Appendix 4

Specialty and Premium Television Association

Brief to the CRTC Post Mortem

Arising from the

October 17, 1997 Cable Launch of Specialty Services

Jane Logan
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:

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.

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.

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.

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.

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.

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:

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.

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.