Specialty and Premium Television Association
Brief to the CRTC Post Mortem
Arising from the
October 17, 1997 Cable Launch of Specialty Services
November 24, 1997
Specialty and Premium Television Association
· Association de la télévision
spécialisée et payante
46 rue Elgin Street, Suite 200, Ottawa, Ontario K1P 5K6 · Tel/Tél: 613-233-8690 · Fax/Téléc: 613-236-9546
SPTV represents the vast majority of Canada's premium and specialty television services, all of which make significant contributions to Canada's film and television production industries. Approximately 40% of our members' revenues are reinvested in Canadian productions, underscoring the contribution which these services make to achieving the objectives of the Broadcasting Act.
What follows is SPTV's perspective on each of the three specific areas of discussion identified by the Commission for consideration in the Post-mortem.
We would like to note that there were positive elements to the October 17 launch, and that some cable companies did indeed meet their obligations in a balanced way consistent with access rules. The difficulties outlined below were not experienced by French-language services in the Quebec market, although Quebec services face an inability to negotiate access to francophone markets outside Quebec.
(I) Problems with the October Launch
While SPTV is pleased to see that a large number of Canadian services were part of this fall's launch, we nevertheless have a number of concerns relating to the issue of access and treatment of existing and newly licensed Canadian programming services. Although the Commission's letter of October 7 indicates that these issues are "transitional" in nature, "resulting from short-term capacity constraints and today's dependence on analog cable carriage", the fact is that effective competition in distribution does not now exist, nor are such competitive conditions likely to arise in the foreseeable future.
As noted in detail below, the arbitrary and unilateral conduct of the cable companies has jeopardized the access arrangements enjoyed by existing licensed premium and specialty services. Moreover, cable's actions have also prejudiced the prospects for the yet to be launched "digital services". In all of these circumstances, the cable companies have acted in a manner which is clearly contrary to the CRTC's regulatory framework and its access rules. These rules were either ignored by cable operators or, in some cases, manipulated by them to suit their objectives.
By way of brief summary, the problems surrounding the launch included the following:
Channel Realignments: Unilateral decisions were made by cable operators to move existing Canadian services to new channel positions. In some cases, existing Canadian services previously carried on basic were moved to higher channels which are inaccessible to many basic cable subscribers, effectively discontinuing service for those customers. Moreover, the notice given by cable operators of these realignments was far less than the 60 days notice which is required to be given under the access rules.
Removal of Services: In some cases, cable operators removed existing Canadian services, dropping them completely or pending the completion of "re-builds" and other upgrades. Among the affected services were Fairchild Television, which was informed by Rogers that the service would be unavailable to over 2,500 homes in seven Rogers systems across Canada. Further, MOVIEPIX and TMN multiplex channels were removed in certain Rogers systems pending a "temporary re-build", while Viewer's Choice Canada found its pay-per-view channels reduced to as few as one channel. Generally, the number of channels have been reduced to a level far below that which Viewers Choice Canada enjoyed prior to the launch, and even below the threshold of ten set by the Commission in the access rules. These actions were clearly contrary to access rules, as the Commission noted in its order to Rogers to restore service to all Fairchild customers1. Vision TV, RDI, CPAC, SuperEcran and TV5 are other services no longer available to cable subscribers in certain areas as a result of this launch.
Preferential Treatment of Cable-Owned Services: In a number of cases, cable operators provided favourable access arrangements to "digital services" in which they have an ownership interest, leaving the vast majority of the unaffiliated digital services unlaunched.2 Certain unaffiliated digital services were not offered the same terms as cable-owned digital services. In fact, some were not even given an opportunity to negotiate access. Furthermore, while cable favoured its own services among the unlaunched services, it was also jeopardizing the access of existing Canadian licensed programming services, by either removing them or presenting them with unfavourable channel positions, in clear contravention of the access rules. In effect, some cable operators have used existing licensed premium and specialty services as "available channel capacity" for the purpose of adding cable-owned services and other services which they have deemed to be of higher value, even though Commission policy prohibits such actions.
Fee for Carriage: Cable exerted its "gatekeeper" role, not only by arbitrarily removing Canadian services, but also by charging services an unprecedented marketing fee, in order to be included on the new tier. The new U.S. services added to the launch did not pay the same marketing fee. Furthermore, many questions remain about the use of this marketing fee by the cable industry, including the use of the fee to defer operating costs which would normally be the responsibility of cable operators. SPTV would be highly supportive of a genuinely cooperative marketing program. However, this fund appears to be nothing more than "key money" or a fee in exchange for access, a practice which clearly subverts Commission policy. Moreover, this inappropriate use of market power is unfavourable to Canadian specialty and premium services, and is prohibitive to smaller players and non-profit services.
At the same time, cable operators have added U.S. services, including Black Entertainment Television, The Food Network, The Golf Channel and Speedvision. This two-pronged approach, i.e., eliminating or severely constraining the access status of Canadian licensed programming services, on the one hand, while at the same time providing favourable carriage terms to U.S. services, new Canadian cable-owned services and exempt programming services, on the other hand, is clearly a breach of the access rules and is contrary to Commission policy. It is now easier for U.S. services, which contribute nothing to achieving the goals of the Broadcasting Act, to launch in Canada than it is for licensed Canadian services.
(II) The Reasons for the Launch Problems
Many of the underlying reasons for the launch problems this fall can be
attributed to certain critical assumptions which were made by the Commission
in establishing its licensing framework for the new services in 1996, and
then to the way major players in the cable industry interpreted the results
in their favor, or simply ignored regulation. Among these assumptions were:
The Use of Digital Technology: an Uncertain Threshold
As noted above, cable operators have effectively breached or manipulated the access rules for the purpose of adding more U.S. services and providing preferences to cable-owned services. Thus there remains the unresolved issue relating to the threshold for triggering the application of the access rules for the unlaunched digital services. Until this issue is resolved, the remaining digital services are left without any indication as to when they may be carried by the cable companies. This untenable situation needs to be clarified before the Commission considers any applications for new services.
Under the licensing framework, we acknowledge that cable companies were not required to carry digital services before 1999. However, cable gave preferential access to its affiliated digital services, used its market dominance to charge access fees, and prejudiced existing players by dropping licensed services and using impaired channels for realignments. This conduct was not envisioned under the licensing framework and access rules, and urgent CRTC action is needed to restore order to the marketplace.
(III) Alternative Approaches to Dealing with Similar Problems
SPTV agrees with the Commission that consultation and coordination are necessary pre-conditions for successfully launching Canadian licensed programming services in the future. We appreciate the Commission's pro-active approach which reflects the current reality of a virtual cable monopoly, rather than the competitive marketplace of the future.
The October launch has amply demonstrated that cable companies continue to enjoy the role of "gatekeeper" with respect to access decisions. The fact that cable companies can exercise their discretion so easily underscores fundamental problems with respect to the current application of the Commission's access policy.
What follows is a brief list of suggested alternatives to addressing the above-noted issues.
1. Reaffirm the Application of the Access Rules: As noted above, a number of licensed Canadian services were bumped from their channel locations in order to provide access to U.S. services. Moreover, these licensed services were treated in a prejudicial manner, while at the same time exempt services were treated more favourably. If the foregoing problems are to be avoided in the future, the Commission must ensure that it has the necessary tools to enforce its access policy.
Recommendation 1: The CRTC should codify an "order of priority" for all licensed Canadian services over exempt programming services and non-Canadian services. The Commission should also conduct a review of the current contributions made by U.S. services.
2. Channel Re-alignment: SPTV urges the Commission to take a proactive stance with respect to channel alignment issues. In order to give meaning to the principle that licensed Canadian programming services have priority over all other services, prime shelf space is a critical element of such a policy. Clearly, more vigilance is needed to ensure that cable operators indeed provide services with the required 60 days notice of any realignment.
Recommendation 2: The Commission should review its rules with respect to channel realignment, and adopt enforcement mechanisms.
3. Service Removal: As noted above, the removal of Canadian services is a subversion of the Commission's access rules. The Commission has already made such a determination in two cases, when it ordered Rogers to restore the service of Fairchild and its ruling that Videon Cablesystems Inc. could not reduce its channel allocations to pay-per-view services to accommodate the launch of the new tier.
Recommendation 3: The Commission should restate the foregoing determinations to generally apply to all licensed Canadian services.
4. Preferential Self-Dealing by Cable: The 1995 Convergence Report recommendations concerning cable ownership of programming services were relaxed because the resolution of capacity constraints was erroneously thought to be imminent, and because it was assumed cable players would adhere to access regulations. As well, commitments against preferential self-dealing were made at the licensing hearing. Unfortunately, major cable companies have not hesitated to give services in which they have equity holdings significant undue preference to the detriment of unaffiliated services. An urgent remedy is required.
Recommendation 4: The Commission should introduce additional rules to prevent preferential self-dealing. This issue needs to be addressed by the Commission before it considers the new applications for specialty services. The Commission should also investigate and take action to ensure equitable treatment is given to both cable-affiliated and unaffiliated services involved in the October launch.
5. Cable as Gatekeeper: In recognition of cable's current position as the gatekeeper, actions such as the use of access fees and other abuse of market dominance should be prohibited. Marketing fees should only be permitted upon the mutual agreement of the parties on all matters, including the quantum of the fees and their use.
Recommendation 5: Access fees must be prohibited. The Commission should be able to review such details of commercial dealings to ensure there is no abuse of market dominance.
6. The Commission Needs to Revisit the Regulation Making Process: The problems of the October launch underscore the need for stronger rules and enforcement tools:
Recommendation 6: The Commission should supplement the proposed Broadcasting Distribution Undertaking Regulations with suitable enforcement tools which would apply in the event that access rules contained therein are breached.
7. The Need for a Definitive DVC Threshold and DVC and Analog Capacity Plans: As noted above, in the absence of a specified minimum threshold of digital deployment, cable operators are left with the unfettered discretion to determine that they have met the test of "deploying digital technology". Thus, it is conceivable that the unlaunched digital services could be forced to launch on an uneconomic basis. By specifying a minimum threshold level of digital deployment, the Commission would avoid the possibility that cable operators would provide the Digital Services a mere "pyrrhic victory" of being distributed to a nominal number of cable subscribers, which would result in certain failure under these services' business plans.
Recommendation 7: The Commission should address the DVC threshold issue in a public process early in 1998, prior to the hearing for new specialty services. An appropriate threshold must be established to govern the ability of cable operators to offer access to any of the unlaunched digital services solely on digital distribution systems while still complying with the access rules.4 In the absence of meeting this threshold by September 1, 1999, cable operators would be required to provide access to these services on an analog basis.5 At the same time, cable should also provide revised analog and digital capacity plans. In any case, cable operators and other distribution undertakings should not be allowed to add additional foreign services until all licensed Canadian services have been restored and the remaining licensed Canadian digital services have been launched.
1 See letter from Laura Talbot Allan to Michael Allan and Kathryn Robinson dated October 17, 1997.
2 Among the cable-owned services which received favourable access are TreeHouse TV (wholly-owned by Shaw Communications Inc.), Headline Sports (now owned 48% by Shaw) and Outdoor Life (owned 29.9% by Rogers).
3 Public Notice CRTC 1996-120, September 4, 1996
4 As the Commision is aware, SPTV believes that this threshold level should be at the minimum 20% of all cable households.
5 The requirement to remove U.S. services on September 1, 1999 has already been established by the Commission, in Public Notice CRTC 1997-523, October 30, 1997.