Did the save our local TV debate just jump the shark?

In Saturday's blog I asked I whether the focus on net neutrality might be obscuring more immediate issues of vertical integration in broadcasting. Today's blog asks whether, in light of increased vertical integration the whole fee for carriage /value for signal debate is about to go off the rails or "jump the shark" in terms of its storyline. Broadcasting regulation is not net neutral in the sense that there are all types of mandatory/priority carriage requirements and rules that prohibit the carriage of certain channels. The reasons for this go back to the goal of ensuring that there is an adequate contribution to Canadian programming. That is what the fee for carriage/value for signal issue is about. But what happens when the broadcasters negotiating fees with distributors are owned by the most dominant cable distributors? How do you prevent anti-competitive outcomes in terms of the fees negotiated when broadcasters owned by dominant carriers are negotiating with smaller competitors?

Where net neutrality and broadcasting intersect, is in adherence to the principle of access to ensure diversity and choice. There has long been a central premise under the regulated broadcasting system, that Canadian content providers, particularly independent producers, need access to broadcast distribution platforms, that exclusive distribution is discriminatory, that the system must promote diversity and choice in content and that both broadcasters and distributors cannot engage in undue preference to provide direct competitive advantage or advantage to affiliated properties. The CRTC has also signaled that issues of undue preference in broadcasting apply to exempt platforms like wireless and Internet. Ensuring compliance, we believe, is going to be the CRTC's biggest challenge as it allows the broadcasting industry to become more vertically integrated.

Increasingly there has been a move to increased regulatory support for more consolidation and vertical integration in order to achieve scale in content and to respond to increased competitive pressures from over-the-top Internet content. That led first to major consolidation in broadcasting (CTV/CHUM, Global/Alliance Atlantis) and now between broadcasting and cable integration. There are many issues that need to be addressed in terms of vertical integration including, the whole issue of fee for carriage.

Unless you never watched TV or read newspapers you can't have missed the "save our local TV" vs "stop the TV tax debate" that ultimately led to a national movement to shoot all broadcasters, distributors and regulators that were responsible for this endless exercise in annoying Canadians as they tried to watch TV in the privacy of their dens. The debate was so annoying that it led to an acceleration in the adoption of PVRs to avoid advocacy ads.

A year later you would be forgiven for scratching your head and asking what was it all about in the end. Cable and satellite providers were cast as evil destroyers of local voices and diversity, a position earned in part by efforts of some to kill the Canadian Television Fund. it was argued that only the recently consolidated broadcasters, like CTV and Global, could save Canadian voices by imposing a tax on rich cable companies to pay for local TV production . While broadcasters were making money, they clearly couldn’t afford to simultaneously pay the debt incurred by takeovers of half of the independent broadcast sector as well as increase spending on Hollywood product and still support local TV anymore.

Anyways the collapse of the system was near, unless the regulator stepped in to save local TV and tax cable and satellite. Since no one likes imposing taxes or fees the CRTC, in a flash of marketing brilliance, decided that fees were bad and cable guys et al. should negotiate with broadcasters on "value for signal".

But here is the rub. Somewhere in the middle of this never ending debate, the major broadcasting industry began to disappear. CTV sucked up CHUM and A-Channel and then had to spin off the local CITY properties to keep all the specialty channels. So CITY, the original independent, became part of the Rogers empire and A-Channel continues to exist on life support. TVA the largest private in Quebec was already owned by Quebecor the primary cable company in Quebec. And now Shaw is in the midst of a takeover of Global TV including all the old Alliance Atlantis properties.
Net result of all the regulatory shenanigans over the past 4 years . Half the independent broadcasters are gone along with whatever unique diversity they brought to the table and the separation of carriage and content is pretty much a spent idea. Unless of course you happen to be an independent distributor about to be forced to negotiate a tax with/and for your competitors or an independent broadcaster competing for platform space.

I would submit that the so-called value for signal approach is about the worst process to choose in a market dominated by vertically integrated distributors . In effect the top 3 cable companies now, or may soon own 3 of the top 4 private broadcasters. Any so called value for signal negotiations, assuming the Courts bless the concept, are not neutral like a tax or contribution fee would be. As an example the CRTC sets a telecom contribution fee on all carriers to support access to telephone service in high cost areas but that fee is applied as a percent of revenues and is thus competitively neutral.

Value for signal negotiations on the other hand favor the vertically integrated players and create all kind of opportunities for gaming. For example:
• The fee established between a vertically integrated broadcaster and its cable owner can be waived or set high to impose costs on competitors that the vertically integrated distributor can absorb through cost accounting or cost allocation.
• Since the vertically integrated owners are the largest cable distributors they could argue for a volume discount that smaller competing distributors cannot achieve.
• Vertically integrated carriers could negotiate nominal fees amongst themselves since their mutual payments net out and again it is in their common interest to increase costs of satellite or IPTV competitors.


Now it may be that if Quebecor, Rogers and Shaw are going to own most local TV in Canada there is no need for anyone from consumers to non-integrated carriers to pay a fee to save local TV anymore. Arguably the black knights have become the white knights and have over a billion in free cash flow to do the job for themselves. It seems to me that local TV just got "saved" by the three most profitable broadcast distributors in the country. Surely as part of the regulatory tradeoff in terms of loss of diversity and independent voices for vertical integration, the major cable companies could fix their new affiliates financial problems without the help of their competitors.

This is neither crazy nor completely self-serving. Rogers and Shaw hate fee for carriage, and oppose such in Federal Court. Quebecor wants fee for carriage but on a revenue neutral basis where independent broadcasters that compete with its own content properties would receive less in affiliation payments to offset significant increases in distributor charges. That plan is arguably still not so good if you are an independent distributor competing with Videotron or one of a small number of independent broadcasters competing with TVA.

However if it is determined that it is ok for the top 3 cable companies to own 3 of the top 4 private broadcasters and still receive a fee from competitors, and if the Court gives the go ahead to levy such a fee, then it is incumbent on the CRTC and/or Heritage Minister to make sure that (a) contribution is based on total broadcast revenues just like it is based on total revenues on the telecom side and that (b)the the revenues flow to an independent local TV fund that ensure the money flows to whatever is determined to be necessary to subsidize.
That is the easiest way to prevent undue preference and to increase diversity in the face of vertical integration. Perhaps the Shaw Canwest hearing is a good place to start this debate.