CRTC gets an earful at hearings on future of TV

Canada's broadcast regulator is debating the future of television at a series of hearings in Gatineau, Que., that will wrap up at the end of this week.

The Canadian Radio-television and Telecommunications Commission (CRTC) began hearing from stakeholders last week and has already had an earful from the large conventional broadcasters and cable providers as well as a number of interest groups and smaller players.

Here's a look at some of what's been said at the Let's Talk TV hearings so far and what we can expect this week.

The incumbents

Bell, Rogers, Shaw and Quebecor all came out against the CRTC's proposal that cable providers be forced to offer certain kinds of basic packages and that most of the rest of their content be offered à la carte (also called pick-and-pay).

The CRTC has proposed that cable companies adopt either a "skinny basic" package that would include only Canadian channels or an expanded basic package that could include other channels but would be capped at a rate of $20 to $30. Both would have to be "promoted in an equivalent manner to other packages" and neither would include the 4+1 U.S. networks (NBC, ABC, CBS, Fox and PBS), whose signals are available free over the air in many parts of the country.

The cable providers said they're not opposed to offering a basic package, but they don't want the CRTC telling them what it should look like.

"The commission should regulate neither the composition of basic service, nor its price, nor package sizes if it really wants BDUs [broadcast distribution undertakings] to offer consumers greater flexibility and choice," Quebecor CEO Pierre Dion said at the hearings.

Shaw went so far as to call the CRTC's proposed "skinny basic" package "anti-consumer," saying it "does not respond to any market failure as there is no unmet demand for such an offering."

Bell was the lone voice among this group to support the removal of the 4+1 from the basic package, saying the inclusion "undermines the cultural objectives of the system."

Most of the large players spoke against the idea of moving from bundled TV content, in which customers pay for channels they don't necessarily want and essentially subsidize specialty channels that may not otherwise survive, to an à la carte system where customers pick and choose only the channels they want to pay for.

"No BDU in North America offers all of its discretionary channels à la carte​," Rogers said in its submission. "Only a small minority of consumers would benefit from such a regime. The vast majority of them would end up paying more for fewer services."

Bundles not 'a relic of old TV,' Bell says

Rogers instead proposed making at least half of its discretionary channels — those that it is not mandated to carry under the conditions of its licence — available "on a stand–alone basis." Shaw also favoured this approach.

Bell also came out in favour of keeping content bundled, saying it "is not just a relic of old TV."

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"OTT [over-the-top] services like Netflix and Amazon Prime, digital radio services like Rdio, and digital magazine services like NextIssue all bundle content in order to deliver the best consumer value," Bell said in its submission.

It acknowledged that unbundling content would cut into the revenue of vertically integrated media companies such as Bell and Rogers because fewer of their programs would reach viewers. An audience loss of just 10 percentage points "will lower revenue by 15 per cent and profitability by nearly half," Bell said.

Shaw agreed, saying that "an audience loss of as little as 10 per cent will make some advertisers look elsewhere" and that every one of its services, including popular offerings such as the Food Network and the History Channel, would be weakened by a pick-and-pay system.

The Walt Disney Company, which appeared at the hearings on Monday, also made a case against à la carte​ programming. It told the commission its own experience starting out as a premium à la carte​ service proved unsuccessful and that it was only when it became part of a basic cable package that it was able to redirect funds from marketing and subscriber retention to programming.

Disney told the CRTC that its sports network ESPN "would not be the success it is today if it had been required to be distributed on an à la carte​ basis."

"ESPN’s business model is built upon the widest possible distribution — the sports leagues that control the rights to premier sports events demand as much and the economics of live event and news coverage simply cannot be sustained without the revenue generated from broad distribution," said Susan Fox, Disney's vice-president of government relations.

End of over-the-air?

All of the big players argued that eliminating the few remaining over-the-air transmitters, as the CRTC has proposed —and the CBC has advocated — would not solve the problems facing local television.

The savings from shutting down transmitters would be more than offset by lost revenues from advertising directed at over-the-air viewers, Bell told the commission.

The cable providers were also united in opposing the elimination of simultaneous substitution (known as SimSub), the process whereby Canadian networks substitute Canadian advertising in place of U.S. ads in U.S. programs they've purchased the rights to that air at the same they're airing on U.S. stations available through free over-the-air signals.

Shaw argued that without the $450 million a year SimSub generates for the industry, there won't be sufficient resources to support Canadian programming.

Fewer than 500 people complained last year about not being able to see U.S. ads or having the start or end of programming cut off because of ill-timed substitution, the cable companies argued.

"The issues with SimSub — including errors and missed Super Bowl ads — do not justify undermining the entire business model for conventional television," Shaw said in its submission. "There is no content objective of the Broadcasting Act that would be achieved by providing Canadians with access to U.S. commercials that are widely available on YouTube."

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The alternative to SimSub would be to black out distant signals in local markets, as is done in the U.S., or to make people pay for those U.S. stations but black out the programs that Canadian stations already have rights to, which would make people think about paying for them, Robert Dilworth, a former vice-president with Bell Media, told the commission.

The Disney company argued against blackouts, telling the commission that SimSub is a "less intrusive and more consumer-friendly" way to protect program rights.

Over-the-top services

Google was the first of the so-called over-the-top content providers to appear at the hearings. These are services such as Netflix and YouTube that deliver content over the internet and are not subject to the same regulations as conventional over-the-air broadcasters.

The traditional broadcasters want these companies to be regulated and subject to CanCon requirements and the mandatory five per cent of revenue contribution to the Canadian Media Fund, which supports Canadian-made programming.

The Ontario government also said in its appearance before the commission last week that it would like to see the CRTC regulate "new media" such as Netflix and YouTube and that these should contribute "financially or otherwise" to the Canadian broadcasting system.

But Google argued in its submission that online services already contribute to Canada's television industry through licence fees and revenue-sharing arrangements with content creators.

"This exchange represents a legitimate, market-driven contribution to the creation of Canadian content," said Jason Kee, public policy and government relations counsel with Google Canada. "The suggestion that the only acceptable means of fostering the development of Canadian content is in the form of some mandatory contribution of an arbitrary percentage of revenue to a production fund is simply incorrect."

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Moreover, Kee told the commission, foreign-owned media platforms are unable to access Canadian content funds, so mandatory contributions essentially amount to a subsidy from online platforms to domestic broadcasters.

He also stressed that many of the creators of the video content posted on YouTube, for example, "do not consider themselves part of the conventional broadcasting system and do not access Canadian content funds."

"So, many independent creators would effectively subsidize conventional producers and broadcasters while receiving little benefit," he said.

Netflix is expected to make a similar argument when it addresses the commission on Friday.

Conventional broadcasters are themselves getting into the online streaming game, with services such as Rogers and Shaw's recently announced Shomi service, and would like to see the "regulatory straitjacket" that they feel is hampering their ability to compete loosened, Quebecor's Dion told the commission.

"Lighten the regulatory burden on Canadian broadcasting companies so they can compete with foreign OTT services on a level playing field," he said in his appearance on Sept. 9.

All of the cable providers argued against the CRTC's proposal to expand the definition of broadcast revenue to include revenue from their online offerings.

Public broadcasting

Several CBC executives appeared before the commission last Friday and told the commissioners that the No. 1 objective of the hearings should be to "fix the business model of conventional television."

Part of this fix should be allowing broadcasters to close over-the-air transmission stations and feed their content to distributors "through whichever other transmission technology they deem appropriate" and charge a fee for their programming, the CBC said in its submission to the CRTC.

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"We think that conventional broadcasters should be paid by BDUs for the programming that BDUs take from them, just as specialty and pay services are," CBC president Hubert Lacroix said.

Steven Guiton, CBC's vice-president of technology and chief regulatory officer, told the commission that although Canadians have considered the CBC a free service, there has always been a cost to it — over and above what is covered by public funds. In the past, this cost was covered by advertising, but that revenue stream is drying up, he said.

"We have evolved, but the assumption in people's minds that this should be free has not," Guiton said.

When asked whether Canadians would accept CBC receiving public money as well as ad revenue and subscriber fees, Guiton said there is no contradiction in that scenario.

"Whenever I get on a Via train, I don't assume that I get a seat for free," he said. "But we know that Via is subsidized exactly to the same degree, publicly, as we are.

"When I take a bus, I see advertising on the bus. I know it is very heavily funded by the public authorities, yet I have to pay to get on."

Lacroix echoed that sentiment and told the commission that in today's environment, CBC is supplying content that it's not being paid for.

​"We look at the specialty model, and we are simply trying, for all, to even the playing field," he said.

Like their private sector colleagues, CBC executives also urged the CRTC to regulate over-the-top services like Netflix. Any OTT service that has more than $25 million in revenue should be contributing one per cent of that revenue to the Canadian Media Fund, they told the commission.

This fund should continue to finance "high-priority programming" such as Canadian drama while a new local news fund should support the creation of Canadian news programming,Lacroix said.

Consumer groups

Several consumer groups spoke at the hearings last week and came out strongly in favour of the CRTC's pick-and-pay and mandatory-basic proposals as a way to guard against vertically integrated media companies using their control over distribution channels to steer consumers to their own content.

"The commission should reject the view that consumers do not understand what they are currently receiving, and that they would be overwhelmed by more power to choose," said representatives of Groups for the Public Interest, an umbrella organization representing several consumer groups.

"Consumers are intelligent, and they want to have more control over what they watch and what they pay for."

The Competition Bureau also weighed in, saying consumers "should only have to pay for the channels they choose." Eliminating bundles would force content providers to compete "through innovative offerings," the agency said.

"Programming undertakings should compete on their merits and not, in effect, be subsidized through what could be considered a form of tied selling," the bureau said in its submission.

Other stakeholders

Aside from the vertically integrated behemoths like Rogers and Bell, the commission also heard from smaller cable providers such as Cogeco and telcos such as Telus, which compete with Rogers and Bell in delivering content but don't have the same advantages when it comes to producing and packaging it.

In its submission to the commission, Telus warned that "vertically integrated companies are taking advantage of loopholes and exploiting regulatory voids to stifle their competitors."

It urged the CRTC to bar broadcasters from making content exclusive to their platforms, as Rogers and Shaw did when making Shomi available only to their subscribers for the first year.

"Consumers should access content on other platforms through the carrier or distributor of their choice," it said.

Blue Ant Media, which owns the specialty channels Cottage Life and Smithsonian Channel Canada, also made a case against allowing vertically integrated companies to exploit their control of "the pipe, the customer relationship and the marketing and pricing" of both their own services and those of independent producers.

It called on the CRTC to incorporate clear rules into the code of conduct governing the affiliate agreements between carriers and programmers that "counteract these market inequalities."

It said a pick-and-pay system would hurt non-vertically integrated programmers the most and also argued strongly against the CRTC's proposal to reduce the number of independent channels that a vertically integrated carrier has to carry, saying it would have a "devastating negative impact on independent services."

What to look for this week

One of the more highly anticipated speakers at this week's hearings will likely be Netflix. The U.S. online video streaming company is to appear on Friday, the last day of the hearings. It's expected to argue against the extension of Canadian content requirements to streaming services.

"Measures to subsidize and require Canadian content for television have too often resulted in productions that fall short of what Canadians expect from 'prime time,'" it said in its written submission to the CRTC ahead of the hearings.

"Despite over 40 years of regulation and subsidy, the majority of Canadians, except in Quebec, choose to watch non-Canadian prime time programs most of the time."

The coming days will see several smaller providers of internet and cable services address the commission, including MTS Allstream and Saskatchewan Telecommunications and TekSavvy. Look for them to be making strong arguments against vertically integrated companies' control of content and in favour of giving smaller and new entrants greater access to the infrastructure that pipes content into consumers' homes.

TekSavvy has already indicated in its pre-hearing submission to the CRTC that it wants to see aggregators of content like itself have greater freedom to package services as they see fit.

"In the open-internet context, we do not believe that any CRTC rule can prevent [consumers] from selecting non-Canadian services they wish to receive," it said.

Several unions representing media workers and artists, including ACTRA and the Canadian Media Guild, are also scheduled to appear.

You can follow the hearings on the @CRTCHearings Twitter feed. Greg O'Brien, publisher of the telecom and cable industry news source Cartt.ca, has also been tweeting highlights of the hearings at @gregobr. Transcripts of the hearings so far are available here.