The title of the decision is “Request for dispute resolution by the Canadian Independent Distributors Group relating to the distribution of specialty television services controlled by Bell Media Inc.” – but its boringness hides how much of an effect it could have on your cable or satellite television bills.
The case involves a complaint to the Canadian Radio-television and Telecommunications Commission from a group of independent telecom groups about their attempts to come to a deal with Bell Media over its specialty services like TSN, Discovery Channel and Space.
The cable companies formed an alliance called the Canadian Independent Distributors Group. Its members are:
- Bragg Communications (EastLink)
- Cogeco Cable
- Manitoba Telecom Services
- Telus
- The Canadian Cable Systems Alliance, which represents more than 100 independent distributors including dozens of small-town companies and cooperatives
Of note is that none of these companies are vertically integrated – they don’t have specialty channels of their own. They argue in their complaint that Bell is using its ownership of some of Canada’s most popular specialty channels as leverage to give its affiliated television services better deals than it gives to independent cable companies.
Giving undue preference to an affiliated company is not allowed by CRTC rules. What’s more, when it became clear that mega mergers would create giant corporations with significant holdings in both television services and the cable and satellite companies used to distribute them, the CRTC set up a framework to ensure they weren’t abusing their positions.
The framework set rules for these companies, which include:
- forbidding them from setting “unreasonable” wholesale rates for specialty channels
- forbidding them from requiring minimum subscription numbers that would force people to pay for services they didn’t want
- requiring them to make services available on a stand-alone basis
- forbidding them from establishing an “excessive” activation fee
- in general, offering conditions to affiliated companies that are not offered to competing companies
This is all well and good in theory, but would it work in practice? Bell’s purchase of CTV and Shaw’s purchase of Canwest/Global certainly gives the impression that they believe they can gain an advantage through this vertical integration and that they believe there are benefits to controlling both sides of the equation.
The independent distributors group complained that Bell Media, in negotiating a new contract for its services, made unfair demands of them. Among them:
- Making no changes to how they package Bell Media’s specialty channels without first gaining Bell Media’s consent
- Setting minimum penetration levels so high, particularly for TSN and RDS, that the cable companies would be forced to force customers to carry those channels whether they wanted to or not
- Requiring high fees and interest be paid when new contracts are agreed to after the previous one has expired
- Refusing to include “non-linear rights” (i.e. video on demand and mobile) in the agreements
Bell Media responded by saying its services required a certain amount of revenue predictability, but offered an option called a penetration-based rate card, which adjusts wholesale rates based on the number of subscribers. The more subscribers, the lower the wholesale price per subscriber (the retail rate is at the discretion of the distributor). With that option, the cable companies would be free to offer services à la carte (but Bell would still require at least 50% of customers carry the most popular Category A channels like TSN and Discovery).
It also pointed out that more than 150 other distributors had signed an agreement with them.
Bell wouldn’t budge on “non-linear” rights, saying it isn’t regulated and has a high market value. Bell said it currently isn’t offering those rights to other distributors, but would be willing to provide the rights at commercially reasonable rates once they do.
The cable companies responded to Bell Media saying that while the penetration-based rate card makes sense in theory, if the price is much higher than the rates with minimum penetration guarantees, it wouldn’t solve the problem.
A win for Bell Media
The CRTC’s decision came down mostly on the side of Bell Media. While the commission has pronounced itself strongly in favour of consumer choice and à la carte subscription options, it said the older, bigger-budget specialty channels “will need time to adapt to an increasingly consumer-focussed environment.” It endorsed the variable rate system proposed by Bell, with the caveat that it would be unacceptable “if it had the effect of making flexible packaging options commercially unviable or resulted in a company that offers programming services using its market dominance so as to insulate it completely from the effect of consumers exercising choice.”
On the issue of what Bell called “incentives” to sign contracts on time, the CRTC agreed that such practices are commercially reasonable and did not order Bell to cease using them or to stop charging interest on retroactive balances.
And in the debate over “non-linear” programming rights, the CRTC also sided with Bell, saying it did not have to include those rights in negotiations with the cable companies and could negotiate them separately when it is prepared to do so.
The next stage, if the groups can’t come to an agreement before then, is arbitration. The arbitration process used here is called final offer arbitration, also referred to as “baseball arbitration” or “pendulum arbitration“. Both sides present final offers and the arbitrator chooses which one he or she thinks is more reasonable. The idea behind this form of arbitration is that it encourages both sides to be reasonable in their demands, and is likely to reward the side that is seen as being more conciliatory.
What does it all mean for me?
A lot still has to be determined at the arbitration stage. If the wholesale rate on the penetration-based rate card is too high, small cable companies won’t take advantage of it to offer consumers more choice. If it’s low enough that it makes sense to offer more packaging choice, we might see other cable and satellite providers try à la carte models. Currently choosing channels that way is available only in Quebec, and really only because of competitive pressure from Videotron that has forced Bell and Cogeco to do the same in Quebec but not elsewhere. Bell and Rogers both come out against more packaging flexibility for consumers, saying it’s either too complicated or consumers aren’t interested in it. (Bell Media even said at the hearing, when speaking of allowing Videotron to move to an à la carte model: “In hindsight, I wish that horse could be put back in the barn”)
But while the CRTC could have taken a strong stand in favour of consumer choice, it decided instead to stay on the side of some of the biggest money-makers in Canada. Channels like TSN, Space and Discovery are hardly in financial distress. Instead, they are the most profitable specialty channels and each make millions of dollars every year. Still, the CRTC has decided that it’s okay for big companies like Bell Media to impose minimum levels of subscribers for these channels, which means if not enough consumers choose them, cable and satellite companies can be forced to add them to basic packages and charge people for the channels whether they want them or not.
If there’s one bright spot, it’s that the CRTC believes that there’s an adjustment period here, and that eventually these specialty services will have to stand on their own two feet without this crutch of a minimum subscriber base. By the time of the next contract in a few years, all cable and satellite companies could be entirely free of contractual headaches that put limits on packaging flexibility, and consumer choice could reign.
Assuming we haven’t all moved to Netflix by then.
Thanks for the informative investigation and analysis.
I say, cut the cord.
People should look into going OTA, and then using services such as Netflix to supplement their viewing choices. That would be a about a $8 a month total cost. Wow! Use the money they save to put into their RRSP’s, paying off debt. You know, practical things.
Though people who are sports fan junkies may find this option doesn’t work for them. TSN, RDS, Rogers Sportsnet are not available by OTA.
I said it before, and I’ll say it again, I don’t understand why anyone would want to waste money on cable TV in this day and age…
So few people realize those old rabbit ears from the 70’s, sitting in their attic or garage, will get them FREE over-the-air channels. And with a high definition picture that is vastly SUPERIOR to the compressed crap Bell and Videotron provide. I currently get 22 (twenty-two!) different channels from Montreal, Vermont and New York with my indoor antenna and I don’t pay a cent.
Sure you don’t get the specialty channels cable offers, but is it worth the $50-$100/month? (the most that’s worth is maybe $8 a month a la Netflixs, tops!). Though at any rate, this is 2012 and we have the Internet, either as alternate entertainment itself or a place to get that supplement of TV shows and movies. Back in the 70’s, 80’s or 90’s I’d have gone nuts without cable….now it’s just necessary garbage.
I think people realize this, otherwise they wouldn’t have the rabbit ears in the first place. But people like specialty channels.
The difference between compressed high-definition video from Bell and Videotron and the 1080i that comes off over-the-air transmitters is overrated. When people can’t tell the difference between 720p and 1080p standing two feet in front of a 40-inch TV set, they’re not going to be able to distinguish a 12Mb/s compressed signal from a 19Mb/s uncompressed one. (And that’s assuming the uncompressed signal is showing 1080i video that has never been compressed in the first place.)
That’s great, but some people aren’t so crazy about 24/7 Vermont weather or what’s on CFTU.
I don’t know how many people are paying $100 a month just for cable TV, but they’re getting a lot of channels for that price. Netflix is a great deal, but it doesn’t have live Canadiens games, or HBO.
Your assumption is wrong. There is misconception that you need a new specialized (and expensive) “digital antenna” because your old rabbit ears won’t work. There is also this belief among many people I’ve spoken with, that picking up these free signals is some kind of cable piracy or stealing. “How can high-definition channels be free? Are you sure you’re not stealing a satellite signal?”
Add to the fact that when people think rabbit ears, they think back to that era before cable TV. Ghosting, static, snow, and performing fun feats of balancing on a chair just to get a barely recognizable image. Rabbit ears to most people are a defunct dinosaur, much like the 8-Track, VCR, typewriter or rotary phone.
I certainly notice it. Even my mother in her mid-60’s noticed it, when I showed her an A/B comparison between her Bell ExpressVu and OTA. And with Videotron the compression is so bad, you’d have to be blind not to notice it.
Sure there’s a few useless channels in those 22, but how many useless channels are there on cable TV by comparison? Once you separate them, and trust me, I have, you’re left with maybe 3-4 worthwhile channels.
And there are much more worthwhile and interesting shows on PBS (of which each has several sub-channels) than watching a bunch of mindless sports channels. If you need to turn your brain off for awhile while watching TV, you still have CBS, NBC, ABC, FOX and The CW. There’s even a free movie station (This!) on 5.2.
My friend pays $80/month for her Illico, and I had family paying just under a $100 for Bell satellite, before I showed them what they can get with an antenna.
Only time I might watch live hockey is during the playoffs, and CBC airs them free.
I’ll admit, if I could get cable TV free I wouldn’t turn my nose up at it, but it’s not worth the cost. And to be honest, when I did have cable, I found I hardly watched it anyway, which is one of the reasons why I cut the cord…
If that’s the only reason people buy cable, why did it start decades before the digital transition?
That may be how you think, but ratings suggest you’re in the minority in terms of television viewing preferences.
Why? Well because Rabbit ears and OTA broadcasting came first, and predates cable TV by many years. Remember TV started off as just another form of radio, with the added bonus of a picture. If you bought a TV, a pair of rabbit ears or a roof-top antenna was just standard practice.
Cable TV really only started becoming popular in the late 70’s/early 80’s, and that’s when most people started retiring their antennas. I don’t know about you, but back in the 80’s, 90’s and 2000’s, but if I saw anyone using an antenna I figured they were either living in the stone age or really poor. With digital OTA, antennas have come back in vogue! It’s not just about saving money, it’s about getting the BEST possible picture technology will allow (see Alex H’s comments above).
Ratings only reflect that most of the population is of the lowest common denominator when it comes to culture and intellect. ;) (some of the TV shows and movies produced in the last decade or so really prove that!).
I’ll take VPT any day over TSN, thanks very much. :)
A lot of people don’t care about having the “best possible picture” – they still have analog cable or standard-definition digital cable.
You should go door-to-door to re-educate people, and tell them that they watch TSN and Discovery Channel because they’re stupid.
It should be noted too that cable TV was created in part to allow people to get a good picture and sound without having to put up a large rooftop antenna. OTA with SD signals was most often subject to horrible multipath, which caused ghosting of images and such, and the signal is often changed by things like a passing airplane, which can add another path and screw things up. Compared to OTA, cable in the 70s and 80s was far superior to what you could get.
With DTV, that’s pretty much turned around 180 degrees. The OTA signal is vastly superior to what comes in over your cable line, and even on the best day, cable is not longer any better than the original. Here on the sunny side of Montreal (south of the mountain) I can get pretty much everything except Fox with an indoor OTA antenna, and I can get Fox with a small antenna outside, properly located. That’s a dozen or more channels for nothing more than a small effort to set it up once.
The only saving grace for cable / sat right now is channels that are not OTA, which are popular. Without them, it’s hard to justify paying for basic cable anymore.
And those people would be anyone still using an old fashioned CRT (picture tube) set. I can’t imagine someone with a two decades old 20″ TV is going to care much. Mind you, back in 2002 I had a 20″ CRT and noticed how much clearer channels like WVNY-22 and PTV-33 were through my indoor antenna, compared with Videotron’s Telemax service! (but that’s just me)
I wouldn’t knock Discovery channel, it’s one of the few channels I enjoyed before I cut the cord on cable. Can’t think of too many others I miss…Showcase, Space, maybe Bravo?
On the subject of basic cable, I think what I get now is pretty much on par with basic cable, only cheaper (i.e. FREE) and vastly superior picture. What specialty channels would I gain if I switched….CBC News Network, the Aboriginal and weather channel? Uh, no thanks.
The whole point is picture quality or not, there’s just not a whole lot of interesting stuff to watch on cable these days.
“The difference between compressed high-definition video from Bell and Videotron and the 1080i that comes off over-the-air transmitters is overrated. When people can’t tell the difference between 720p and 1080p standing two feet in front of a 40-inch TV set, they’re not going to be able to distinguish a 12Mb/s compressed signal from a 19Mb/s uncompressed one. (And that’s assuming the uncompressed signal is showing 1080i video that has never been compressed in the first place.)”
Steve, you wish the compression was only at that level, it’s not.
Bell does some slick tricks to get “the most HD” channels, and that includes first making all signals into 720P, and then applying MPEG-2 compression at a high rate to it. Basically, they get 3 or 4 HD channels onto a single transponder, where there isn’t really bandwidth for barely 2. When your receiver gets the signal and you output it at 1080i or 1080P, it is in fact an internal “upconvert” that is happening.
If you put BellTV on your screen with, say, CBC montreal hockey game, and then switch directly to the OTA signal, you would see that the OTA is SIGNIFICANTLY brighter, many times sharper, and easily detected by anyone. The compression rates are insane – and similar on Shaw direct as well.
Videotron is somewhat less compressed, but they still do compression tricks to save bandwidth. That means that your videotron signal isn’t anywhere near as good as the OTA signal.
If either were actually gives in a 12meg signal, you might have something to talk about. Bell’s pretty much comes out to about 6 meg, and you can guess what that does to picture quality.
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