Bell, distributors, resolve carriage dispute; CRTC decision introduces more channel package flexibility

The CRTC issued a “precedent-setting” decision that will afford Telus Corp. and other broadcast distributors more channel packaging flexibility and give consumers more choice over the channels they pay for, said Kevin Crull, president of Bell Media. The commission released its final decision Friday in a carriage dispute between BCE Inc. subsidiary Bell Media and a group of independent distributors called the Canadian Independent Distributors Group (CIDG), representing Telus, Bragg Communications Inc., Cogeco Cable Inc., and the more than 100 members of the Canadian Cable Systems Alliance (CCSA). The dispute, which dates back to last year and went to CRTC final offer arbitration last month, pitted distributors’ channel packaging flexibility against guaranteed revenues for specialty channel owners. Crull said both sides won as the commission approved Bell’s proposed “penetration-based rate card,” which allows distributors to package specialty channels as they see fit and requires them to pay more for a channel if its subscriber penetration rate falls. “What was decided today was a mechanism for providing consumers more choice,” Crull said in a phone interview. “The penetration-based rate card is really adopting a common, well known, well understood, and widely used principle of, the more you buy, the less you pay on a per unit basis.” The CRTC decision affirmed the penetration-based rate system and chose between each side’s competing rate proposals. The commission sided with Bell on the rates it could charge the majority of the CIDG members for carriage of Bell's 29 specialty channels but sided with Telus’ rates in a standalone arbitration process with Bell. Crull said the decision will allow distributors to offer consumers greater packaging flexibility and said it is “precedent-setting for how the industry does business.” “It’s up to the cable companies now how they implement it,” he said. “The onus is on them to take advantage of the flexibility we’ve given them.” Crull said the flexibility will allow distributors to offer “small theme packs” of three or four channels or “pick-a-pack” options that let consumers select the channels they want. Maher Yaghi, a telecommunications analyst with Desjardins Securities in Montreal, calculated the decision means nearly an additional $100 million in annual revenues for Bell Media. “When you look at how many subscribers TSN has in Canada, and you add in the small rate increases they’re getting from the other channels that they own, you get about ninety to $100 million more in revenues,” he said in a phone interview. “They’re practically adding about a buck to a buck-and-a-half per subscriber.” He said the decision allows consumers to pay more on a per-channel basis while potentially saving money on their monthly TV bills. “If you were paying 30 cents per channel in a 200-channel package, the still wanted to pay the 30 cents even if you break up the channel and sell them one by one,” he said. “If that were to happen, some channels would not get enough money and would become unprofitable.” Rogers Communication Inc. completed a trial in London, Ont., this year that offered TV subscribers more control over the channels they pay for. The trial drew new cable customers and helped to offset losses caused by some channels' lower penetration rates, the company said this spring. Quebecor Media Inc. offers a pick-a-pack in Quebec, a province that operates under different market dynamics due to its large francophone population. Crull said the Quebec market can afford pick-a-pack offerings due to the limited number of French-language specialty services, which ensures that none is “left out” of a majority of subscribers’ packages. He said the rates the commission imposed allows distributors to offer pick-a-pack without cannibalizing the specialty channel sector, which relies on the subscription fees of highly popular, and more expensive, channels to subsidize less popular channels. “In adapting the industry to more customer choice, the commission recognized that it needed to do so in a more balanced way,” Crull said. “That preserves the system so that we can continue to create and buy all the high-quality programming that viewers enjoy today.” Broadcast experts and consumer interest groups told The Wire Report in April that moving to a full "pick-and-pay" TV distribution model would be good for consumers but bad for independent specialty channels. Ted Woodhead, Telus’ vice-president of telecom policy and regulatory affairs, said the CRTC decision will allow Telus to continue offering a smaller basic TV service for subscribers to its Optik TV service. According to Telus’ website, Optik TV's basic service sells for $26 per month, which includes “over 99 channels, including 18 HD and 50 commercial-free music channels.” Optik TV subscribers can top up those channels with more expensive specialty services that Telus sells in theme packs ranging from one to 18 channels, which cost $9 per month per pack. Woodhead said Bell's proposed rates sought “revenue guarantees” that would have forced Telus to put more expensive specialty services like TSN on its basic service, requiring the company to charge customers for those channels. “Today’s decision affirms our service to allow discretion for consumers to take the service or not,” he said. “It’s a Telus win and a consumer win, which is nice to see.” The CRTC said it sided with Telus’ proposed rates because the company presented “a unique packaging and pricing model, which offers consumers greater choice, while at the same time satisfying Bell Media’s need for revenue predictability.” The commission said it was concerned that some provisions of Bell's offer “would reduce some of the innovative elements in TELUS’s service offering that are currently available to TELUS subscribers.” Woodhead said the decision marks an “evolutionary step” in the Canadian broadcast industry that affirms Telus’ view that “consumers should have more choice and control over the programming they receive.” Crull said the decision is a “win for consumers” that gives Canadian distributors a chance to “lead the world in doing more innovative packaging on our traditional cable services in a way that the whole ecosystem wins.” He said Bell Media is willing to rework carriage agreements it has signed with other distributors over the past two years to incorporate the penetration-based rate model. “We did contracts with every other cable company that doesn’t include this curve and doesn’t include the same amount of flexibility, but we would be amenable to have discussions with any provider that wants to adopt it,” he said. “We’d be amenable to do that even before their contracts expire.” The CRTC rejected the CIDG's proposal because it was “inconsistent with the standstill rule of the Vertical Integration Framework” announced last year,” the decision said. That rule requires specialty channel operators to continue to offer distributors signal carriage after a carriage agreement expires so long as the distributor agrees to retroactively pay for those services under the conditions of the next carriage agreement. All parties filed their final offer arbitration proposals in secret. nkyonka@thewirereport.ca

Bell, distributors, resolve carriage dispute; CRTC decision introduces more channel package flexibility

News | July 20, 2012

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Bell, distributors, resolve carriage dispute; CRTC decision introduces more channel package flexibility

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