Rogers says independent producers getting too much from terms of trade deal

TORONTO—Rogers Communications Inc.'s broadcast division is unhappy with the industry's terms of trade agreement with independent producers and will seek a bigger share of production revenues when the contract expires next year, said Keith Pelley, president of Rogers Media Inc. “The terms of trade agreement, which expires in 2014, I feel is a little one-sided to the independent production companies and communities,” Pelley said during a panel discussion on Canadian broadcasting at an event to promote the Banff Media Festival. “From a broadcaster's perspective, I think it's something that we have to address in terms of the revenue share.” In April 2011, Rogers and other private broadcasters agreed to a terms of trade agreement with the Canadian Media Production Association (CMPA) that outlines how broadcasters and independent producers share revenues from projects the broadcasters commission as well as licence fees the broadcasters pay to producers. The deal does not apply to CBC/Radio-Canada or to the French-language market. Pelley said a problem with the agreement is the cost of licence fees, which can make Canadian content more expensive than American. Broadcasters can no longer afford those costs, he said, due to “structural changes” in the industry caused by a shift in advertising dollars towards online media. He said the broadcasters' terms of trade agreement with the independent producers can be “very rewarding” to producers who make good content and collect a licence fee, tax credits, funding from the Canada Media Fund, and profits from international distribution agreements. Canadian broadcasters are often forced to acquire Canadian content to serve regulatory obligations, he said. “I think what the entire industry wants to get away from is us looking at Canadian programming as, quote-unquote, a tax,” he said. The CMPA, which hosts its annual, national Prime Time conference in Ottawa next week, says on its website that its terms of trade deal is with Bell, Astral Media Inc., Corus Entertainment Inc., Rogers, and Shaw Communications Inc., and that it became effective June 1, 2011. It was an “historic deal that will redefine the relationship between producers and broadcasters,” the website says. The terms of trade agreement, which the CRTC encouraged the two sides to reach, is important to independent producers as they work with larger companies in an industry experiencing consolidation, the CMPA says. The agreement means to “restoring some measure of balance in negotiating power between independent producers and media conglomerates, by establishing minimum commercial terms for development and broadcast licence agreements,” the CMPA’s website says. In an emailed response to questions Wednesday, Pelley said the “biggest challenge” with the agreement relates to revenues from foreign distribution. The terms, he said, are “one-sided” in favour of the producers. “In a very challeng advertising industry, we need to determine how we can make Canadian programs economically viable for the broadcaster, as the current agreement does not allow for that,” he said. “Ancillary revenue beyond licence fees and tax credits should first be given to the broadcaster until they recoup their investment, and then both parties can take part in revenue sharing." Michael Hennessy, the CMPA's president and CEO, said in an email to The Wire Report Wednesday that Pelley's call for a bigger share of revenue is “as predictable as it is outrageous.” He said it is “sad” that Rogers is turning its “guns” on independent producer partners as “the enemy.” “You would think that given our success elevating the status of Canadian programming we would be building on our strengths, not going to war,” Hennessy wrote. “Perhaps this is just an inevitable outcome of vertical integration, where broadcasting becomes an appendage to drive cell phone, cable and internet sales.” Hennessy said both sides surrendered “key items” during the negotiations that led to the agreement. “Now it seems everything the broadcasters gave must be clawed back to regain the status quo when producers had no rights,” Hennessy said. “The problem with vertical integration whether you are a producer, independent broadcaster or a non-aligned BDU is that vertically integrated carriers don't understand there is a difference between a negotiation and capitulation. I guess that is the bottom line on vertical integration. If you are not vertically integrated you are screwed whether you are a supplier or a customer.” Kevin Crull, president of BCE Inc.'s Bell Media broadcasting subsidiary, said on the panel that the loss of advertising dollars has caused a “crisis of monetization” in the broadcast industry. He said conventional broadcasters need a new revenue source to supplement shrinking advertising dollars, something similar to the CRTC's previously proposed value-for-signal regime, which was quashed by a Supreme Court decision in December. “A second revenue stream for conventional is absolutely critical in a day where we just can't pay for what we do and we just can't pay for what we deliver consumers and viewers off of advertising alone,” he said. Bell has said the conventional television system is not financially viable, leading some analysts to speculate the company could sell off some local, over-the-air stations. Crull said Bell is comfortable with the 2011 terms of trade agreement with independent producers and would not “turn around and now say that it's broken.” The problem, he said, is in the federal regulation of the broadcast system, which he said had not been updated since its inception more than 40 years ago. He said that Canadian broadcasters need the ability to pull their signals during carriage negotiations with broadcast distributors. Without that ability, he said, they will see their bargaining power and revenues fall relative to broadcasters in the United States, which under American regulations have the power to pull their signals during carriage disputes. “I think we've turned a blind eye to the fact that policymakers ... despite a lot of rhetoric, they're not supporting the Canadian system,” he said. Crull said more independent producers should have supported Bell's $3.36-billion bid to acquire independent broadcaster Astral Media last year. Independent producers would benefit from a Canadian broadcaster with the scale to compete with large, over-the-top services such as those provided by Netflix Inc., Apple Inc., Google Inc., and Amazon.com Inc. During a CRTC hearing in September to consider the Bell-Astral deal, BCE president and CEO George Cope said Bell, the country's largest vertically integrated company, would introduce a service similar to Netflix if the Bell-Astral deal was approved. The CRTC rejected that deal in October, citing concerns about competition, Bell's market power, and a proposal that did not appear to benefit the public interest. The companies filed a reworked application in November to complete the acquisition. Panel moderator Peter Sussman, the executive chairman of media financing firm Aver Media LP, said independent producers “believe their challenges greatly exceed challenges.” The producers are not sympathetic to the broadcasters' desire for a greater share of revenues, he said. “There's not a lot of sympathy for some of what you're saying.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Rogers says independent producers getting too much from terms of trade deal

News | February 27, 2013

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Rogers says independent producers getting too much from terms of trade deal

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