BDU Statement of Cse Retransmission Oct 22 2015

8/20/2019 BDU Statement of Cse Retransmission Oct 22 2015

1/27

File: TV RETRANSMISSION 2014-2018 Exhibit BDU-1 (REVISED)

COPYRIGHT BOARD OF CANADA

REVISED STATEMENT OF CASE

of

BELL CANADA, COGECO CABLE INC.,

ROGERS COMMUNICATIONS INC.,

SHAW COMMUNICATIONS INC., VIDEOTRON G.P. and

TELUS COMMUNICATIONS COMPANY

(“The BDUs”)

Fasken Martineau DuMoulin LLP55 Metcalfe Street

Suite 1300Ottawa, Ontario

K1P 6L5

Gerald (Jay) Kerr-WilsonAriel ThomasYael Wexler

Tel: (613) 236-3882

Fax: (613) 230-6423E-mail: [email protected]

October 22, 2015


2/27

File: TV RETRANSMISSION 2014-2018 EXHIBIT BDU-1 (REVISED)

BDUS REVISED Statement of Case

Page 2 of 27

PART I – THE ISSUES AND THE BDUs’ POSITIONS

Overview

1. This is the Statement of Case filed on behalf of Bell Canada, Rogers Communications

Inc., Shaw Communications Inc., Cogeco Cable Inc., Videotron G.P., and TELUS

Communications Company (collectively “the BDUs”) with respect to the proposed

Distant Television Signal Retransmission Tariff (“the Tariff”) for the years 2014 to 2018.

2. The Tariff was last certified by the Copyright Board for the year 2013 at a rate of $0.98

per premises per month for retransmission systems serving more than 6,000 premises.1

This rate was the result of a negotiated settlement between the BDUs and the

Retransmission Collectives.

3. The Collectives are now seeking dramatically higher royalty rates ranging from a 104%

increase in 2014, to $2.00 per premises per month, to a 143% increase by 2018, to $2.38

per premises per month.

4. The BDUs submit that the Collectives have failed to establish that there has been any

increase in the value of distant signal programming since 2013, let alone an increase in

value in the magnitude that would justify the proposed increases in the existing royalty

rates.

5. In fact, the evidence adduced by the BDUs clearly establishes that the value of distant

signals has been steadily declining for the past several years and will continue to decline

for the foreseeable future.

6. Based on the expert and industry evidence, the BDUs submit that the rate for 2014 should

remain unchanged at $0.98 per premises per month and should decrease for each

1 There is a preferential rate of $100 per year for retransmission systems that serve fewer than 2,000 premises thatis not in issue in this proceeding. There is a graduated scale of rates for mid-sized systems serving between 2,000and 6,000 premises that is based on the rates established for systems with more than 6,000 premises. The largestsystems serve the vast majority of Canadian BDU subscribers. The BDUs and the Collectives agree that thesystem of graduated rates for mid-sized systems should be retained in the tariff, although the quantum of thoserates is in dispute.


3/27



Page 3 of 27

subsequent year by 2 cents per subscriber per month throughout the balance of the tariff

period to a final rate of $0.90 per premise per month in 2018.

7. The BDUs’ rate proposal is based on the following facts:

(a) The proportion of overall television viewing that is viewing to distant signal

programming has decreased since the Board first certified the tariff in 1990 and

viewing to distant signals continues to steadily decrease, despite the number of

distant signals being carried.

(b) Although the average cable, satellite, or IPTV broadcasting distribution

undertaking (collectively, “BDU”) retransmits 55 distant signals, most households

only watch programming on approximately three of those signals to any

significant degree. Most households do not watch any of the programming on the

majority of distant signals available to them.

(c) An examination of the financial performance of over-the-air and comparable

specialty television services demonstrates that, on a per-service basis, revenue has

either declined or remained flat over the last several years, as have programming

expenditures.

(d) The exact same programming that is carried on distant signals is increasingly

being made available through on-demand services available from BDUs and over

the internet. These more convenient sources of television programming are

steadily reducing the value of distant signals as a source of that programming.

(e) The widespread adoption of personal video recorders (“PVRs”) is replacing the

need for BDU subscribers to rely on distant signals from different time zones to

access programming at alternative times of the day.

(f) Consumer behaviour and attitudes demonstrate a dramatic shift away from

traditional sources of television programming, including distant signals, in favour


4/27



Page 4 of 27

of more flexible and convenient technologies including mobile streaming

applications, video-on-demand services (“VOD”), and internet services.

(g) Recent changes to broadcasting regulations mean that by the end of 2016,

subscribers will have much greater control over the television signals and services

they receive. This will inevitably lead to a decrease in the retransmission of

distant signals which are the least watched and least valuable category of

television services offered by BDUs.

8. The broadcasting industry has changed dramatically since the Board first certified the

distant signal retransmission tariff in 1990, and those changes have reduced the value of

distant signal programming to BDUs and their subscribers.

9. In 1990, there were two ways that Canadians could access television programming: they

could subscribe to a cable service, or they could use an antenna to receive over-the-air

analog television services. Cable companies were the only subscription video services

that were available and the average cable company carried only a few dozen services

consisting of local Canadian and US broadcast signals, a community channel, a handful

of US specialty services and the small selection of specialty and pay services that had

been launched. In that environment, access to distant signals, and in particular, the US

3+1 signals, was an important component of the cable service.

10. In 2015, there is an overwhelming number of sources of television programming from

which consumers can choose. Viewers can still receive local television services over the

air, but these free signals are now transmitted digitally with high-definition images and

improved sound quality. The majority of households can now choose between four or

five competing BDUs offering services by cable, satellite, or IPTV technology. These

services are also now primarily in digital format with improved sound and picture quality.

Many BDUs now offer a free video-on-demand service where subscribers can access the

latest episodes of the most popular network programming when it is most convenient to

them. Most BDU subscribers now have access to PVRs built in to set-top boxes that

allow subscribers to record between two and six programs simultaneously by simply


5/27



Page 5 of 27

making selections from the electronic program guide. Subscribers now have access to

hundreds of different programming services covering virtually every conceivable genre

of programming.

11. Beyond these revolutionary changes in the regulated broadcasting system, an entirely

new class of unregulated services has developed using the power of almost ubiquitous

high speed internet access to give viewers instantaneous access to massive libraries of

movies and television programs. Services like Netflix, shomi and CraveTV have spawned

a culture of “binge watching” where viewers can watch multiple episodes of programs in

a single sitting or even entire seasons within a few days. Broadcasters themselves have

adapted to these changes by offering subscribers on-demand access to current episodes of

popular television programming on websites or over mobile apps in addition to the

traditional linear broadcasts of scheduled programming.

12. It doesn’t take an expert to realize that in a 500-channel universe where almost

everything is available on-demand and from multiple sources, the importance and value

of distant signal programming has diminished and continues to diminish. A fair and

equitable royalty for retransmission of that distant signal programming has to reflect that

diminished value.

History of the TV Retransmission Tariff

13. The Copyright Board is required to certify the royalties payable by BDUs for the

retransmission of works carried in distant signals. In this context, “works” refers to the

television programming available on the distant signals. Each of the nine retransmission

collectives represents a distinct category of copyright owners in television programming.

The collectives receive the royalties from the BDUs and redistribute the proceeds to their

individual members.

14. In October 1990, the Copyright Board first certified the Tariff for the years 1990 and

1991 and established a rate of $0.70 per subscriber per month for cable systems serving


6/27



Page 6 of 27

more than 6,000 premises.2 Importantly, the Board decided that the payments should not

vary with the number of distant signals carried. All systems carrying at least one distant

signal would pay the same rate regardless of the number of additional distant signals

carried. The Board adopted this structure explicitly to avoid placing a greater burden on

some retransmitters than others based on geography, and also so as not to create any

incentives for BDUs or subscribers to drop distant signals to reduce liability.3

15. The Board established a flat rate of $100 a year for the smallest cable systems serving

fewer than 2,000 premises, and graduated tiers of rates for systems serving between 2,000

and 6,000 premises.

16.

In November 1991, the Governor-in-Council enacted the Retransmission RoyaltiesCriteria Regulations which established the following criteria to which the Copyright

Board must have regard in setting fair and equitable retransmission royalties:4

(a)

Royalties paid for the retransmission of distant signals in the United States under

the retransmission regime in the United States;

(b) The effect on the retransmission of signals in Canada of the application of the

Broadcasting Act and regulations made thereunder; and

(c) Royalties and related terms and conditions stipulated in written agreements in

respect of royalties for the retransmission of distant signals in Canada that have

been reached between collecting bodies and retransmitters and that are submitted

to the Board in their entirety.

17. In January 1993, the Copyright Board issued the Second Retransmission Decision,

certifying the tariff for the years 1992, 1993 and 1994.5 In the proceeding, the Board was

faced with two distinct approaches to establishing the royalties:

2 Statement of Royalties to be Paid for the Retransmission of Distant Radio and Television Signals in 1990 and1991, Decision of the Board, October 2, 1990 (“First Retransmission Decision”), at page 50.

3 First Retransmission Decision at pages 46-47.4 Regulations Respecting Criteria for Establishing a Manner of Determining Royalties for the Retransmission of

Distant Signals, SOR/91-690 (the “ Retransmission Royalties Criteria Regulations”).


7/27



Page 7 of 27

(a) It could revisit its original decision to use A&E as a proxy and consider whether

other adjustments or revisions to the proxy analysis were appropriate; or

(b) It could use its 1990 price as a starting point without revisiting the proxy analysis

and consider whether any changes in the industry since 1990 justified a change to

the 1990 rate.6

18.

The Board opted for the latter approach and took the 1990 rate as its starting point

without reviewing the basis for that starting point. In support of this approach, the Board

found that:

[O]nce a price has been set using a proxy market analysis,

it is not necessary that it be tethered to fluctuations in the price of the proxy that was used in arriving at it. It can gaina life of its own, without any strict regard to its origins.7

19. The Board also found that:

[M]ost important, there is less need to use a proxy when anexisting price, even an administered price, can be used as astarting point. This is especially true where information isavailable to determine whether or not the existing price isappropriate, and whether or not any adjustments ought to

be made to account for changes in circumstances.8

20. So the Board took as its starting point the $0.70 that it had certified in the First

Retransmission Decision and considered whether there was any change in circumstances

that would justify an adjustment to this rate. After a careful review of the evidence, the

Board concluded that there was no reason to depart from the existing rate of $0.70 that

had been established in the First Retransmission Decision.

5 Statement of Royalties to be Paid for the Retransmission of Distant Radio and Television Signals in 1992, 1993and 1994, Decision of the Board, January 14, 1993 (“Second Retransmission Decision”).

6 Second Retransmission Decision at pages 9 and 36.7 Second Retransmission Decision at page 36.8 Second Retransmission Decision at page 37.


8/27



Page 8 of 27

21. Following the Second Retransmission Decision there was a period of 19 years, from 2005

through to 2013, for which the Board set the retransmission royalties on the basis of

written agreements between the BDUs and the Collectives.

22. From 1995 to 2003 the Collectives and the BDUs agreed that the rate should remain

unchanged at $0.70 per premises per month.

23.

For the period 2004 to 2008, the Collectives and the BDUs agreed that the rates should

increase by three-cent increments per annum from $0.73 in 2004 to $0.85 in 2008.

24. For the period 2009 to 2013, the Collectives and the BDUs agreed on further incremental

rate increases from $0.90 in 2009 to $0.98 for 2013.

25. This proceeding will establish the rates for 2014 to 2018.

The BDUs’ Rate Proposal

26. The BDUs submit that the same choice confronts the Board in this proceeding as

confronted the Board in the second retransmission hearing: whether to revisit the proxy

analysis adopted by the Board more than 20 years ago, or to take as the starting point the

existing certified rate for 2013 and consider whether there is any evidence of changes in

distant signal retransmission since 2013 that would justify a change to the certified rate.

27. The BDUs submit that the Board, as it did in 1993, should adopt the first approach:

starting from the 2013 certified rate of $0.98 and assessing whether there have been any

changes since 2013 that would justify a change in that rate. In support of this approach,

the BDUs rely on the following facts:

(a) The 2013 certified rate was agreed to by the nine Collectives and the eight

objectors representing hundreds of individual retransmission systems. As such, it

represents what the parties believed to be fair and equitable rates in 2013;

(b) Pursuant to the Retransmission Royalties Criteria Regulations, the Board is

obligated to have regard to the agreement on the 2013 rates in determining what

constitute fair and equitable rates;


9/27



Page 9 of 27

(c) The 2013 rate is result of the latest in a series of freely negotiated settlements

stretching back almost 20 years; and

(d) Based on the evidence before the Board, it is clear that the 2013 rate continues to

be appropriate given all of the relevant factors.

28.

As a check on the appropriateness of the existing certified rate, the BDUs retained Dr.

Tasneem Chipty to calculate an appropriate range for the retransmission royalty based on

the current value of comparable programming, with the required adjustments to account

for differences between the benchmark programming and distant signal programming.

29. Dr. Chipty’s analysis yields a range of $0.73 to $1.01 and she recommends a rate of

$1.00. This strongly suggests that the certified rate of $0.98 continues to be appropriate,

if not excessive.

30. In addition, the evidence of Suzanne Blackwell demonstrates that across the broadcasting

industry, including local broadcasters and specialty services, revenues and expenditures

have declined or remained flat. This further supports the BDUs’ position that no changes

to the retransmission rate are justified.

31.

Debra McLaughlin studied viewing data and consumer survey results. Her analysis

clearly shows that the value of distant signal programming to BDUs and their subscribers

has declined and is continuing to decline in the face of new, more convenient sources for

the same programming.

32. All of this evidence, taken together, establishes that the Board should use as the

appropriate starting point the certified rate for 2013 and should gradually reduce the rate

over the tariff period to reflect the continuing decline in the value of distant signal

programming.

33. The BDUs agree with the Collectives that the graduated rates for mid-sized systems

should continue. Therefore, using the 2013 rate as the starting point in 2014 and factoring


10/27



Page 10 of 27

in the steady decline in the value of distant signals since 2014, the BDUs propose the

following rates:

Number of Premises

Monthly rate for each premises receiving one or more distant signals

2014 2015 2016 2017 2018

Up to 1,5000 41 39 37 35 33

1,501 to 2,000 46 44 42 40 38

2,001 to 2,500 52 50 48 46 44

2,501 to 3,000 58 56 54 52 50

3,001 to 3,500 63 61 59 57 55

3,501 to 4,000 69 67 65 63 61

4,001 to 4,500 75 73 71 69 67

4,501 to 5,000 81 79 77 75 73

5,001 to 5,500 86 84 82 80 78

5,501 to 6,000 92 90 88 86 84

6,001 and over 98 96 94 92 90

The Collectives’ Proposed Rates and Revised Rates

34.

In 2013, the Collectives filed with the Board proposed rates ranging from $1.06 in 2004to $1.38 in 2018 (“the Proposed Rates”). Based on those proposed rates the BDUs, who

do not represent all retransmitters subject to the Tariff, filed statements of objection.

35. On May 8, 2015 when they filed their Joint Statement of Case, the Collectives purported

to revise and increase the Proposed Rates substantially from $1.06 to $2.00 in 2014 and


11/27



Page 11 of 27

from $1.38 to $2.38 in 2018 (“the Revised Rates”), with similar increases in the o ther

years.

36. Although the BDUs submit that the Collectives have failed to justify even the lower

Proposed Rates, let alone the Revised Rates, as a matter of procedural fairness the Board

should not even consider the Revised Rates, which were proposed more than two years

after the Collectives filed their Proposed Rates with the Copyright Board.

37. Pursuant to Section 71 of the Copyright Act , the Collectives are required to file proposed

tariffs with the Board by no later than March 31 of the year in which the approved tariff

ceases to be effective, in this case March 31, 2013.

38.

While the Collectives try to justify their attempt to avoid the statutory notice period on

the basis that the record produced during the course of the proceeding contains new

information, the Board should reject this argument.

39. It is common for the Board to consider proposed tariffs many years after the tariff period

has expired and to conduct hearings that deal primarily or entirely with retroactive

periods. If Collectives were permitted to propose increased royalty rates on the basis of

new information filed during proceedings dealing with past periods, the statutory notice

periods that Parliament has enacted would be rendered meaningless.

Economic Analysis of the Value of Distant Signal Programming

40. The BDUs retained Dr. Tasneem Chipty of Analysis Group to prepare an economic

analysis of the value of distant signal programming to BDUs in order to suggest an

appropriate royalty rate. Her report, Economic Analysis of Reasonable Royalty Rates for

Retransmission of Distant Television Signals, is attached as Exhibit BDU-2.

41. When the Copyright Board first certified the Tariff for the years 1990 and 1991, it chose

the US specialty service A&E as the most appropriate benchmark for distant signal

programming. Among the possible services available at the time, A&E offered

programming that was more similar in nature to the programming carried on distant


12/27



Page 12 of 27

signals, and the rates paid by BDUs to carry A&E were freely negotiated, unlike the

existing Canadian specialty services which were rate-regulated by the CRTC.

42. Dr. Chipty notes that the programming offered by A&E has changed significantly since

1990 so that it no longer resembles the programming on distant signals. Furthermore,

since 1990, there have been hundreds of new services authorized for distribution in

Canada that would serve as a more reasonable starting point for determining the value of

distant signal programming.

43. Dr. Chipty considered the range of possible benchmark signals or services that might be

used to derive a value for distant signal programming. She concluded that a mix of US

specialty services and Category B Canadian specialty services could be used as anappropriate starting point, since the mix of programming among these services is similar

to the programming on distant signals, and the rates between these services and BDUs are

freely negotiated.

44.

Working with Analysis Group, Bell, Rogers and Shaw implemented a set-top box data

collection project for the period of May 4 to May 17, 2015. The collected data included a

schedule of programs aired on the signals and services distributed by the BDUs as well as

the extent to which subscribers watched this programming.

45. Using this data and other sources of information including the Mediastats Report and

CRTC data, Dr. Chipty was able to identify the adjustments that are necessary to the

value of the benchmark services to determine the reasonable royalty for distant signal

programming.

46. In her opinion, based on her detailed analysis of the data, the appropriate distant signal

royalty rate is approximately $1.00 per subscriber per month.

47. To arrive at this rate, Dr. Chipty first accounts for the fact that the payments made by

BDUs to Canadian and US specialty services in the benchmark group do not merely

reflect the value of the programming but also have to cover the services’ non-

programming related costs. Dr. Chipty excludes the portion of revenues above the total


13/27



Page 13 of 27

costs incurred to generate and distribute the programming, which is reported by the

CRTC as “profit before income and tax”, and includes 75% of the payments made to the

Category B services and 90% of the payments made to US specialty services by BDUs.

This is a conservative adjustment because it retains all specialty services’ costs, not jus t

the costs related to the value of the programming, and embeds a return on the costs of

creating the copyrighted works.

48. Next, Dr. Chipty adjusts the benchmark rate to account for the fact that local signal

programming is substituted for distant signal programming when the same program is

being broadcast simultaneously on the local and distant signal (a process known as

“simultaneous substitution”). The Copyright Board recognized the need to make this

adjustment when it first established the rate using A&E as the benchmark in 1990. Dr.

Chipty finds that about 15 per cent of distant signal programming is subject to

simultaneous substitution.

49. The benchmark rate also needs to be adjusted to reflect the fact that distant signal

programming accounts for substantially less viewing than programming in any other

programming category. Dr. Chipty found that the benchmark US and Category B services

accounted for more than twice as much viewing as distant signal programming.

50. Next, Dr. Chipty adjusted the benchmark rate to account for the fact that distant signal

programming is also available from other sources, including local signals, other distant

signals, and specialty services. This adjustment is conservative because it does not take

into account the fact that a significant amount of popular network programing is available

from the free video-on-demand services offered by the BDUs and can also be accessed

for free from the broadcasters’ own websites.

51.

After making the appropriate adjustments, Dr. Chipty calculates a distant signal royalty

rate of between $0.73 and $1.01 per subscriber per month, and recommends a rate of

$1.00 which is at the upper end of the range of possible outcomes. Dr. Chipty then

compares this calculated rate based on an adjusted benchmark rate to the rate of $0.98

that was negotiated between the BDUs and Collectives for 2013 and concludes that


14/27



Page 14 of 27

absent a substantial change in market conditions, one would not expect the negotiated

rate to depart substantially from the existing rate.

52. Dr. Chipty considers other factors that might affect the valuation of distant signal

programming and whether including these factors in the adjustment would result in a

higher or lower distant signal rate. She considered issues such as the mandatory carriage

of some distant signals, the revenue sources available to US specialty services, the

requirement of BDUs to carry unaffiliated Category B services, and the specialization of

the programming on specialty services. Dr. Chipty concludes that given these factors, her

calculated rate of $1.01 is likely overstated.

53.

Dr. Chipty also comments on the evidence provided by the Collectives’ two expertwitnesses, Professor Jeffery Church and Dr. Gerry Wall.

54. She finds that Professor Church’s approach results in a significant overstatement of the

value of distant signal programming.

55. First, Professor Church assumes that the amount of viewing to distant signal

programming is the same as the viewing to his benchmark US specialty services, even

though the evidence on which he relies shows that there is actually substantially less

viewing of distant signal programming.

56. Second, Professor Church makes no adjustment to account for simultaneous substitution,

even though when substitution occurs, the programming on the distant signal is replaced

by the same programming from a local signal for which no royalties are payable.

57. Third, he includes all payments made to specialty services in the benchmark rate rather

than just the portion of the payments that reflect the value of the programming, which

would result in an over-compensation of the rights holders in distant signal programming.

58. Fourth, he includes viewing to local US 4+1 signals as viewing to distant signal

programming, which significantly overstates the value of distant signal programming.


15/27



Page 15 of 27

59. Dr. Chipty also notes that Professor Church ignores other important factors that require

further adjustments to the benchmark rate. He does not consider the characteristic of

substitutability and the fact that distant signal programming is often duplicated in other

signals and services provided by the BDU. He does not take into account the fact that the

US specialty services that comprise the entirety of his benchmark group are not able to

sell advertising in the Canadian market. Professor Church does not consider whether it

would have been more appropriate to include Canadian specialty services in the

benchmark group, even though these services have more in common with distant signals

than the narrower group of US-only specialty services. All of these factors result in

Professor Church proposing a rate which is far in excess of the real value of distant signal

programming.

60. Dr. Chipty also considered the evidence prepared by Dr. Wall and found significant

problems with his analysis that render his approach fundamentally incapable of

recovering a reasonable royalty rate.

61. Dr. Wall’s first approach is based on subscriber preferences and willingness to pay for

time-shifted theme packs. However, in his analysis, Dr. Wall assumes that all BDU

subscribers (including those that don’t take the theme packs) value distant signal theme

packs as much as the subscribers that have chosen to take them. Second, Dr. Wall

assumes that all distant signals, even those that are network duplicates, are as valuable as

the subset of distant signals that are included in the theme packs. Dr. Chipty says neither

assumption is correct. Just adjusting for the fact that only a minority of subscribers chose

to subscribe to distant signal theme packs brings Dr. Wall’s rate down to $1.06 per

premises per month.

62. Dr. Wall’s second approach attempts to impute the value of broadcast signals from the

extended basic packages offered by BDUs. The most serious flaw in this approach is that

it includes the value of both local and distant signals and assigns equal value to both

types. This is clearly inappropriate since local signal programming is among the most

watched of the programming carried by BDUs and distant signal programming is the

least watched of the programming carried by BDUs. Dr. Wall is, in effect, allocating the


16/27



Page 16 of 27

much higher value of local signal programming to the much lower value of distant signal

programming. Furthermore, like Professor Church, Dr. Wall ignores the effect of

simultaneous substitution on the value of distant signal programming.

Viewing Study and Consumer Survey

63. The BDUs retained Debra McLaughlin of Strategic Inc. to analyze consumer behaviours

and attitudes related to the viewing of television programming in general and distant

signals in particular. In her analysis, Ms. McLaughlin reviewed Numeris audience data

and also a consumer demand study conducted by Ekos Research on behalf of the BDUs

in July 2015. Her report, 2005-2014: An Analysis of Recent Behaviours in Television

Tuning and the use of Distant Signals in Canada, is attached as Exhibit BDU-3.

64. With respect to the viewing data, Ms. McLaughlin observes that a downward trend in the

use of distant signals is evident. Relative to 2009, tuning in the Numeris diary markets

was down 11% in 2012 and 18% in 2014. In the meter markets it was down 10% and

17% over the same period.

65. Among viewers aged 18 to 34 years, the decline is even more pronounced. Compared to

2009, viewing to distant signals among this age group was down 33% in the diary

markets and 27% in the meter markets. This more dramatic decline of tuning to distant

signals over a five-year period among younger adults suggests that the importance of

distant signals will continue to diminish for the foreseeable future.

66. Numeris also tracks the extent to which television programming is watched live or is

recorded on a PVR to watch at a later time. Live tuning had dropped from 95.2% of total

tuning in 2009 to 86.8% in 2014. Among adults aged 25 to 54, the shift is even greater:

from 94.1% to 83.8%. For some programming, recorded viewing now accounts for more

than 50% of the audience.

67. Reviewing the results of the 2014-2105 Media Technology Monitor (MTM) study, Ms.

McLaughlin looked at the prevalence of “cord cutting” among Canadians. Cord cutters

are those who cancel their BDU subscriptions and obtain television programming from


17/27



Page 17 of 27

other sources. Slightly more than half of respondents who were not BDU subscribers

were cord cutters. Among those, 44% had been without a BDU subscription for more

than 3 years.

68. Seventy percent of cord cutters watch television online, compared to 52% of people who

have never had a BDU subscription and 46% of Canadians generally.

69.

The MTM study suggests that the ranks of the cord cutters will continue to grow. Among

current BDU subscribers, 8% said it was very likely they would cancel their service in the

next year while 13% said they were somewhat likely.

70. These trends away from traditional forms of broadcasting, including distant signals, and

towards newer forms of on-demand technology are confirmed by the consumer demand

study conducted by Ekos Research in July.

71. Among respondents who had dropped time-shifting packages from their subscription,

52% said they did so to save costs, and 23% responded that the signals were no longer

necessary.

72. When asked about the importance of flexibility in television viewing, 58% said being

able to record programming on a PVR was important, and the same number said it was

important to be able to watch multiple episodes of a program in a single sitting. Similarly,

51% said free on-demand access to current television programming is important and 50%

said being able to stream television programming is important.

73. By comparison, only 36% of respondents said being able to watch programs from time-

shifted distant signals is important. Seventy-one percent of respondents said PVRs are

more valuable than time-shifted distant signals and 65% said on-demand services

provided by the BDUs are more valuable than time-shifted distant signals. Only 32% of

respondents said they would consider switching BDUs if their current provider stopped

offering time-shifted distant signals.


18/27



Page 18 of 27

74. Slightly more respondents (16%) reported a decrease in time spent watching time-shifted

signals, than reported an increase in watching those signals (13%). Among respondents

aged 18 to 34 years, the difference is more pronounced, with 25% reporting a decrease in

time-shifted viewing and only 9% reporting an increase.

75. Respondents were asked what they would do if they were not available to watch a

program on a local TV station at the scheduled time. Only 15% said they would be very

likely to watch the program earlier or later the same day on a time-shifted distant signal.

More respondents said they would be very likely record the program using a PVR to

watch later (44%), find it on the internet and stream it at another time (24%), or watch it

free on demand using their BDU’s video-on-demand service (21%). Watching it on a

time-shifted distant signal only narrowly beat out waiting for the rerun to be broadcast

(13%).

76. These consumer attitudes and behaviours explain the steady decline in viewing to distant

signals. Canadians, and in particular adults under the age of 34, are increasingly turning

to newer more convenient sources of television programming which are displacing the

need for, and value of, distant signals.

77.

It is simply not possible to justify the 104% to 143% increase in royalties being proposed

by the Collectives for programming that ranks so low in consumer value and is steadily

losing viewers to other, more convenient sources.

Review of the Regulation of Distant Signals by the CRTC

78. The BDUs retained Lori Assheton-Smith to prepare a report on the effect of broadcasting

regulations on the retransmission of distant signals in Canada. The effect of broadcasting

regulations is one of the criteria to which the Board must have regard in establishing

retransmission royalties that are fair and equitable.9

79. Ms. Assheton-Smith is an experienced communications lawyer who has served as legal

counsel at the Canadian Radio-television and Telecommunications Commission

9 Retransmission Royalties Criteria Regulations


19/27



Page 19 of 27

(“CRTC”), General Counsel at the Canadian Cable Telecommunications Association

(CCTA), and in private practice acting for clients in the broadcasting industry.

80. Ms. Assheton-Smith’s report, The Effect of CRTC Regulation on the Retransmission of

Distant Signals in Canada: A Retrospective Study, is attached as Exhibit BDU-4. Ms.

Assheton-Smith has reviewed the CRTC’s approach to the regulation of distant signal

retransmission from the early days of cable television in Canada. Not surprisingly, she

has identified a correlation between the carriage of distant signals by BDUs on the one

hand, and CRTC regulation of distant signals on the other.

81. At times, the CRTC has promoted and encouraged the distribution of distant signals in

order to further Canadian broadcast policy objectives. At other times, it has taken a morerestrictive approach in order to protect the financial interests of local broadcasters.

82. The most significant regulatory development affecting the carriage of distant signals was

the licensing and launch of the direct-to-home (DTH) satellite providers in 1995 to

provide direct competition to the cable monopolies. Unlike a cable retransmission

system, which is local in nature and operates within a defined territory, DTH satellite

providers have a service footprint that covers virtually the entire country.

83. Since the concept of a “local signal” did not easily apply to a national satellite service,

the DTH operators were authorized to distribute as part of the basic service any Canadian

over-the-air (OTA) signal. Because DTH undertakings delivered a broad selection of

OTA stations from across the country to all basic subscribers, this effectively meant that

all OTA stations carried by DTH providers were distant signals. The Commission’s

approach to regulating the retransmission of distant signals by DTH BDUs had the effect

of greatly increasing the number of distant signals carried by BDUs in a short period of

time.

84. The next significant development in the evolution of the Canadian broadcast system that

had a profound impact on distant signal retransmission was the transition from analog to

digital technology. By the year 2000, the CRTC fully embraced the adoption of digital


20/27



Page 20 of 27

technology and used a variety of policy measures to encourage and hasten its deployment

in all sectors of the broadcasting industry.

85. In order to build a robust digital distribution platform to support the large number of

“digital-only” pay and specialty television services that had been licensed, the CR TC

allowed BDUs to carry US and Canadian signals from different time zones as part of the

digital service. This regulatory measure was intended to encourage cable operators and

their subscribers to accelerate the migration from analog to digital technology.

86. In early 2002, after reaching agreements with the Canadian Association of Broadcasters

to avoid the need to delete duplicate programming from distant signals from other time

zones, the cable operators started to launch expansive offerings of time-shifted Canadianand US distant signals as part of the cable digital basic service.

87. By 2003, the CRTC was confronted with growing concerns among small market

television broadcasters about the erosion of local audiences resulting from satellite distant

signal carriage. After considering the positions of the broadcasters and BDUs, the CRTC

ordered the DTH BDUs to retransmit the signals of an additional thirteen small market

stations, resulting in an increase in the number of distant signals being retransmitted. In

that decision, the CRTC made it clear that it was not prepared to endorse regulatory

solutions that would reduce subscriber access to existing distant television signals.

88. In 2008, the CRTC adopted two more regulatory measures that had the intended effect of

increasing the number of distant signals being retransmitted by BDUs. First, the CRTC

ordered DTH providers to increase their basic service to include signals from the large

private broadcasters, the CBC, independent broadcasters and provincial television

services from each province.

89. Second, those BDUs carrying a second set of US 4+1 stations were required to carry at

least one Canadian distant television signal from each English ownership group within

the same time zone. This measure resulted in an expansion of the number of distant

Canadian signals carried by BDUs, particularly cable operators.


21/27



Page 21 of 27

90. In 2011, in a review of the regulatory framework for DTH distribution, the CRTC again

imposed new local signal carriage obligations, increasing the total number of over-the-air

signals carried by Bell TV and Shaw Direct by 43 and 37 signals respectively. This

increase is reflected in the Mediastats report which shows that the average number of

distant signals went from 38.2 in 2010 to 54.0 in 2013.

91. It is clear from Ms. Assheton-Smith’s detailed review that changes in the number of

distant signals retransmitted by Canadian BDUs since the Copyright Board’s second

decision in 1992 has been heavily influenced by the CRTC’s evolving regulatory

approach. In particular, the CRTC has encouraged or mandated increased carriage of

Canadian distant signals by both cable and DTH BDUs in furtherance of broadcast policy

objectives.

92. Ms. Assheton-Smith concludes that the regulatory incentives adopted by the CRTC to

encourage distant signal retransmission in the past may no longer be applicable and that a

reduction in the carriage of distant signals can be expected. Furthermore, she finds that

the current regulatory framework that emphasizes consumer choice and flexibility

provides incentives and requirements that will have the effect of reducing distant signal

carriage in the years to come. She believes the industry has already passed the peak in

terms of distant signal distribution.

93. In particular, a number of landmark decisions in 2015 coming out of the CRTC’s

comprehensive “Let’s Talk TV” review of television policies focused heavily on

consumer expectation for more choice and more control over how television services are

packaged and distributed.

94.

Under the new framework, BDUs will be required by March 2016 to offer a small basic

service to customers at a retail cost of no more than $25 per month. This “skinny basic”

will include local and regional television stations and one set of US 4+1 signals. Other

distant signals will only be permitted on basic service if there are fewer than 10 local and

regional services.


22/27



Page 22 of 27

95. Discretionary services, including distant signals not offered on basic, will have to be

offered on either a “pick -and- pay” basis or in small packages. By December 2016, all

discretionary services, including distant signals, will have to be offered on both a pick-

and-pay basis and in small packages.

96. The CRTC also recognized shifting consumer demand away from scheduled broadcast

television and toward the on-demand services offered by BDUs and online. It has created

a new video-on-demand exemption order intended to help Canadian services compete in

an on-demand environment.

97. The Collectives focus on the increase in the average number of distant signals being

carried, yet they have not considered the extent to which these increases have been indirect response to the CRTC’s regulatory policies. The number of distant signals that are

retransmitted has more to do with addressing the concerns of Canadian broadcasters than

it does with consumer demand for multiple signals from the same network.

98.

With the shift in CRTC policy toward consumer choice, the regulatory requirements to

carry distant signals are being replaced by new regulatory requirements to let consumers

reduce the number of signals and services they receive. This will inevitably lead to a

decrease in the average number of distant signals each subscriber receives.

Review of the Canadian Broadcasting Industry

99. The BDUs retained Suzanne Blackwell of Giganomics Consulting Inc. to prepare an

overview of the Canadian broadcasting industry, focusing particularly on the competitive

environment in which the BDUs operate, the factors that drive the BDUs’ basic service

price increases, and the financial performance of over-the-air and specialty broadcasters

over the past decade or so. Her report, The Evolution of the Canadian Broadcasting

Industry, is attached as Exhibit BDU-5.

100. Ms. Blackwell has worked in the communications industry for more than 25 years and

has held senior positions with the CRTC and the CCTA. She has been the head of her

own consulting firm since 2006.


23/27



Page 23 of 27

101. On the issue of basic service price increases, Ms. Blackwell notes that capital investment

in the BDU’s distribution network is a significant and fixed cost of providing service to

BDU customers. The price of basic service is set to recover these capital costs in addition

to the cost of programming services.

102. By excluding the value of the distribution network, and attributing the entire price of

basic service to the value of specialty services and over-the-air signals, the Collectives’

experts have substantially overstated the valuation of distant signals. Furthermore, the

most recent two years have exhibited among the lowest percentage increases in the basic

rate over the 11-year period, apart from an outright decrease in 2011.

103.

After reviewing the detailed financial information that is collected by the CRTC fromOTA broadcasters and specialty services, Ms. Blackwell observes that the core group of

non-sports specialty services have not increased program spending since 2008 on a per-

service basis and these same services have not increased their revenue from subscribers

when measured on a per-service basis, net of inflation.

104. If the specialty programming services that are used as the benchmark for distant signals

have not increased either their program expenditures or subscriber revenue on a per-

service basis since 2008, there is no reason to expect that the value of programming in

retransmitted distant signals has increased by 146 per cent during that same period, as

claimed by the Collectives.10

105. The comparison with the revenue earned by local OTA signals is even more stark and

compelling, considering that distant signals are the same signals with the same

programming. Between 2004 and 2014 the per-service revenue of OTA signals decreased

by 24% in constant dollar terms. Similarly, OTA services’ program expenses, per service,

decreased between 2004 and 2014. If the ability of local broadcasters to generate revenue

from their programming actually fell by 24% between 2004 and 2014, and the amount

spent on that programming also declined, it is unreasonable to suggest that the value of

10 The certified retransmission rate in 2008 was $0.85 per subscriber per month. The proposed rate for 2015 is$2.09 per subscriber per month.


24/27



Page 24 of 27

that exact same programming when retransmitted by BDUs would increase by 174% over

that same time period. Yet this is exactly what the Collectives are proposing.

106. Ms. Blackwell also notes in her report that the percentage of Canadian households that

subscribe to a BDU has declined from 85.8% in 2011 to 83.3% in 2014. Meanwhile there

are more than 11 million residential high speed subscribers in 2015 compared to just two

million subscribers in 2000. This explains the increased incidence of “cord cutting” and

“cord shaving” where BDU subscribers cancel or reduce their subscriptions and use

online sources to access the same programming they could previously only get from a

BDU.

107.

One such online source is Netflix, which, although it only launched in Canada in 2010,grew to more than one million subscribers in 2011 and an estimated almost 4 million

subscribers in 2015. Other alternative online sources of programming include Apple,

YouTube, Google, Vimeo and Canadian services such as Illico, shomi and CraveTV.

108.

Ms. Blackwell’s evidence, based on her analysis of the financial performance of

Canadian OTA and specialty undertakings, supports Dr. Chipty’s conclusion that there is

no justification to increase the distant signal royalty rate. Across the broadcast industry,

revenues and program expenditures have stayed essentially flat or have declined for most

of the past decade.

109. The factors that have contributed to these results, including the fragmentation of

audiences, the explosion of online video sources, and increasing consumer demand for

convenience and flexibility, negatively affect the value of distant signal programming as

much as, or more than, they affect the value of local programming or specialty service

programming.

BDU Witnesses

110. The BDUs intend to call five industry witnesses. These witnesses, from Rogers, Shaw,

Bell, Videotron and TELUS, will explain the evolution of the BDU industry over the past

several years and the role that distant signals play in the packages of signals and services


25/27



Page 25 of 27

provided to subscribers. They will describe the dynamically changing technological

environment in which they compete and the array of new services that are available to

consumers as sources of television programming. Finally they will describe the impact on

their businesses and on their subscribers if the Board were to approve the Collectives’

rates. Copies of the Witness Statements for the five industry witnesses are attached as

Exhibits BDU-6 through BDU-10.


26/27



Page 26 of 27

PART II – WITNESSES AND DOCUMENTS

WITNESSES

Dr. Tasneem Chipty will appear to speak to her report Economic Analysis of Reasonable Royalty Rates for Retransmission of Distant Television Signals. (2 to 3 hours)

Debra McLaughlin will appear to speak to her report 2005-2014: An Analysis of Recent Behaviours in Television Tuning and the use of Distant Signals in Canada. (1 to 2 hours)

Lori Assheton-Smith will appear to speak to her report The Effect of CRTC Regulation on the Retransmission of Distant Signals in Canada: A Retrospective Study. (1 to 2 hours)

Suzanne Blackwell will appear to speak to her report The Evolution of the Canadian Broadcasting Industry. (1 to 2 hours)

David Purdy -- Senior Vice President of Content, Cable, Rogers Communications. (.5 to 1 hour)

Geoff Wright -- Vice President of Content and Business Planning, Bell. (.5 to 1 hour)

Gary Pizante -- Director of Pricing and Packaging, Shaw Communications. (.5 to 1 hour)

Marie Ginette Lepage -- Vice President of Marketing, Content and Broadcasting, VideotronG.P. (.5 to 1 hour)

Ann Mainville-Neeson -- Vice President of Broadcasting Policy and Regulatory Affairs,TELUS Communications Company. (.5 to 1 hour)

DOCUMENTS

EXHIBIT BDU-1 BDUs’ Statement of Case

EXHIBIT BDU-2 Economic Analysis of Reasonable Royalty Rates for Retransmission of Distant Television Signals

EXHIBIT BDU-3 2005-2014: An Analysis of Recent Behaviours in Television Tuningand the use of Distant Signals in Canada.

EXHIBIT BDU-4 The Effect of CRTC Regulation on the Retransmission of DistantSignals in Canada: A Retrospective Study

EXHIBIT BDU-5 The Evolution of the Canadian Broadcasting Industry

EXHIBIT BDU-6 Witness Statement of David Purdy

EXHIBIT BDU-7 Witness Statement of Geoff Wright


27/27



Page 27 of 27

EXHIBIT BDU-8 Witness Statement of Gary Pizante

EXHIBIT BDU-9 Witness Statement of Ann Mainville-Neeson

EXHIBIT BDU-10 Witness Statement of Marie Ginette Lepage

The BDUs reserve the right to apply to the Board for permission to file additional documents.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

Dated: October 22, 2015

FASKEN MARTINEAU DuMOULIN LLPPer:

Fasken Martineau DuMoulin LLPSuite 1300 – 55 Metcalfe StreetOttawa, ON K1P 6L5Telephone: (613) 236-3882Fax: (613) 230-6423

Gerald L. Kerr-WilsonAriel ThomasYael Wexler

Solicitors for the BDUs

Documents

BDU Statement of Cse Retransmission Oct 22 2015