SHOULD BROADCASTERS RECEIVE a wholesale fee for their signals from BDUs?
That will be one of the key questions for the industry and the Commission to answer in the coming months because while the CRTC’s radio review is well under way – with public hearings in May – we can likely expect a TV policy review to begin late this year with hearings in 2007, sources told www.cartt.ca this week.
The desire by broadcasters to be paid a fee for carriage, or for retransmission, is about as old as the cable industry itself. In the 1950s, broadcasters called nascent cable guys "pirates" for distributing their over-the-air signal, charging a subscription fee and paying nothing to the broadcaster.
As cable companies grew and got richer and larger, broadcasters in Canada and the U.S. continued to complain. Awash with cash and growing through the 70s, 80s and 90s, they tacitly acknowledged that cable distribution was helpful and provided a reliable signal – and didn’t complain too loudly.
Now, however, the large cable companies are telecommunications conglomerates who pay out mega-millions in wholesale fees, but not to OTA broadcasters. Those fees go to niche specialty services that viewers very often turn to instead of broadcasters, which has caused serious audience fragmentation. While broadcasters still draw the largest crowds around TV sets those crowds are smaller. And with just one revenue stream, advertising, the fragmentation erodes their ability to grow.
Stateside, CBS is causing a major stir among cablers by saying it will demand higher retrans fees from MSOs and if they don’t agree to pay, then those MSOs might lose their rights to CBS-owned MTV, for example. U.S. regs, just like here, say local broadcast signals are must carries for cable and satellite companies and CBS recently announced a breakthrough with telco Verizon, which agreed to higher broadcast retrans fees on its FiOS IPTV service, a growing competitor to cablecos. CBS CEO Leslie Moonves even mused in published reports that new retrans fees would bring CBS "hundred of millions" of new dollars leading to 2010.
So, should broadcasters be paid here? CanWest Global CEO Leonard Asper, as reported by cartt.ca, thinks so. Quebecor (TVA’s owner) CEO Pierre Karl Peladeau, in a French-language presentation Tuesday, reported on by Canadian Press, said the same thing this week. How much? Neither have said. Yet.
Wholesale rates for specialty services in Canada are all over the place. Some are rate-regulated while others aren’t. Most get less than a buck per month per subscriber. Some get pennies. TSN, the richest specialty service in the country, has a regulated basic rate of $1.07 per subscriber per month.
So are the local affiliates of CTV, Global, CHUM and TVA worth the same as TSN? If they are, that’s an extra $519 million annually for those four broadcasters to split amongst themselves, given the fact there are about 10.1 million Canadians paying a subscription fee to someone – and every satellite or cable company’s basic package must offer at least one from each ‘caster. (I’m not counting the CBC, as it’s a public broadcaster Canadians pay for already.)
Of course, no one is talking rates yet and there are several variables to take into account when it comes to more money and who gets it and when, but let’s ask the question: Are broadcasters worth an additional half a billion dollars to Canadians? Because Joe and Jane Bagadonuts are the ones who’ll be paying for it, of course.
(It’s worth noting, I think, that the most vocal proponents of this in Canada – CanWest and TVA – are the two broadcast companies with the fewest specialty service assets and therefore have been least able to share in the bonanza that has been wholesale carriage fees. CanWest Global and TVA moved far too late into specialties and have but one analog specialty each, Prime – of which Rogers now owns a third – and LCN, respectively. The two companies also have several low-earning digi-nets and some part ownerships.)
There are two ways to look at this issue. The first is to assume the broadcasters – since they pull the biggest audiences – must therefore have the most valuable programming. They certainly have the most expensive shows. If they provide the most value, then of course they should be paid. If the top-rated programming isn’t coming out of the cable or satellite spigot, subscribers will scream.
But broadcasters are paid already, in ad dollars. In fiscal 2005, for example, ended August 31st, CanWest Global pulled in $698 million in revenue from its Canadian television operations, most of which comes from ad sales on Global Television. And I’m not picking on Global, it’s just that the company’s Canadian broadcast TV revenue is the easiest to extract as it doesn’t have as many specialties as the other two English ‘casters and CTV’s revenue is not broken out of Bell Globemedia’s overall results.
Specialty services, on the other hand, get big bucks from subscribers and ad sales. TSN pulls in over $100 million annually from wholesale fees before they sell one second of advertising (which it sold for over $77 million in fiscal 2004). It’s a compelling business model. So why shouldn’t broadcasters be able to take advantage of the same thing?
Plus, broadcasters provide vital local news and information to Canadians, which costs a bundle to make, and also face regulations on Canadian content levels which must be maintained, no matter what. And by the way, that expensive TV drama the cultural industry would like to see made? Half a billion would go a long way towards financing many more hours of that because any new fees approved by the CRTC would surely have Cancon strings attached.
Broadcasters aren’t getting skunked now however. They already get tens of millions from the Copyright Collective for the content they produce. BDUs pay $0.79 per subscriber per month into the collective when they offer an out-of-market signal to their customers, which is just about every company. This doesn’t all go to the broadcasters of course. Far from it. There are nine different bodies – including SOCAN, for example, which gets a piece for the music on TV – who share the dough. And since so much of the Canadian broadcasters’ prime time schedule is simulcast American fare, over half goes into the U.S. to all those 4+1s (that part was in the original Canada-U.S. Free Trade Agreement).
The second way to look at this issue takes me to the real interesting part of what Asper had to say last fall. While he called for wholesale fees on one hand, he also said that providing over-the-air transmission everywhere is getting too expensive as the world shifts to digital. Since most Canadians get their TV signals from a distributor, as Asper has said, like Rogers or ExpressVu or MTS TV or Delta Cable, is tower distribution, given broadcasters’ HD conversion costs, obsolete?
Maybe. Cable, DSL and satellite distribution certainly provides the most robust, stable distribution for any TV signal and a vast majority of Canadian households pay for their television service. BDU signals are far and away more reliable than over the air ensuring, 99.9% of the time, a clear, always on, advertising-delivering signal. And if constructing HD transmitters in every outpost is too expensive, then BDU-only distribution may be the way to go, as Asper suggested last year:
“(Since) most people get TV via cable or satellite, the question is, do we need to operate transmitters any more?” he told financial analysts in a fall 2005 conference call.
But if that’s the case, if that’s the only road to the homes for the signal, shouldn’t broadcasters instead pay the BDUs in order to get programming delivered to Canadians? The American Cable Association, an organization representing small cable operators with collectively 24 million subscribers, thinks so. A report they published in January says the U.S. broadcasters should be paying their cable members US$4.16 per channel per month for carriage and not the other way around.
Let’s say I think of myself as a broadcaster when delivering a DVD of programming in a package to my sister in Ottawa. Do I pay FedEx (the distributor) or does FedEx pay me for the privilege of making the delivery?
Of course, it’s not that simple. In truth, the unfolding, multi-screened, micro-niche media landscape presents many dilemmas to traditional mass audience broadcasters. Hard choices are being made and they won’t get any easier. Broadcasters still have the highest-rated, costliest programming but their overall audience is shrinking thanks to specialties and all the other screens (Internet, cell phones, PDAs) we can look at instead. Fee for carriage is the easiest, best-return, response.
Will Canadians be willing to pay more for the privilege of watching their local news or Falcon Beach or Star Academie? Fans will, and that’s who should pay, via the various on demand platforms Canadian broadcasters have yet to make real use of.
And if broadcasters keep running transmitters, which is likely, how do they propose to gathering a fee from those folks pulling in the signal over the air? In Germany and other European countries, there are special taxes on TV sets which are paid to broadcasters, but I’m pretty sure Canadian broadcasters would never propose such a thing. Could there be a new a tax on PVRs instead, since the devices so easily allow ad-skipping?
With the way the media world is changing, more compulsory fees seems to me a turkey of an idea that just won’t fly with consumers.
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