Cable company, broadcaster battle far from over following latest CRTC ruling

Every week Techvibes will be republishing an article from Business in Vancouver newspaper.

This article was originally published in issue #1030 – July 21 – 27, 2009.

Telus Corp. (TSX:T; NYSE:TU) doesn’t expect new fee increases imposed by the federal media regulator on cable and satellite providers to stall growth of its fledgling digital TV network or its satellite TV network, which is scheduled for launch at the end of July.

The Canadian Radio-television Telecommunications Commission (CRTC) announced on July 6 that cable and satellite companies must contribute 1.5% of their gross broadcasting revenue to the Local Programming Improvement Fund (LPIF), a 0.5% increase on last year’s contribution.

The fund was created in October 2008 to support local television programming in markets with a population of less than one million.

The CRTC will also hold a public hearing in the fall to develop a new regulatory framework for television that will include mechanisms for establishing the fair market value of conventional TV signals.

In other words, the CRTC has left it to industry, with the public’s input, to negotiate the cost that satellite and cable providers must pay broadcasters to carry conventional, or over-the-air, local programming.

The fee-for-carriage issue has appeared before the CRTC numerous times before. The CRTC has previously rejected broadcasters’ calls to implement a fee for carriage.

By ordering industry to negotiate new carriage fees, the CRTC has for the first time officially conceded that broadcasters should be compensated for their local programming.

Cable and satellite providers say they shouldn’t have to pay for local programming, because they’re obligated by the CRTC to carry it and because the signals are freely distributed over the air.

Launching at month’s end, Telus’ satellite TV offering will have more than 500 digital channels and be available to 90% of homes in B.C. and Alberta.

The service will complement Telus’ other television venture, Telus TV, which was launched in 2007 and is distributed via broadband.

Telus TV, which is available in select communities in B.C., Alberta and Quebec, recently surpassed the 100,000 subscriber milestone.

As Telus expands its footprint in the television market, it will increasingly have to contribute to the LPIF and will be subject to any potential local programming carriage fees.

However, Telus spokesman Shawn Hall said the latest developments in the debate on how to support local Canadian programming doesn’t affect the launch of the company’s satellite TV network.

That’s because all cable and satellite providers will face similar cost increases and will likely pass them onto consumers.

“Certainly it will result in increased costs to the consumer no matter where they get their television service from,” said Hall.

StatsCan figures released on July 9 revealed that operating revenue for the television broadcasting industry totalled $6.5 billion in 2008, up 5.4% from 2007.

However, revenue for private conventional television fell 1.8% to $2.1 billion in 2008, as advertisers continued to shift to the specialty television segment.

Private conventional stations generated a profit margin before interests and taxes of less than 1% in 2008, the lowest in 30 years. Nearly half of all private conventional stations posted losses before interests and taxes in 2008.

Hall said Telus is still reviewing the CRTC’s decision and that it’s too early to say if Telus or other television providers would absorb any of the new costs.

Prince George’s City West Cable and Telephone Co., which provides cable service to 10,000 British Columbians in communities across central B.C., is a small enough cable company that it isn’t required to contribute to the LIPF, but would be subject to any new carriage fees.

Chad Cunningham, City West’s sales and marketing manager, suspects that many cable companies will itemize new fees on consumer bills, similar to how the fee for 9-1-1 services is itemized.

“It’s mainly to separate it for the customer, to say look, this money isn’t coming to us,” said Cunningham.