rate was the result of a negotiated settlement between the BDUs and the
Retransmission Collectives.
3.
The Collectives are now seeking dramatically higher royalty rates ranging from a 104%
increase in 2014, to $2.00 per premises per month, to a 143% increase by 2018, to $2.38
per premises per month.
4.
The BDUs submit that the Collectives have failed to establish that there has been any
increase in the value of distant signal programming since 2013, let alone an increase in
value in the magnitude that would justify the proposed increases in the existing royalty
rates.
5.
In fact, the evidence adduced by the BDUs clearly establishes that the value of distant
signals has been steadily declining for the past several years and will continue to decline
for the foreseeable future.
6.
Based on the expert and industry evidence, the BDUs submit that the rate for 2014 should
remain unchanged at $0.98 per premises per month and should decrease for each
There is a preferential rate of $100 per year for retransmission systems that serve fewer than 2,000 premises that
is not in issue in this proceeding. There is a graduated scale of rates for mid-sized systems serving between 2,000
and 6,000 premises that is based on the rates established for systems with more than 6,000 premises. The largest
systems serve the vast majority of Canadian BDU subscribers. The BDUs and the Collectives agree that the
system of graduated rates for mid-sized systems should be retained in the tariff, although the quantum of those
rates is in dispute.
subsequent year by 2 cents per subscriber per month throughout the balance of the tariff
period to a final rate of $0.90 per premise per month in 2018.
7.
(b)
(c)
(d)
(e)
(f)
8.
The broadcasting industry has changed dramatically since the Board first certified the
distant signal retransmission tariff in 1990, and those changes have reduced the value of
distant signal programming to BDUs and their subscribers.
9.
In 1990, there were two ways that Canadians could access television programming: they
could subscribe to a cable service, or they could use an antenna to receive over-the-air
analog television services. Cable companies were the only subscription video services
that were available and the average cable company carried only a few dozen services
consisting of local Canadian and US broadcast signals, a community channel, a handful
of US specialty services and the small selection of specialty and pay services that had
been launched. In that environment, access to distant signals, and in particular, the US
3+1 signals, was an important component of the cable service.
10.
making selections from the electronic program guide. Subscribers now have access to
hundreds of different programming services covering virtually every conceivable genre
of programming.
11.
12.
The Copyright Board is required to certify the royalties payable by BDUs for the
retransmission of works carried in distant signals. In this context, works refers to the
television programming available on the distant signals. Each of the nine retransmission
collectives represents a distinct category of copyright owners in television programming.
The collectives receive the royalties from the BDUs and redistribute the proceeds to their
individual members.
14.
In October 1990, the Copyright Board first certified the Tariff for the years 1990 and
1991 and established a rate of $0.70 per subscriber per month for cable systems serving
more than 6,000 premises.2 Importantly, the Board decided that the payments should not
vary with the number of distant signals carried. All systems carrying at least one distant
signal would pay the same rate regardless of the number of additional distant signals
carried. The Board adopted this structure explicitly to avoid placing a greater burden on
some retransmitters than others based on geography, and also so as not to create any
incentives for BDUs or subscribers to drop distant signals to reduce liability.3
15.
The Board established a flat rate of $100 a year for the smallest cable systems serving
fewer than 2,000 premises, and graduated tiers of rates for systems serving between 2,000
and 6,000 premises.
16.
Royalties paid for the retransmission of distant signals in the United States under
the retransmission regime in the United States;
(b)
(c)
17.
In January 1993, the Copyright Board issued the Second Retransmission Decision,
certifying the tariff for the years 1992, 1993 and 1994.5 In the proceeding, the Board was
faced with two distinct approaches to establishing the royalties:
3
4
Statement of Royalties to be Paid for the Retransmission of Distant Radio and Television Signals in 1990 and
1991, Decision of the Board, October 2, 1990 (First Retransmission Decision), at page 50.
First Retransmission Decision at pages 46-47.
Regulations Respecting Criteria for Establishing a Manner of Determining Royalties for the Retransmission of
Distant Signals, SOR/91-690 (the Retransmission Royalties Criteria Regulations).
(a)
It could revisit its original decision to use A&E as a proxy and consider whether
other adjustments or revisions to the proxy analysis were appropriate; or
(b)
It could use its 1990 price as a starting point without revisiting the proxy analysis
and consider whether any changes in the industry since 1990 justified a change to
the 1990 rate.6
18.
The Board opted for the latter approach and took the 1990 rate as its starting point
without reviewing the basis for that starting point. In support of this approach, the Board
found that:
[O]nce a price has been set using a proxy market analysis,
it is not necessary that it be tethered to fluctuations in the
price of the proxy that was used in arriving at it. It can gain
a life of its own, without any strict regard to its origins.7
19.
20.
So the Board took as its starting point the $0.70 that it had certified in the First
Retransmission Decision and considered whether there was any change in circumstances
that would justify an adjustment to this rate. After a careful review of the evidence, the
Board concluded that there was no reason to depart from the existing rate of $0.70 that
had been established in the First Retransmission Decision.
6
7
8
Statement of Royalties to be Paid for the Retransmission of Distant Radio and Television Signals in 1992, 1993
and 1994, Decision of the Board, January 14, 1993 (Second Retransmission Decision).
Second Retransmission Decision at pages 9 and 36.
Second Retransmission Decision at page 36.
Second Retransmission Decision at page 37.
21.
Following the Second Retransmission Decision there was a period of 19 years, from 2005
through to 2013, for which the Board set the retransmission royalties on the basis of
written agreements between the BDUs and the Collectives.
22.
From 1995 to 2003 the Collectives and the BDUs agreed that the rate should remain
unchanged at $0.70 per premises per month.
23.
For the period 2004 to 2008, the Collectives and the BDUs agreed that the rates should
increase by three-cent increments per annum from $0.73 in 2004 to $0.85 in 2008.
24.
For the period 2009 to 2013, the Collectives and the BDUs agreed on further incremental
rate increases from $0.90 in 2009 to $0.98 for 2013.
25.
The BDUs submit that the same choice confronts the Board in this proceeding as
confronted the Board in the second retransmission hearing: whether to revisit the proxy
analysis adopted by the Board more than 20 years ago, or to take as the starting point the
existing certified rate for 2013 and consider whether there is any evidence of changes in
distant signal retransmission since 2013 that would justify a change to the certified rate.
27.
The BDUs submit that the Board, as it did in 1993, should adopt the first approach:
starting from the 2013 certified rate of $0.98 and assessing whether there have been any
changes since 2013 that would justify a change in that rate. In support of this approach,
the BDUs rely on the following facts:
(a)
The 2013 certified rate was agreed to by the nine Collectives and the eight
objectors representing hundreds of individual retransmission systems. As such, it
represents what the parties believed to be fair and equitable rates in 2013;
(b)
(c)
The 2013 rate is result of the latest in a series of freely negotiated settlements
stretching back almost 20 years; and
(d)
Based on the evidence before the Board, it is clear that the 2013 rate continues to
be appropriate given all of the relevant factors.
28.
As a check on the appropriateness of the existing certified rate, the BDUs retained Dr.
Tasneem Chipty to calculate an appropriate range for the retransmission royalty based on
the current value of comparable programming, with the required adjustments to account
for differences between the benchmark programming and distant signal programming.
29.
Dr. Chiptys analysis yields a range of $0.73 to $1.01 and she recommends a rate of
$1.00. This strongly suggests that the certified rate of $0.98 continues to be appropriate,
if not excessive.
30.
In addition, the evidence of Suzanne Blackwell demonstrates that across the broadcasting
industry, including local broadcasters and specialty services, revenues and expenditures
have declined or remained flat. This further supports the BDUs position that no changes
to the retransmission rate are justified.
31.
Debra McLaughlin studied viewing data and consumer survey results. Her analysis
clearly shows that the value of distant signal programming to BDUs and their subscribers
has declined and is continuing to decline in the face of new, more convenient sources for
the same programming.
32.
All of this evidence, taken together, establishes that the Board should use as the
appropriate starting point the certified rate for 2013 and should gradually reduce the rate
over the tariff period to reflect the continuing decline in the value of distant signal
programming.
33.
The BDUs agree with the Collectives that the graduated rates for mid-sized systems
should continue. Therefore, using the 2013 rate as the starting point in 2014 and factoring
in the steady decline in the value of distant signals since 2014, the BDUs propose the
following rates:
Monthly rate for each premises receiving one or more distant signals
Number of Premises
2014
2015
2016
2017
2018
Up to 1,5000
41
39
37
35
33
1,501 to 2,000
46
44
42
40
38
2,001 to 2,500
52
50
48
46
44
2,501 to 3,000
58
56
54
52
50
3,001 to 3,500
63
61
59
57
55
3,501 to 4,000
69
67
65
63
61
4,001 to 4,500
75
73
71
69
67
4,501 to 5,000
81
79
77
75
73
5,001 to 5,500
86
84
82
80
78
5,501 to 6,000
92
90
88
86
84
98
96
94
92
90
In 2013, the Collectives filed with the Board proposed rates ranging from $1.06 in 2004
to $1.38 in 2018 (the Proposed Rates). Based on those proposed rates the BDUs, who
do not represent all retransmitters subject to the Tariff, filed statements of objection.
35.
On May 8, 2015 when they filed their Joint Statement of Case, the Collectives purported
to revise and increase the Proposed Rates substantially from $1.06 to $2.00 in 2014 and
from $1.38 to $2.38 in 2018 (the Revised Rates), with similar increases in the other
years.
36.
Although the BDUs submit that the Collectives have failed to justify even the lower
Proposed Rates, let alone the Revised Rates, as a matter of procedural fairness the Board
should not even consider the Revised Rates, which were proposed more than two years
after the Collectives filed their Proposed Rates with the Copyright Board.
37.
Pursuant to Section 71 of the Copyright Act, the Collectives are required to file proposed
tariffs with the Board by no later than March 31 of the year in which the approved tariff
ceases to be effective, in this case March 31, 2013.
38.
While the Collectives try to justify their attempt to avoid the statutory notice period on
the basis that the record produced during the course of the proceeding contains new
information, the Board should reject this argument.
39.
It is common for the Board to consider proposed tariffs many years after the tariff period
has expired and to conduct hearings that deal primarily or entirely with retroactive
periods. If Collectives were permitted to propose increased royalty rates on the basis of
new information filed during proceedings dealing with past periods, the statutory notice
periods that Parliament has enacted would be rendered meaningless.
The BDUs retained Dr. Tasneem Chipty of Analysis Group to prepare an economic
analysis of the value of distant signal programming to BDUs in order to suggest an
appropriate royalty rate. Her report, Economic Analysis of Reasonable Royalty Rates for
Retransmission of Distant Television Signals, is attached as Exhibit BDU-2.
41.
When the Copyright Board first certified the Tariff for the years 1990 and 1991, it chose
the US specialty service A&E as the most appropriate benchmark for distant signal
programming. Among the possible services available at the time, A&E offered
programming that was more similar in nature to the programming carried on distant
signals, and the rates paid by BDUs to carry A&E were freely negotiated, unlike the
existing Canadian specialty services which were rate-regulated by the CRTC.
42.
Dr. Chipty notes that the programming offered by A&E has changed significantly since
1990 so that it no longer resembles the programming on distant signals. Furthermore,
since 1990, there have been hundreds of new services authorized for distribution in
Canada that would serve as a more reasonable starting point for determining the value of
distant signal programming.
43.
Dr. Chipty considered the range of possible benchmark signals or services that might be
used to derive a value for distant signal programming. She concluded that a mix of US
specialty services and Category B Canadian specialty services could be used as an
appropriate starting point, since the mix of programming among these services is similar
to the programming on distant signals, and the rates between these services and BDUs are
freely negotiated.
44.
Working with Analysis Group, Bell, Rogers and Shaw implemented a set-top box data
collection project for the period of May 4 to May 17, 2015. The collected data included a
schedule of programs aired on the signals and services distributed by the BDUs as well as
the extent to which subscribers watched this programming.
45.
Using this data and other sources of information including the Mediastats Report and
CRTC data, Dr. Chipty was able to identify the adjustments that are necessary to the
value of the benchmark services to determine the reasonable royalty for distant signal
programming.
46.
In her opinion, based on her detailed analysis of the data, the appropriate distant signal
royalty rate is approximately $1.00 per subscriber per month.
47.
To arrive at this rate, Dr. Chipty first accounts for the fact that the payments made by
BDUs to Canadian and US specialty services in the benchmark group do not merely
reflect the value of the programming but also have to cover the services nonprogramming related costs. Dr. Chipty excludes the portion of revenues above the total
costs incurred to generate and distribute the programming, which is reported by the
CRTC as profit before income and tax, and includes 75% of the payments made to the
Category B services and 90% of the payments made to US specialty services by BDUs.
This is a conservative adjustment because it retains all specialty services costs, not just
the costs related to the value of the programming, and embeds a return on the costs of
creating the copyrighted works.
48.
Next, Dr. Chipty adjusts the benchmark rate to account for the fact that local signal
programming is substituted for distant signal programming when the same program is
being broadcast simultaneously on the local and distant signal (a process known as
simultaneous substitution). The Copyright Board recognized the need to make this
adjustment when it first established the rate using A&E as the benchmark in 1990. Dr.
Chipty finds that about 15 per cent of distant signal programming is subject to
simultaneous substitution.
49.
The benchmark rate also needs to be adjusted to reflect the fact that distant signal
programming accounts for substantially less viewing than programming in any other
programming category. Dr. Chipty found that the benchmark US and Category B services
accounted for more than twice as much viewing as distant signal programming.
50.
Next, Dr. Chipty adjusted the benchmark rate to account for the fact that distant signal
programming is also available from other sources, including local signals, other distant
signals, and specialty services. This adjustment is conservative because it does not take
into account the fact that a significant amount of popular network programing is available
from the free video-on-demand services offered by the BDUs and can also be accessed
for free from the broadcasters own websites.
51.
After making the appropriate adjustments, Dr. Chipty calculates a distant signal royalty
rate of between $0.73 and $1.01 per subscriber per month, and recommends a rate of
$1.00 which is at the upper end of the range of possible outcomes. Dr. Chipty then
compares this calculated rate based on an adjusted benchmark rate to the rate of $0.98
that was negotiated between the BDUs and Collectives for 2013 and concludes that
absent a substantial change in market conditions, one would not expect the negotiated
rate to depart substantially from the existing rate.
52.
Dr. Chipty considers other factors that might affect the valuation of distant signal
programming and whether including these factors in the adjustment would result in a
higher or lower distant signal rate. She considered issues such as the mandatory carriage
of some distant signals, the revenue sources available to US specialty services, the
requirement of BDUs to carry unaffiliated Category B services, and the specialization of
the programming on specialty services. Dr. Chipty concludes that given these factors, her
calculated rate of $1.01 is likely overstated.
53.
Dr. Chipty also comments on the evidence provided by the Collectives two expert
witnesses, Professor Jeffery Church and Dr. Gerry Wall.
54.
She finds that Professor Churchs approach results in a significant overstatement of the
value of distant signal programming.
55.
First, Professor Church assumes that the amount of viewing to distant signal
programming is the same as the viewing to his benchmark US specialty services, even
though the evidence on which he relies shows that there is actually substantially less
viewing of distant signal programming.
56.
57.
Third, he includes all payments made to specialty services in the benchmark rate rather
than just the portion of the payments that reflect the value of the programming, which
would result in an over-compensation of the rights holders in distant signal programming.
58.
59.
Dr. Chipty also notes that Professor Church ignores other important factors that require
further adjustments to the benchmark rate. He does not consider the characteristic of
substitutability and the fact that distant signal programming is often duplicated in other
signals and services provided by the BDU. He does not take into account the fact that the
US specialty services that comprise the entirety of his benchmark group are not able to
sell advertising in the Canadian market. Professor Church does not consider whether it
would have been more appropriate to include Canadian specialty services in the
benchmark group, even though these services have more in common with distant signals
than the narrower group of US-only specialty services. All of these factors result in
Professor Church proposing a rate which is far in excess of the real value of distant signal
programming.
60.
Dr. Chipty also considered the evidence prepared by Dr. Wall and found significant
problems with his analysis that render his approach fundamentally incapable of
recovering a reasonable royalty rate.
61.
Dr. Walls first approach is based on subscriber preferences and willingness to pay for
time-shifted theme packs. However, in his analysis, Dr. Wall assumes that all BDU
subscribers (including those that dont take the theme packs) value distant signal theme
packs as much as the subscribers that have chosen to take them. Second, Dr. Wall
assumes that all distant signals, even those that are network duplicates, are as valuable as
the subset of distant signals that are included in the theme packs. Dr. Chipty says neither
assumption is correct. Just adjusting for the fact that only a minority of subscribers chose
to subscribe to distant signal theme packs brings Dr. Walls rate down to $1.06 per
premises per month.
62.
Dr. Walls second approach attempts to impute the value of broadcast signals from the
extended basic packages offered by BDUs. The most serious flaw in this approach is that
it includes the value of both local and distant signals and assigns equal value to both
types. This is clearly inappropriate since local signal programming is among the most
watched of the programming carried by BDUs and distant signal programming is the
least watched of the programming carried by BDUs. Dr. Wall is, in effect, allocating the
much higher value of local signal programming to the much lower value of distant signal
programming. Furthermore, like Professor Church, Dr. Wall ignores the effect of
simultaneous substitution on the value of distant signal programming.
The BDUs retained Debra McLaughlin of Strategic Inc. to analyze consumer behaviours
and attitudes related to the viewing of television programming in general and distant
signals in particular. In her analysis, Ms. McLaughlin reviewed Numeris audience data
and also a consumer demand study conducted by Ekos Research on behalf of the BDUs
in July 2015. Her report, 2005-2014: An Analysis of Recent Behaviours in Television
Tuning and the use of Distant Signals in Canada, is attached as Exhibit BDU-3.
64.
With respect to the viewing data, Ms. McLaughlin observes that a downward trend in the
use of distant signals is evident. Relative to 2009, tuning in the Numeris diary markets
was down 11% in 2012 and 18% in 2014. In the meter markets it was down 10% and
17% over the same period.
65.
Among viewers aged 18 to 34 years, the decline is even more pronounced. Compared to
2009, viewing to distant signals among this age group was down 33% in the diary
markets and 27% in the meter markets. This more dramatic decline of tuning to distant
signals over a five-year period among younger adults suggests that the importance of
distant signals will continue to diminish for the foreseeable future.
66.
Numeris also tracks the extent to which television programming is watched live or is
recorded on a PVR to watch at a later time. Live tuning had dropped from 95.2% of total
tuning in 2009 to 86.8% in 2014. Among adults aged 25 to 54, the shift is even greater:
from 94.1% to 83.8%. For some programming, recorded viewing now accounts for more
than 50% of the audience.
67.
Reviewing the results of the 2014-2105 Media Technology Monitor (MTM) study, Ms.
McLaughlin looked at the prevalence of cord cutting among Canadians. Cord cutters
are those who cancel their BDU subscriptions and obtain television programming from
other sources. Slightly more than half of respondents who were not BDU subscribers
were cord cutters. Among those, 44% had been without a BDU subscription for more
than 3 years.
68.
Seventy percent of cord cutters watch television online, compared to 52% of people who
have never had a BDU subscription and 46% of Canadians generally.
69.
The MTM study suggests that the ranks of the cord cutters will continue to grow. Among
current BDU subscribers, 8% said it was very likely they would cancel their service in the
next year while 13% said they were somewhat likely.
70.
These trends away from traditional forms of broadcasting, including distant signals, and
towards newer forms of on-demand technology are confirmed by the consumer demand
study conducted by Ekos Research in July.
71.
Among respondents who had dropped time-shifting packages from their subscription,
52% said they did so to save costs, and 23% responded that the signals were no longer
necessary.
72.
When asked about the importance of flexibility in television viewing, 58% said being
able to record programming on a PVR was important, and the same number said it was
important to be able to watch multiple episodes of a program in a single sitting. Similarly,
51% said free on-demand access to current television programming is important and 50%
said being able to stream television programming is important.
73.
By comparison, only 36% of respondents said being able to watch programs from timeshifted distant signals is important. Seventy-one percent of respondents said PVRs are
more valuable than time-shifted distant signals and 65% said on-demand services
provided by the BDUs are more valuable than time-shifted distant signals. Only 32% of
respondents said they would consider switching BDUs if their current provider stopped
offering time-shifted distant signals.
74.
Slightly more respondents (16%) reported a decrease in time spent watching time-shifted
signals, than reported an increase in watching those signals (13%). Among respondents
aged 18 to 34 years, the difference is more pronounced, with 25% reporting a decrease in
time-shifted viewing and only 9% reporting an increase.
75.
Respondents were asked what they would do if they were not available to watch a
program on a local TV station at the scheduled time. Only 15% said they would be very
likely to watch the program earlier or later the same day on a time-shifted distant signal.
More respondents said they would be very likely record the program using a PVR to
watch later (44%), find it on the internet and stream it at another time (24%), or watch it
free on demand using their BDUs video-on-demand service (21%). Watching it on a
time-shifted distant signal only narrowly beat out waiting for the rerun to be broadcast
(13%).
76.
These consumer attitudes and behaviours explain the steady decline in viewing to distant
signals. Canadians, and in particular adults under the age of 34, are increasingly turning
to newer more convenient sources of television programming which are displacing the
need for, and value of, distant signals.
77.
It is simply not possible to justify the 104% to 143% increase in royalties being proposed
by the Collectives for programming that ranks so low in consumer value and is steadily
losing viewers to other, more convenient sources.
The BDUs retained Lori Assheton-Smith to prepare a report on the effect of broadcasting
regulations on the retransmission of distant signals in Canada. The effect of broadcasting
regulations is one of the criteria to which the Board must have regard in establishing
retransmission royalties that are fair and equitable.9
79.
81.
At times, the CRTC has promoted and encouraged the distribution of distant signals in
order to further Canadian broadcast policy objectives. At other times, it has taken a more
restrictive approach in order to protect the financial interests of local broadcasters.
82.
The most significant regulatory development affecting the carriage of distant signals was
the licensing and launch of the direct-to-home (DTH) satellite providers in 1995 to
provide direct competition to the cable monopolies. Unlike a cable retransmission
system, which is local in nature and operates within a defined territory, DTH satellite
providers have a service footprint that covers virtually the entire country.
83.
Since the concept of a local signal did not easily apply to a national satellite service,
the DTH operators were authorized to distribute as part of the basic service any Canadian
over-the-air (OTA) signal. Because DTH undertakings delivered a broad selection of
OTA stations from across the country to all basic subscribers, this effectively meant that
all OTA stations carried by DTH providers were distant signals. The Commissions
approach to regulating the retransmission of distant signals by DTH BDUs had the effect
of greatly increasing the number of distant signals carried by BDUs in a short period of
time.
84.
The next significant development in the evolution of the Canadian broadcast system that
had a profound impact on distant signal retransmission was the transition from analog to
digital technology. By the year 2000, the CRTC fully embraced the adoption of digital
technology and used a variety of policy measures to encourage and hasten its deployment
in all sectors of the broadcasting industry.
85.
In order to build a robust digital distribution platform to support the large number of
digital-only pay and specialty television services that had been licensed, the CRTC
allowed BDUs to carry US and Canadian signals from different time zones as part of the
digital service. This regulatory measure was intended to encourage cable operators and
their subscribers to accelerate the migration from analog to digital technology.
86.
In early 2002, after reaching agreements with the Canadian Association of Broadcasters
to avoid the need to delete duplicate programming from distant signals from other time
zones, the cable operators started to launch expansive offerings of time-shifted Canadian
and US distant signals as part of the cable digital basic service.
87.
By 2003, the CRTC was confronted with growing concerns among small market
television broadcasters about the erosion of local audiences resulting from satellite distant
signal carriage. After considering the positions of the broadcasters and BDUs, the CRTC
ordered the DTH BDUs to retransmit the signals of an additional thirteen small market
stations, resulting in an increase in the number of distant signals being retransmitted. In
that decision, the CRTC made it clear that it was not prepared to endorse regulatory
solutions that would reduce subscriber access to existing distant television signals.
88.
In 2008, the CRTC adopted two more regulatory measures that had the intended effect of
increasing the number of distant signals being retransmitted by BDUs. First, the CRTC
ordered DTH providers to increase their basic service to include signals from the large
private broadcasters, the CBC, independent broadcasters and provincial television
services from each province.
89.
Second, those BDUs carrying a second set of US 4+1 stations were required to carry at
least one Canadian distant television signal from each English ownership group within
the same time zone. This measure resulted in an expansion of the number of distant
Canadian signals carried by BDUs, particularly cable operators.
90.
In 2011, in a review of the regulatory framework for DTH distribution, the CRTC again
imposed new local signal carriage obligations, increasing the total number of over-the-air
signals carried by Bell TV and Shaw Direct by 43 and 37 signals respectively. This
increase is reflected in the Mediastats report which shows that the average number of
distant signals went from 38.2 in 2010 to 54.0 in 2013.
91.
It is clear from Ms. Assheton-Smiths detailed review that changes in the number of
distant signals retransmitted by Canadian BDUs since the Copyright Boards second
decision in 1992 has been heavily influenced by the CRTCs evolving regulatory
approach. In particular, the CRTC has encouraged or mandated increased carriage of
Canadian distant signals by both cable and DTH BDUs in furtherance of broadcast policy
objectives.
92.
Ms. Assheton-Smith concludes that the regulatory incentives adopted by the CRTC to
encourage distant signal retransmission in the past may no longer be applicable and that a
reduction in the carriage of distant signals can be expected. Furthermore, she finds that
the current regulatory framework that emphasizes consumer choice and flexibility
provides incentives and requirements that will have the effect of reducing distant signal
carriage in the years to come. She believes the industry has already passed the peak in
terms of distant signal distribution.
93.
94.
Under the new framework, BDUs will be required by March 2016 to offer a small basic
service to customers at a retail cost of no more than $25 per month. This skinny basic
will include local and regional television stations and one set of US 4+1 signals. Other
distant signals will only be permitted on basic service if there are fewer than 10 local and
regional services.
95.
Discretionary services, including distant signals not offered on basic, will have to be
offered on either a pick-and-pay basis or in small packages. By December 2016, all
discretionary services, including distant signals, will have to be offered on both a pickand-pay basis and in small packages.
96.
The CRTC also recognized shifting consumer demand away from scheduled broadcast
television and toward the on-demand services offered by BDUs and online. It has created
a new video-on-demand exemption order intended to help Canadian services compete in
an on-demand environment.
97.
The Collectives focus on the increase in the average number of distant signals being
carried, yet they have not considered the extent to which these increases have been in
direct response to the CRTCs regulatory policies. The number of distant signals that are
retransmitted has more to do with addressing the concerns of Canadian broadcasters than
it does with consumer demand for multiple signals from the same network.
98.
With the shift in CRTC policy toward consumer choice, the regulatory requirements to
carry distant signals are being replaced by new regulatory requirements to let consumers
reduce the number of signals and services they receive. This will inevitably lead to a
decrease in the average number of distant signals each subscriber receives.
100.
Ms. Blackwell has worked in the communications industry for more than 25 years and
has held senior positions with the CRTC and the CCTA. She has been the head of her
own consulting firm since 2006.
101.
On the issue of basic service price increases, Ms. Blackwell notes that capital investment
in the BDUs distribution network is a significant and fixed cost of providing service to
BDU customers. The price of basic service is set to recover these capital costs in addition
to the cost of programming services.
102.
By excluding the value of the distribution network, and attributing the entire price of
basic service to the value of specialty services and over-the-air signals, the Collectives
experts have substantially overstated the valuation of distant signals. Furthermore, the
most recent two years have exhibited among the lowest percentage increases in the basic
rate over the 11-year period, apart from an outright decrease in 2011.
103.
After reviewing the detailed financial information that is collected by the CRTC from
OTA broadcasters and specialty services, Ms. Blackwell observes that the core group of
non-sports specialty services have not increased program spending since 2008 on a perservice basis and these same services have not increased their revenue from subscribers
when measured on a per-service basis, net of inflation.
104.
If the specialty programming services that are used as the benchmark for distant signals
have not increased either their program expenditures or subscriber revenue on a perservice basis since 2008, there is no reason to expect that the value of programming in
retransmitted distant signals has increased by 146 per cent during that same period, as
claimed by the Collectives.10
105.
The comparison with the revenue earned by local OTA signals is even more stark and
compelling, considering that distant signals are the same signals with the same
programming. Between 2004 and 2014 the per-service revenue of OTA signals decreased
by 24% in constant dollar terms. Similarly, OTA services program expenses, per service,
decreased between 2004 and 2014. If the ability of local broadcasters to generate revenue
from their programming actually fell by 24% between 2004 and 2014, and the amount
spent on that programming also declined, it is unreasonable to suggest that the value of
10
The certified retransmission rate in 2008 was $0.85 per subscriber per month. The proposed rate for 2015 is
$2.09 per subscriber per month.
that exact same programming when retransmitted by BDUs would increase by 174% over
that same time period. Yet this is exactly what the Collectives are proposing.
106.
Ms. Blackwell also notes in her report that the percentage of Canadian households that
subscribe to a BDU has declined from 85.8% in 2011 to 83.3% in 2014. Meanwhile there
are more than 11 million residential high speed subscribers in 2015 compared to just two
million subscribers in 2000. This explains the increased incidence of cord cutting and
cord shaving where BDU subscribers cancel or reduce their subscriptions and use
online sources to access the same programming they could previously only get from a
BDU.
107.
One such online source is Netflix, which, although it only launched in Canada in 2010,
grew to more than one million subscribers in 2011 and an estimated almost 4 million
subscribers in 2015. Other alternative online sources of programming include Apple,
YouTube, Google, Vimeo and Canadian services such as Illico, shomi and CraveTV.
108.
109.
The factors that have contributed to these results, including the fragmentation of
audiences, the explosion of online video sources, and increasing consumer demand for
convenience and flexibility, negatively affect the value of distant signal programming as
much as, or more than, they affect the value of local programming or specialty service
programming.
BDU Witnesses
110.
The BDUs intend to call five industry witnesses. These witnesses, from Rogers, Shaw,
Bell, Videotron and TELUS, will explain the evolution of the BDU industry over the past
several years and the role that distant signals play in the packages of signals and services
DOCUMENTS
EXHIBIT BDU-1
EXHIBIT BDU-2
EXHIBIT BDU-3
EXHIBIT BDU-4
EXHIBIT BDU-5
EXHIBIT BDU-6
EXHIBIT BDU-7
EXHIBIT BDU-8
EXHIBIT BDU-9
EXHIBIT BDU-10
The BDUs reserve the right to apply to the Board for permission to file additional documents.