Supreme Supreme Court Rules CRTC does not have jurisdiction to implement broadcaster fees for cable carriage

Blog, Commentary, Information Technology, Regulation, Roland Renner

The fee for carriage would have allowed the traditional over the air broadcasters like CTV, and Global, to charge a fee to the cable, satellite and other distributors for the right to carry their signals.  These fees would have been passed on to the cable subscribers.  The distributors have always been allowed to take these signals and carry them on their systems for free.  During the CRTC proceedings on this issue the cable companies opposed the fee and mounted a large scale advertising campaign calling it a cable tax.  The broadcasters also advertised heavily telling viewers that it was needed to keep their local television stations going.  Besides, why should the cable companies continue to get their signals without paying anything to the broadcasters just because it has been that way in the past?

Thursday, the Supreme Court overturned a lower court ruling, putting to an end the debate over broadcasters charging fees to cable, satellite and other distributors for the right to carry their signals.  Everyone, including the CRTC, knew that their jurisdiction in this matter was debatable and would need a Supreme Court ruling.

The broadcaster fee idea has been around for a long time.  It was proposed again after the television broadcasters had suffered a sharp decline in advertising revenue in 2009 leading to financial losses and several rounds of cost reductions.  Under the Canadian broadcasting system, the traditional broadcasters rely on advertising as their major source of funding.  Some additional amounts are earned by selling programming rights to other jurisdictions and various tax subsidies and benefits for producing Canadian content.  This advertising revenue is protected by other measures.  Advertising on US border stations is not tax deductible as an expense in Canada.  The substitution of the ads from the Canadian broadcaster onto the signal of the US station’s signal in our cable systems also protects this revenue source.  Specialty Services like the Discovery channel are not allowed to sell local advertising by condition of licence.  They rely on cable subscriber fees and national advertising.

Advertising growth for traditional broadcasters has gradually eroded and has occasionally suffered substantial declines, as in 2009.  Although revenue growth has resumed, it has been low and cost cutting has continued at the broadcasters.  They have already lost market share due to the huge increase in the number of specialty and pay channels now available.  Although it is not entirely a zero sum game, a good part of the growth in internet and mobile internet advertising comes at the expense of the traditional broadcasters.   As Internet video viewing increases, the broadcasters are struggling to define their web presence and maintain a role as a programming aggregator for viewers.

The traditional broadcasters are at the front line as internet video, proliferation of channels and technical change all give consumers more choice.  This decision removes one major option that would help to maintain the current structure.

In the U.S., retransmission rights, as they are called, are a big issue.  The broadcasters themselves refuse permission to carry the signal unless the distributers pay.  This has resulted in blackouts on cable systems when negotiations have broken down as well as increases in cable bills to subscribers.  I don’t know if the Supreme Court decision leaves room for that in Canada.  If it does, then the retransmission rights market, or whatever we choose to call it here, will look different than it does in the US because most of the private broadcasters are now owned by distributers.

A Bell representative has stated that the current broadcasting revenue model is broken.  That is going too far, although this removes a huge source of potential revenue growth for Bell-owned CTV and the others.  I have argued in the past that the demise and rebuilding of the current system will take time and this continues to be borne out.  This decision, however, is going to force changes on the system sooner rather than later.  The first changes we are likely to see is pressure on local programming, the closing of some television stations in smaller markets and reduced Canadian programming from the broadcasters.