Monday, November 23, 2015

Cable, Cord Cutting, Retransmssion, Costs and CDN Copyright Board: “It Was Twenty Years Ago Today” - More or Less

On Tuesday, November 24, 2015 at 10:00 a.m. in the Copyright Board's hearing room at 56 Sparks St. in Ottawa with the Board’s new Chair, the Copyright Board will hear the first contested retransmission tariff hearing in 20 years. To somewhat oversimplify, the collectives want $2.00 a month per subscriber increasing to $2.38 by 2018. The Broadcast Distribution Undertakings (i.e. “BDUs” or cable and satellite companies) want to continue at the current agreed upon amount of $0.98 per month decreasing to $0.90 by 2018.

The retransmission tariff results from Copyright Act amendments made in 1988 so that Canada could enter into the then new FTA with the USA. Along with the abolition of compulsory licenses for generic drugs, this was a very major concession to the USA in the FTA process.

Canada, unlike the USA, did not spell out a formula in the legislation for what was to be a distant signal and left the mechanics of it all to the then new Copyright Board. Distant signals were eventually defined by regulation in an ultra-complex manner potentially much more generous to copyright owners than the US mechanism. The Board’s first tariff in 1990, following an extremely long “inaugural” tariff hearing, was worth about $53 million p.a., an amount about 9 times more than anyone ever expected at the time – even including the proponents of the tariff. A rather tepid subsequent “criteria” regulation resulted in a very modest cutback of about $3 million a year in 1993. For twenty years, Canadian cable subscribers paid $0.70 per month that was included in their cable or satellite bill for access to “distant” signals. This amount was increased to $0.98 per month in 2013 and so certified by the Board pursuant to a negotiated agreement.  

Recently published estimates of the value of the tariff confirm that it is now worth more than $100 million p.a. While $0.98 or $2.00 per month would seem like a small amount compared to monthly cable charges that can range from about $40 to about $119 per month, for example, in the case of Rogers, it quickly adds up to a lot of money for the major parties concerned. To what extent this cost is passed on to consumers and to what extent it may contribute to “churn” or cord cutting are probably very interesting questions that may be addressed in this hearing.

An interesting aspect of the change in environment that does not seem to arise on a quick scan of the parties’ cases is that of the issue of vertical integration in the BDU industries. Certain BDUs are now major content owners. How does this affect the positions that they take at the Copyright Board and at the CRTC?

The economics of cable costs and the willingness of consumers to pay the cable pipers may be about to change, with the increasing rates of  “cord cutting” and reliance on over the air digital signals, Netflix, and other means of access to programming. These issues may arise to some extent during this hearing -   though it should be noted that this hearing is about 2014 – 2018 and we are almost half way through the period covered by the proposed tariff.

In the long run, however, if the “cord cutting” and other trends continue, this could be another example of a tariff that will become obsolete sooner or later, along with the private copying levy, reprography, media monitoring. Meanwhile, it seems to be worth everyone’s effort to invest in a large and no doubt expensive cast of lawyers and experts, including some of the “usual” suspects in terms of expert witnesses.

It will be especially interesting to see to what extent the Board deals with such issues as cord cutting, the recent “pick and pay” ruling by the CRTC.

In this regard, it will be interesting to see whether the Board assumes a more than usual “inquisitorial” role by asking its own questions and relying on its own research to some extent rather than relying solely on the parties.

This may be one of the most complicated, arcane and least exciting or readily understandable tariff issues that have faced the Board in recent years – but for the time being could be the most economically significant hearing to date. This seems to be the single most lucrative tariff under the Copyright Board’s jurisdiction. Although it looked for a time as if private copying or “reprography” might eventually rival the retransmission tariff, both of these tariffs are headed towards potential oblivion in the absence of some dramatic reversal of fate. This, too, could happen someday to retransmission – but not likely this time around unless the Board decides to say “a pox on both your houses”.

It is also the occasion that is expected to mark the debut of the Board’s new Chair, Justice Mr. Justice Robert A. Blair of the Ontario Court of Appeal.

In any event, here are the key documents in this file:



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