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CRTC Consultation: Wholesale Code for Specialty and Pay TV

8K views 42 replies 13 participants last post by  jaxon9032 
#1 ·
In the thread discussing the CRTC decision on Pick and Pay TV and the creation of skinny basic some of the discussion has centred around the fact that a competitive retail TV market is dependent upon a healthy wholesale market.

The CRTC recognised this and launched a proposed Wholesale Code and invited comments by 4 May, and parties to file replies by 14th May.
http://www.crtc.gc.ca/eng/archive/2015/2015-97.htm

As reported by the CBC:
http://www.cbc.ca/news/politics/crt...portant-for-smaller-cable-companies-1.3003817
"In our view it's probably the most critical part of the decision," said Chris Edwards, vice-president of corporate and regulatory affairs with the Canadian Cable Systems Alliance, a group representing more than 100 independent cable companies servicing more than 700,000 customers.

"These are the very things that potentially stand in the way of the CRTC being able to deliver customers choice and flexibility, as long as those sorts of provisions are allowed to stand," he said.
As such, given that it is arguably the most critical part of the CRTC decision and to avoid confusion with the retail market discussions on the other CRTC threads, I would like to create this thread for discussion specific to the working of wholesale TV market (if that is okay with the mods).

As well as being key to the interests of the more than 100 existing independent cable companies it is also key to the development of more new independent IPTV providers.
 
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#2 ·
Yeah they definitely need to fix that, CRTC has to do something to prefer people buying channels via pick and pay from getting charged way too much for each channel. No doubt Bell and others will do what they can to make pick and pay as unattractive as possible to protect themselves. And I say Bell because they seem to be opposed to anything CRTC and it wouldn't surprise me if they throw in more lawsuits soon regarding everything.
 
#3 ·
As I understand it the CRTC will not intervene in retail prices beyond the $25 skinny basic. Therefore they will not directly intervene in the retail pricing of pick and pay, bundles, and larger packages.

Rather they are looking to free up competition in the retail market. If the incumbent big BDU / specialty channel owners push up the wholesale price of their specialty channels they can push up the input costs of small BDU's and make them uncompetitive and even unviable.

Fair and equitable wholesale pricing is therefore essential to enable competition in the retail market. Healthy retail competition is what should limit the ability to unreasonably raise pick and pay prices.

It is the wholesale market that is key to the CRTC's policy.
 
#22 ·
In the interests of full disclosure, I'm the Chris Edwards quoted in the opening post. I work for the Canadian Cable Systems Alliance which represents about 115 small cable, telco and other distributors throughout Canada. I'm speaking my own thoughts here and not necessarily those of my organization.

Obed, as quoted, has it exactly right. The structure the CRTC is implementing does two basic things:

1) it implements a basic service that cannot cost the customer more than $25 - an affordable entry-level service for all

2) as Obed says, it seeks to open up competition among all non-mandatory discretionary services.

The decision is based on the premise that, so long as programming suppliers can tie the hands of distributors with a combination of packaging restrictions and unreasonable pricing in wholesale contracts for discretionary services, pick and pay simply won't work. The Code is intended to give the CRTC the tools to deal with that.

The Wholesale Code's terms are absolutely key to that. If you look at them, you will see two things:

1) prohibitions against certain non-competitive practices like minimum penetration thresholds and subscriber or revenue guarantees at the wholesale level

2) a number of factors that the CRTC will use to determine whether a channel is being sold, at wholesale, at "fair market value" in a competitive context.

The CRTC will use those tools to intervene when it needs to. In practical terms, you can expect the CRTC to intervene when a programming supplier's contract is frustrating the CRTC's own vision of a pick and pay world.

The point that Gilles makes is critical to smaller distributors like our members: the CRTC has indicated that it will intervene directly without the need for a complaint from an industry player. That's huge for our members: it helps protect them from retaliation.

With respect to Titanium48's comments, if you look at CCSA's submissions from the Talk TV and other recent proceedings, you'll see that we have been pushing for precisely what he suggests; standard pricing across the sector that is transparent to consumers. The Talk TV decision expressly denied that but we do have renewed hope that the CRTC has decided to get more educated on and involved in commercial contracting practices. We hope that will truly take us much farther down the path toward truly fair pricing, along with increased choice for consumers.

It's a good structure. We think the proposed Code is actually pretty strong and, if applied, could be quite effective. The independent distributors are very encouraged. But, of course, the proof will be in the pudding. For now, kudos to the CRTC.
 
#4 ·
I found this bit especially interesting on the wholesale rates front:
To help alleviate the fear of retaliation expressed by smaller BDUs and independent programming services in this proceeding and past proceedings and to facilitate its intervention where necessary, the Commission considers it appropriate to add a provision to the Wholesale Code requiring all licensees to submit to dispute resolution 120 days before the expiry of an affiliation agreement. As a result, the Commission will be able to intervene without any need for a small undertaking to file a complaint, risking its relationship with a larger business partner. Similarly, the obligation currently applied to Bell and Corus to file all affiliation agreements with the Commission will be added to the Wholesale Code to provide the Commission with improved data that will ultimately inform it for the purposes of dispute resolution.
So the CRTC will intervene in wholesale pricing on a case by case basis if it becomes necessary for them to do so.
 
#5 ·
Why do we need a "wholesale" market at all? Why not require each specialty channel to set a per-subscriber fee, which would have to be the same for every subscriber and every BDU. Then require that BDUs separate the subscriber fees out from all other charges when they bill customers, and require that any additional fees depend only on the number of specialty channels ordered, and not on which particular channels the customer is subscribed to.
 
#7 ·
- I think transparency is key here. Public wholesale rates. No need to have it on the bill, just publicly available.
- No secret special pricing for the other big BDUs.
- A mandated limit on bundling discounts. Something like 20% off in a small bundle or 40% off in a big bundle.
- No wholesale bundling (you need to buy these junk channels to get access to the high demand channels)

I agree that fixing the wholesale market is key to fixing the retail market. Small innovative companies (Vmedia and others) could do great things if they weren't hamstrung by wholesale conditions.
 
#12 ·
The ban on wholesale bundling is something that was added last week since the CRTC recognized that pick-and-pay wouldn't have worked without it. The issue of wholesale agreements that forced bundling on them was raised by smaller BDUs at the Let's Talk TV hearings last fall.

AFAIK, rates are only published for the channels with a 9(1)(h) designation, which requires them to be included in all subscription packages.

APN for example gets 31¢/month for every cable/satellite subscriber in the country. Source: http://en.wikipedia.org/wiki/9(1)(h)_order
 
#10 ·
Wholesale rates are public for most other utilities. My water, gas and electric bills have the costs of the water, gas or electricity I have consumed, the cost of delivering it to my house, and any administration charges all separated out. Why should the telecom industry be different?
 
#11 ·
The rates you see for utilities are the retail rates. Your bill doesn't detail, for instance, their cost of your electric utility obtaining additional capacity from a neighbouring utility that they don't generate themselves, or their cost of your gas company obtaining gas to provide to you. That's the wholesale rates we're talking about. You only see what you're expected to pay to your utility, which includes a markup for their own profit.
 
#14 ·
In Alberta, the cost of gas or electricity on your bill is required to reflect the actual cost of the gas or electricity acquired by the retailer for delivery to customers. Retailer profits are made on the administration and delivery charges. This, of course, means the cost of gas or electricity is usually less than half of the total bill.
 
#15 ·
It's the same for NG here. The province fixes electricity rates at artificial levels. It should be set at real cost, or at least a calculated periodic average.

I think pick-n-pay channels should be sold the same way. As it is now, BDUs pay less than $0.50 for most channels and sell them for up to $3 each. Cost of delivery and overhead must be paid for but why should a $0.25 channel cost the same as a $1.25 channel? It just leaves the entire pick-n-pay system open to price fixing and consumer gouging by BDUs. Something like $1 per channel plus the actual cost would make for a much more fair and balanced system. That way, consumers would know what they are really paying for channels and consumers that subscribe to low cost channels would not be subsidizing subscribers to high cost channels.
 
#16 ·
My biggest reason for wanting public wholesale rates is because of comments the vmedia guy made to the CRTC a few years back. When they were trying to set up their TV service, they had a horrible time even getting rates from one of the big owners (I don't recall which, but my gut says Bell).

If new entrants can't get the wholesale rates, or have to jump through hoops to get them with huge delays, then how can innovative new companies even create a business plan. It's another way that vertical integration has harmed the industry.

Mark
 
#17 ·
The real downside to vertical integration is that it can make it impossible for independents to make a profit. The incumbents can jack wholesale prices up to the point that it prices everyone else out of the retail market. We've seen that in other industries where the product is manufactured and sold at retail by a small group of companies. For example, Bell* could jack the price of a popular channel like TSN up to $2.95 at the wholesale level and sell it for $3.00. That will make it impossible for anyone else to make money selling it and still be competitive. BCE won't care about losing money at retail because the money all ends up in the same pot of gold at year's end. The other big incumbent BDUs won't like it but can compete by doing the same thing with their popular channels. The big losers will be small BDUs that don't own popular channels, startups and consumers.

*I love to pick on Bell, mainly because they deserve it. It may be a bad example but I didn't want to throw the thread off track by citing examples in other industries.
 
#18 ·
Vertical integration is the bane of the Canadian TV industry. However the CTV and Global networks were in a financial mess a decade ago and there is a sense in which the deep monopolistic pockets of Bell and Shaw saved them. In part, I appreciate that. But job done. Now the BDU, semi-national TV networks, specialty channels and programme making businesses should all be separately spun off.

In the meantime, the expanded wholesale code is a step in the right direction, and may give some credibility to the internal pricing decisions of Bell, Shaw and Rogers.
 
#19 ·
I think it would have served Canadians better to let those networks sink or swim on their own merits, rather than lets BCE and Shaw expand their broadcasting empires. That was especially true in the case of the CHUM acquisition by BCE. The problem with deep pockets is that they expect to keep getting deeper, at the expense of their customers and employees.
 
#23 ·
I meant to note, as well, that the CRTC has introduced an important new element into the factors it will use to determine a channels' "fair market value": viewership. That was missing from the old VI Code. Now the question of how many people actually watch a channel- as opposed to simple subscribing to a BDU package that contains the channel - is a key factor.

To us, that's critical: the old factors such as historical cost, price paid by other BDUs, etc. simply reflected existing carriage/packaging that was driven by packaging and pricing terms imposed by the big VI companies.

Incidentally, that's why the CRTC is so keen, in the Talk TV decisions, on setting up an audience measurement system based on data from digital set-top boxes. More on that in the Fall.
 
#24 ·
I'm especially interested in how the audience measurement system works out and how that sort of data ultimately contributes. Nobody has really been talking about that, but I think it has the potential to be a game changer both in terms of wholesale rates and also traditional TV ratings. Not knowing the technology involved, I wondered how feasible that was across the board though. There are lots of different platforms in use across Canada. It will be interesting to see how it all shakes out over the next few years.
 
#26 ·
There already is a system in place that is used to determine audiences for network shows and set advertising rates. It's called Nielsen television audience measurement. They were and may still be active in Canada. Using BDU digital boxes is a grand idea but it does raise some privacy and accuracy issues. Are the companies that also own the channels going to do the measurement and reporting? BUZZ... bad idea. Are very small cableco's and people with outdated converters going to be excluded? BUZZ... once more. Is data going to be collected without viewer consent. BUZZ... again.
 
#27 ·
The CRTC Canadian Content Policy released on March 12 contained the latest info on "Use of set-top boxes for audience measurement," paragraphs 142-162.

http://crtc.gc.ca/eng/archive/2015/2015-86.htm

The Commission finds that such a system must, among other things:
  • permit broadcasters to make more informed programming selections and scheduling decisions;
  • provide broadcasters with new opportunities to effectively monetize advertisements;
  • place BDUs in a better position to tailor the services offered and content of packages;
  • place the Canadian broadcasting industry on a more equal footing with the international and online video markets; and
  • ensure that the privacy of individuals is protected.
ExDilbert, Nielsen is not active in Canada. Numeris (formerly the Bureau of Broadcast Measurement) does the same kind of sampling in Canada. Keep in mind that they sample less than 1% of the population, so any actual measurement could be more accurate if done properly, even if not every cableco and device is included. Having more data is important especially when it comes to measuring niche channels (and niche programs on niche channels).
 
#28 ·
This would be so much simpler with transparent pricing. Customers could simply decide for themselves if the content on any given channel was worth the asking price, and any sort of audience satisfaction measurement could be left to the channel's marketing departments. It wouldn't matter that the channels and the BDUs are owned by the same parent companies, they would be forced to market their services separately.
 
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