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Shaw's final submission to CRTC's 2014 Let's Talk TV hearings

Text of Shaw Final Submission to CRTC 2014-190

  • Mr. John Traversy October 3, 2014

    Secretary General

    CRTC

    Ottawa, Ontario

    K1A 0N2

    Filed electronically

    Dear Mr. Traversy:

    Re: Broadcasting Notice of Consultation CRTC 2014-190 Lets Talk TV Final

    Comments

    Introduction

    1. Shaw Communications Inc. (Shaw), on behalf of Shaw Cablesystems (Shaw Cable), Shaw Direct and Shaw Media, provides these final comments in response to Broadcasting Notice

    of Consultation CRTC 2014-190 Lets Talk TV (BNC 2014-190). In the same spirit of

    collaboration and constructive dialogue that characterized Shaws written submission and

    oral appearance, Shaw submits these comments with the objective of pursuing a regulatory

    framework that will increase customer choice and flexibility, while also strengthening the

    Canadian broadcasting system.

    2. Shaws concern throughout this proceeding relates to the potential negative impact if some or all elements of the proposed new framework for the television system were to be

    imposed too quickly or in a manner that does not appropriately balance other

    considerations. The result could well be irreversible damage to the cultural and economic

    fabric of our broadcasting system. Accordingly, the focus of Shaws final comments is to

    put forward a more moderate approach, one that will achieve the ultimate goals set by the

    Commission for this proceeding while at the same time preserving the continued

    contributions made by all participants in the broadcasting system.

    3. There should be no misunderstanding; Shaw embraces the view that customers should have greater control and choice. It is not our objective to preserve the status quo but rather to

    advocate a series of steps which, if adopted, will result in increased choice and customer

    flexibility in our television system. Specifically, as discussed in further detail below, Shaw

    submits the following:

  • 2

    Todays dynamically competitive digital environment drives significant innovation and investment in response to customer demands for anytime, anywhere content.

    Therefore, the Commission can continue to rely on market forces to increase customer

    choice while at the same time establishing certain regulatory minimums to achieve the

    objectives of the Act and protect the public interest.

    A more measured and stepped approach by the Commission is warranted to ensure that the transition to more pick-and-pay and more programming choice is implemented

    in a manner that avoids negative outcomes, such as job losses, diminished Canadian

    content, loss of Canadian and non-Canadian programming services, higher overall

    prices and less value to Canadian consumers. Any harm to Canadas culture and

    economy would be inconsistent with the policy objectives of the Broadcasting Act (the

    Act) and the objectives of the Government.1

    Certain proposals (such as the elimination of simultaneous substitution) should not be implemented. Other proposals (such as the elimination of genre protection) should be

    carefully considered and, if implemented, be done so on a more gradual basis.

    Achieving the right balance between regulation and market-driven choice in a dynamic

    digital environment

    4. The Commission has asked parties to take into account the evolving technological and economic landscape

    2 in formulating a policy approach that is sufficiently adaptable and

    sustainable and effective over time. Shaw agrees that this question is fundamental to the

    deliberations in this proceeding. In response to the rapidly changing and unpredictable

    digital environment, Shaw has successfully made the shift from a traditional cable

    service provider to a network and content experience company. Through this evolution, we

    have remained laser-focused on meeting and exceeding our customers demands. The next

    five years and beyond will be about delivering value and choice for our customers

    providing them with the content they want, when they want it, and on the device they want

    it on. As Brad Shaw, CEO, explained during Shaws appearance before the Commission:

    Our objective is to work with the Commission to achieve an adaptable and

    sustainable policy framework to increase choice, while preserving jobs, ensuring

    continued contributions to Canadian content and strengthening the broadcasting

    system we have built together over the last four decades.

    It is Shaw's belief that we must allow market forces to be the primary driver of

    customer choice. We are not trying to preserve the status quo: there is no status quo in

    today's dynamically competitive environment We are willing to disrupt our

    business to seize the opportunities and to answer the challenges of today's digital

    1 In Seizing Canadas moment: prosperity and opportunity in an uncertain world: Speech from the Throne, October

    16, 2013, the Government stated, at page 12, that it believes Canadian families should be able to choose the

    combination of television channels they want. It will require channels to be unbundled, while protecting Canadian

    jobs [emphasis added]. 2 Broadcasting Notice of Consultation CRTC 2014-190-3, August 21, 2014.

  • 3

    environment. The challenges are very real: cord-cutting, audience fragmentation, a

    dramatic shift to targeted online advertising and the global competition for

    programming rights.3

    5. In response to questions from the Commission, Mr. Shaw further acknowledged that the challenges presented in todays environment are scary. Nonetheless, Shaw remains

    committed to taking risks, responding to competitive challenges and serving our

    increasingly sophisticated and demanding customers:

    our story is about serving Canadian customers. It's about providing choice. It's about

    competing. It's about innovating It's very difficult, and it's unnerving, but we believe

    that we can get there. We believe that we can provide more value and more choice and

    more competition in a managed, stepped approach.

    We want to continue to invest and innovate, but it becomes challenging.

    Even with Shomi, there is a whole millennium that we want to serve, a whole different

    customer base We truly have to look and say: Wow, what are the things we need to

    do that will help serve Canadians, but knowing that the traditional business model will

    have to change.

    And it's not very clear. I think we have to work together. We have to find the right steps

    as a whole industry to get us there.4

    6. Getting there requires a carefully calibrated regulatory framework that avoids unintended consequences, including ultimately diminishing customer choice and affordability,

    undermining investment and innovation and creating an incentive for Canadians to leave

    the broadcasting system.

    7. Although they compete with licensed players, certain non-Canadian OTTs have now clearly expressed their view that they do not operate in Canada pursuant to the Act or

    subject to the jurisdiction of the Commission or any other Canadian authority. Shaw finds

    it unfortunate that this proceeding was, to a significant extent, initiated based on a

    perception that licensees operating within the regulated broadcasting system were not

    sufficiently responding to OTT competition or developing business models that offer the

    same level of choice and customization. Not only have we demonstrated a strong

    willingness to compete (by launching shomi and investing in Rdio, for example), we have

    also willingly engaged in a constructive conversation with the Commission about how we

    can satisfy the interests of Canadians as consumers, citizens and creators in the context of

    the current business environment and the objectives of the Act. By contrast, non-Canadian

    OTTs refused to engage in meaningful dialogue regarding their role in the television

    system thereby making it clear that they did not consider that they had any role to play in

    relation to the achievement of the Acts objectives. Accordingly, the Commission (by

    removing their interventions from the record) is now proceeding without any input from

    3 CRTC Transcript, September 11, 2014, paras. 8503-8505.

    4 CRTC Transcript, September 11, 2014, paras. 8700-8717.

  • 4

    such parties, notwithstanding its continuing quest for further evidence that Internet video

    providers can support the policy objectives under the Broadcasting Act, as well as others

    relating to competition and innovationwithout the need for any additional regulatory

    action by the Commission.5

    8. In view of these developments, it would be unreasonable for the Commission to impose a new business model and/or regulatory burdens on licensees (such as one-sided revenue

    contribution rules affecting the provision of online content by licensees) who are striving to

    serve their customers through investment and innovation while acknowledging their role in

    the Canadian broadcasting system. Further asymmetrical regulatory treatment of licensed

    and exempt digital broadcasting undertakings that effectively advantage exempt non-

    Canadian undertakings that have no regard for the Commissions jurisdiction, process or

    for the objectives of the Act cannot be in the public interest.

    9. Unlike those entities that operate unlicensed non-Canadian content experience platforms, Shaw is not dismissing the importance of regulation in Canadian broadcasting. Rather,

    Shaws position in this proceeding is informed by the Commissions statement that:

    Some of the objectives may be achieved without regulation, through the evolution of

    the marketplace or the changing technological environment. Regulatory intervention is

    only warranted where specific outcomes or objectives would not be achievable without

    it. Where regulatory measures are necessary, the Commission considers that they

    should be as simple as possible, proportionate, easily administered and adaptable to

    change.6

    10. The importance of the principle that customer choice be primarily market-driven cannot be overstated. Competition both within our broadcasting system and from foreign platforms

    continues to increase. As the recent Brief from the C.D. Howe Institute observes, it would

    be inappropriate for the Commission to impose a mandatory pick-and-pay regime in the

    current environment, given:

    the economically benign character of bundling in this context, the increasingly

    competitive nature of the industry, along with the complexity of any regulation

    associated with pick-and-pay.7

    11. The ongoing strength and relevance of the Canadian broadcasting system will depend on investment, innovation, scale and stability. Competition will be a key element in driving

    these outcomes. However, we believe there is a key role for the Commission. Indeed, we

    have built a tremendous and successful Canadian broadcasting system through the

    collective efforts of regulators, the creative community, broadcasters and distributors.

    Going forward, appropriate regulatory minimum protections to achieve the objectives of

    5 http://www.crtc.gc.ca/eng/archive/2014/lb140929.htm and http://www.crtc.gc.ca/eng/archive/2014/lb140929a.htm

    6 BNC 2014-190, at para. 35

    7 Let the Market Decide: the Case Against Mandatory Pick-and-Pay, C.D. Howe Institute, E-Brief, September 25,

    2014 (the C.D. Howe Brief), at page 7.

    http://www.crtc.gc.ca/eng/archive/2014/lb140929.htmhttp://www.crtc.gc.ca/eng/archive/2014/lb140929a.htm

  • 5

    the Act, as well as regulatory certainty, will be critical to preserve and enhance the strength

    of the system.

    12. Timing will also be critical. Shaw submits that the imposition of mandated and immediate unbundling of programming services would not only be impractical, it would invite

    potential economic shocks to the system that would ultimately be negative from the

    standpoint of consumer welfare and preserving jobs. Predicted outcomes of unbundling

    alone include the following:

    a finding of annualized loss due to unbundling alone in the broadcasting sector of

    6,698 FTEs of employment in 2020 and an annualized loss of $769 million in GDP for

    the Canadian economy in 2020.

    Factoring in the impact on television production leads to an overall plausible worst case

    impact of unbundling of 10,674 FTEs of employment losses and an annualized loss of

    $1 billion in GDP for the Canadian economy in 2020.8

    13. While Shaw acknowledges that it is difficult to quantify with certainty the ultimate impact on the system from an ill-conceived or unjustified layer of additional regulation, it is

    possible to posit a range of sensitivities given the inherent underlying economics that

    would ensue from mandated unbundling. This was described in detail in Shaws economic

    evidence filed in this proceeding. The Oliver Wyman Report succinctly described this

    scenario:

    while intending to provide more choice and flexibility to consumers, the CRTCs

    proposed approach could actually hurt consumers and the industry in several ways: by

    ultimately decreasing prices for only a minority of consumers while increasing prices

    for the majority who choose to stay with their current package; by decreasing overall

    programming diversity as well as funding for Canadian program production, especially

    independent production; by limiting content discovery, and by negatively impacting

    profitability at most steps of the industry value chain.9

    14. In fact, predominantly all of the economic evidence filed in this proceeding demonstrates a consistent view that the Commissions proposals will inevitably result in economic harm.

    Bells economic expert explained the dilemma at the public hearing:

    When you implement a la carte, people watch less television. That means they are

    getting less value.

    8 CMPA Undertakings, September 19, at pages 7-8. A best case scenario (with a combination of features and

    safeguards) would still result in a finding of an annualized loss of 2,233 FTEs of employment in 2020 and an

    annualized loss of $256 million in GDP for the Canadian economy in 2020. Factoring in the impact on television

    production leads to an overall plausible best-case finding for unbundling of an annualized loss of 3,558 FTEs of

    employment in 2020 and an annualized loss of $334 million in GDP. 9 Oliver Wyman Report, at page 1.

  • 6

    So the empirical study is the economic studies that have been done and are not in any

    way ambiguous on these counts. What the studies do agree is that some minority of

    consumers with very limited preferences for channels would likely benefit.

    So it's not that there [would] be no beneficiaries. But you are talking a transfer and the

    net of the transfer is a loss and the loss is not just for the consumers who prefer larger

    packages. It's for the entire ecosystem and everything that supports it. It shrinks. And

    that's what we're talking about doing here.10

    15. Shaw also notes that the totality of the economic evidence filed in this proceeding contradicts the position articulated by the Competition Bureau, which argued that bundling

    has the effect of reducing or removing competition between discretionary services.11

    As

    noted by parties on the record of the proceeding, the Bureau failed to refer to a single

    economic study.12

    In fact, contrary to the statements of the Competition Bureau,

    competition law and economic analysis demonstrate both the potential economic harm

    from the Commissions proposals for mandatory pick-and-pay as well as the economic

    benefits of the existing approach:

    The first step in a policy analysis of pick-and-pay is to understand why BDUs would

    bundle in the first place The question, then, is not whether BDU bundling departs

    from market principles, but whether the motivation for bundling reflects some kind of

    market failure that pick-and-pay regulation would address.

    Competition will affect the ability of BDUs to profitably bundle regardless of

    regulation. If consumers dislike bundles, they will increasingly be able to shift with

    little cost to alternatives on the Internet such as Netflix, or channel-affiliated websites.

    Indeed, there already is evidence of the BDUs adopting strategies to respond to

    competition. In Quebec, for example, Videotron offers the option of relatively narrow

    bundles of channels to its subscribers. In addition, Rogers and Shaw recently

    announced the creation of a streaming service similar to Netflix, called Shomi.

    Establishing an elaborate regulatory regime to deal with a practice that will soon be

    subjected to even more intense competition would be a mistake.

    In any event, the most plausible explanation of bundling by BDUs suggests that it is a

    form of price discrimination, which is generally considered benign under competition

    law, or at least not worth regulating. It is not clear what the economic benefits of

    mandatory unbundling would achieve, and indeed there is the danger that it would hurt

    economic efficiency.13

    10

    CRTC Transcript, September 10, 2014, at paras. 4206-08. 11

    CRTC Transcript, September 8, 2014, at para. 759. 12

    CRTC Transcript, September 10, 2014, at para. 4205. 13

    C.D. Howe Brief, at pages 4-6.

  • 7

    16. The foregoing underscores the unique economics governing mandatory pick-and-pay and other unbundling measures. This in turn calls into the question the assumption that

    regulatory intervention to achieve unbundling is necessary or warranted. At a minimum,

    the Commission needs to take a more cautious approach given the uncertainty.

    17. At the same time, Shaw acknowledges that, in consideration of the Governments policy direction and the Commissions stated objectives in this proceeding, the implementation of

    a new framework based on choice and flexibility can be workable. Under Shaws

    proposals, unbundling will be achieved within an appropriate timeframe. In view of the

    significant risk and uncertainty in the current environment, a stepped and moderate

    approach is not only justified, it is the only logical or defensible course of action. It has the

    further advantage of giving the Commission the opportunity to quickly adjust course if any

    of the predicted negative consequences begin to emerge.

    The need for a measured and gradual approach

    18. Shaw agrees with the identified outcomes in BNC 2014-190, namely, a Canadian television system that: fosters choice and flexibility in selecting programming services;

    encourages the creation of compelling and diverse Canadian programming; and empowers

    Canadians to make informed choices. However, discussion during the oral phase of the

    proceeding clearly emphasized the need for the Commission to take a measured and

    gradual approach to the implementation of a new regulatory framework especially any

    form of mandatory unbundling. As the Chairman explained, with reference to the analogy

    of crashing marbles in the old Kerplunk game:

    it has taken years to build this regulatory system probably decades, frankly. I am

    not suggesting that we take as long to dismantle it, to adapt to a new environment, but

    there is a management of change that needs to occur, and how much change the system

    can absorb within a short period of time.14

    19. Peter Bissonnette explained the step-by-step approach that would address these concerns:

    One of the things that we have talked about in our guidelines is the pace of change. We

    believe that, in our guidelines, where we have proposed 50 plus 1 percent, that's a floor.

    We know that the world is unfolding, and we know that, as we go into this new world

    of choice and freedom of selection, things will evolve.

    We also know that we can't, any more than you can, define what the risk is associated

    with your options or the options that we are proposing, because even in our Guidelines

    there are going to be some cost impacts So what is the event that we are concerned

    about that is going to drive all of this, potentially, disruption?

    So pace is really important in this, and you have said that.15

    14

    CRTC Transcript, September 10, 2014, at para. 5308 15

    CRTC Transcript, September 11, 2014, at paras. 8688-8696.

  • 8

    20. In our responses to undertakings filed on September 19, Shaw pointed out the potential for negative consequences for consumers and the industry if all or many of the Commissions

    proposals in this proceeding are implemented too quickly or are improperly sequenced. An

    additional benefit of a stepped implementation is that both positive and negative impacts of

    new provisions can be measured and evaluated on an ongoing basis. This approach strikes

    an appropriate balance by setting out meaningful and achievable steps to increase choice,

    while being adaptable to change. It thus minimizes uncertainty and provides the practical

    ability to adjust course if problems arise that threaten achievement of the objectives of

    the Act or that risk harm to consumers.

    21. As Shaw stated in several instances in its written submission, its appearance before the Commission at the public hearing and in its undertakings filed with the Commission, step-

    by-step implementation permits the system to evolve in response to market dynamics.

    This, we submit, is the least intrusive approach; it is also the sole rational course, given the

    pace of change and potential impacts of the new framework.

    22. Shaw is pleased to note that many parties in this proceeding have recognized the importance of the objective of managing the pace of change, consistent with what we put

    forward to the Commission. As Rogers noted in its September 19th

    undertakings, a well-

    planned and phased in approach is essential to facilitate a smooth transition for the

    broadcasting system and for Canadian television viewers as a whole. 16

    In that regard,

    Rogers has proposed that implementation would begin in 2015 and unfold through the end

    of 2018.

    23. Shaw also notes that, significantly, a broad range of interveners, in some cases representing diametrically opposed views on substantive issues, nevertheless uniformly cautioned the

    Commission to proceed carefully, in view of the stakes. A clear narrative in favour of

    careful and staged implementation developed over the course of the oral hearing.

    Following are examples from a number of parties with otherwise diverse interests:

    How would unbundling make the system stronger or create more or better Canadian

    programming? None of this would further the objectives of the Broadcasting Act. It is

    essential that your commission study the options carefully, as it has in the past, to

    ensure the vitality of our carefully constructed broadcasting ecosystem. Adopting an ill-

    conceived, focus-group-generated proposal would do a disservice to all Canadians, and

    once Canadians experienced the results they would know whom to blame.17

    ***

    I hope with all these complications in our world that the Commission moves slowly and

    carefully to allow the broadcast and production community to adjust to the dramatic

    changes in the way we're all consuming content.

    16

    Rogers response to undertakings, September 19, Appendix C, at page 1. 17

    CRTC Transcript, September 10, 2014, at para. 6184.

  • 9

    For my company, Insight Productions, the current system has never worked better. For

    all our partners, our Canadian broadcast partners, it's never worked better for us, in

    terms of promotion, funding and getting big hits on the air.18

    ***

    So you end up in a world where, as Oliver Wyman modelled it, you have a small group

    of customers paying 10 percent less and getting a whole lot less and you've got

    everybody else paying a whole lot more for the same thing. That's the kind of outcome

    that the gloom and doom parties are saying to you really means the end of the system,

    because you end up kind of having a bad outcome for consumers and probably

    wrecking the system. So that's why we feel if it's all passed on to consumers that is not

    going to work.

    We have to have everybody sharing some of the risk, everyone managing this process

    carefully and then we can end up with a scenario that's better for consumers.19

    ***

    our biggest concern is the risk of making multiple, major changes to the system. The

    majority of interveners in this process have warned of significant negative impacts from

    pick-and-pay, lost viewers, lost revenue, lost channels, lost programming, and lost jobs.

    If the Commission is committed to pick-and-pay, then we believe that it must act very

    carefully on other fronts, with a gradual rollout of its plans combined with close

    monitoring along the way.20

    ***

    Chairman and Commissioners, we hope that in your deliberations you'll think

    carefully about our existing system that has been built over many years.

    This hearing demonstrates that we all need to be mindful of the potential unintended

    consequences that could result from removing parts of the regulatory framework that

    has served us well.21

    ***

    Consumers will benefit from a good renovation, one that does not pull out a support

    beam leading a floor or two above to collapse -- or, as the Chair put it, creating the

    "kerplunk" moment.

    18

    CRTC Transcript, September 11, 2014, at paras. 7162-7163. 19

    CRTC Transcript. September 11, 2014, at paras. 8231-8232. 20

    CRTC Transcript, September 11, 2014, at para. 9404. 21

    CRTC Transcript, September 12, 2014, at paras. 12453-12454.

  • 10

    The system was built over time, in a very intelligent way, each part playing a role,

    whether it was creating jobs, providing diversity, Canadian content, or access for

    visible minorities and other under-served constituents.

    There is no need to start over.

    What we suggest is a stage transition, with a clear outcome and clear rules to achieve

    that outcome

    I think we're not the first people here to say that we think the pick-and-pay requirement

    -- the requirement for complete pick-and-pay or build-your-own-system packages is a

    bridge too far.

    A gradual move in this direction could work, allowing broadcasters and BDUs time to

    react and plan.

    The 50% model for pick-and-pay discussed here earlier this week is a good middle

    ground.22

    ***

    Now, the system has to transform in a way that adapts to the technology, and we are

    going to have to be careful. We are cautious here that these changes could just get rid of

    us, and we would have no say. We wouldn't be at a future hearing because we would

    have no business.

    So we want to be put in a position where we can keep working, if everybody has to take

    a hit -- and I think there will be losers and bigger losers on the revenue side. I think that

    is the experience of the music industry and other industries.

    We want to work and find ways to temper that, so that we can then become part of the

    future.

    At some point, though -- I mean, it is a saveable system, because we have such a

    creative and vibrant culture. We just have to figure out how to turn that so that the

    broadcasting system can be made workable.23

    24. The above testimony underscores a significant degree of consensus in this proceeding, namely that too many changes, implemented too rapidly, would impair the broadcasting

    systems ability to adapt in a manner that preserves consumer welfare and maintains the

    current levels of contribution to the system by the various stakeholders. Moreover, an

    immediate overlay of new regulations would be inappropriate: such measures would be

    difficult to amend in the event that unintended and damaging impacts emerge as a result of

    22

    CRTC Transcript, September 12, 2014, at paras. 12575-12587. 23

    CRTC Transcript, September 15, 2014, at paras. 13999-14002.

  • 11

    these strictures. There was no resistance to change but, as noted above, a measured or

    stepped approach was considered to be more appropriate.

    25. A key element of such an approach is embodied in Shaws proposed Market Guidelines to Maximize Choice and Flexibility. If adopted, the Guidelines will govern all commercial

    agreements and enable more programming choice and flexibility, including pick-and-pay.

    This will occur following the elimination of certain current obstacles in the wholesale

    market, including:

    requiring both Canadian and non-Canadian services to permit pick-and-pay;

    eliminating unreasonable penetration-based rate cards;

    eliminating requirements to distribute a service on the same terms as at a prior date; and

    eliminating MFN provisions.

    26. As Shaw explained throughout this proceeding, the Guidelines strike an appropriate balance between regulatory oversight and reliance on market forces to drive choice, while

    also protecting jobs and Canadian content. We submit that the implementation of the

    Guidelines will have a real and meaningful impact across the entire industry and moreover

    respond to the Order in Council and Speech from the Throne.

    27. As we noted in our response to undertakings, the Guidelines can be introduced as a stand-alone set of expectations, or alternatively, incorporated into the existing Code of conduct

    for commercial arrangements and interactions per Shaws proposed Enhanced Code of

    Conduct. By incorporating the revised elements of our Guidelines into the Enhanced

    Code, the Commission will immediately have in place an effective regulatory measure that

    will be responsive to the discussion and record of this proceeding. Not only will it be

    immediate in its impact, it will also be flexible and capable of being adjusted if unforeseen

    events and circumstances arise in the future. The Enhanced Code will:

    provide behavioural discipline;

    provide a basis for dispute resolution or an undue preference complaint; and

    leave open the option for the Commission to impose the Codes provisions as COLs in the event that a licensed or exempt BDU or programmer is found to have not met the

    Commissions expectations.

    28. As noted in Shaws September 19th undertakings, the Commission's experience with the existing Code of Conduct is instructive. When the Code was initially established (pursuant

    to Broadcasting Regulatory Policy CRTC 2011-601), several parties argued that the

    Commission did not have the power to impose it as a COL and would have to delay

    implementation until each licensee came forward at their respective licence renewal and

    agreed to assume the obligations by way of a COL. This concern proved to be unfounded:

    Shaw and other licensees affected by the Code of Conduct viewed its provisions as binding

    regulatory measures and took steps to immediately adhere to its requirements. In

    circumstances where certain parties failed to meet expectations or disputes arose, the

    Commission appropriately intervened.

  • 12

    29. In view of the foregoing, Shaw submits that an approach based on the Guidelines or an Enhanced Code is preferable as the Commission, broadcasters and distributors will together

    be better positioned to manage the pace of change, while at the same time protecting jobs,

    ensuring that the economic engine of the Canadian broadcasting system remains strong and

    safeguarding the system's ability to provide Canadian content.

    A Summary of the Key Shaw Proposals

    30. The following summarizes the key aspects of Shaws proposals relating to choice and flexibility (based on the roadmap filed with the Commission):

    Small Basic: Shaw does not support the proposal for a small basic service, for the following reasons:

    o it will not address affordability issues because fixed costs will not change; o it will lead to increased prices for the vast majority of customers who are satisfied

    with their existing basic service and other options; and

    o it will set off cascading negative economic impacts.

    In view of these concerns, Shaw has put forward an Option C pursuant to which BDUs would be required to offer a small basic service that includes the services

    enumerated by the Commission in the Working Document, as well as other services

    selected by the BDU. The small basic service would not include high-cost Category C

    sports services (or any other services that materially increase the price of the basic

    service). The retail price of basic would not be capped. The small basic service would

    be promoted in an equivalent manner to other packages.

    Mandated pick-and-pay: 100% pick-and-pay cannot and should not happen overnight. Rather, after a period of implementation of a 50% requirement, the

    Commission can re-evaluate its approach based on the impact on consumers and the

    industry. If the approach is working, the Commission can consider raising the

    requirement to a higher minimum percentage with the ultimate goal of potentially

    making 100% of services available as pick-and-pay.

    This approach will have a real impact as every negotiation and every commercial agreement will develop a rate card for pick-and-pay. Driven by competition and

    consumer demands, BDUs will change the way they provide programming services to

    subscribers by offering increased pick-and-pay, flexible BYOP options, smaller

    packages and at least one basic package without sports. To be clear, 50% is a floor

    not a cap.

    Canadians will immediately benefit from steps taken by BDUs to increase choice and flexibility given the requirement to offer at least 50% of services as pick-and-pay. With

    the elimination of the obstacles to pick-and-pay as proposed in the Guidelines and with

    application to every programming service and BDU, customer demand and competition

  • 13

    will determine which services are offered as pick-and-pay. Moreover, a rich mix of

    services will be offered on a pick-and-pay basis:

    o affiliated and unaffiliated; o VI and non-VI; o Canadian and non-Canadian; and o very popular and niche.

    BYOP: BYOP introduces significant issues with existing billing systems and customer care. Accordingly, minimum thresholds for the number of services that are offered as

    BYOP are not appropriate. BDUs should begin to introduce BYOP offerings on or

    before December 15, 2015. The pricing, composition and number of services offered as

    BYOP should be determined by individual BDUs. Following a period of BYOP

    implementation, the Commission can evaluate the approach based on an assessment of

    the benefits to consumers, industry compliance and the impact on all stakeholders.

    Other proposals are not simple and proportionate

    31. Shaw has specific concerns with respect to certain proposals made by other parties, including those put forward by Telus, the Independent Broadcasters Group (IBG) and Blue

    Ant Media. These proposals do not strike the appropriate balance as they entail too much

    regulatory intervention and oversight that ultimately will have the effect of thwarting

    market dynamics and market competition, to the eventual detriment of the consumer.

    32. For example, Telus has proposed micro-regulation of the wholesale commercial environment. As the Chairman observed, there are questions about whether this proposal is

    consistent with the objective for regulatory measures that are simple, proportionate, easily

    administered, and adaptable to change.24

    Shaw strongly submits that the Telus proposal is

    entirely inconsistent with this objective. Telus has also proposed significant amendments

    to the Exemption order for digital media broadcasting undertakings. If adopted, these

    amendments would collapse the distinction between conventional television

    programming and content made for new media and digital media platforms. Shaw submits

    that such a step is not warranted; no evidence has been put forward in this proceeding to

    justify a departure from the Commissions approach to encourage innovation and increase

    competition with respect to content not made for traditional television.

    33. Similarly, Blue Ant Media is seeking to persuade the Commission to impose new and highly interventionist rules, not only through a re-written Code of Commercial

    Arrangements and Interactions but also by immediately incorporating this amended Code

    into proposed regulations. As Shaw noted above, such an interventionist approach is not

    warranted. Moreover, Blue Ants proposal would effectively fix the current distribution

    arrangements of all Category A and Category B independent programming services without

    any regard for market dynamics, consumer preferences, or other considerations. This would

    result in a significant departure from the Commissions evolutionary approach to the issue

    of programming access and packaging by BDUs.

    24

    CRTC Transcript, September 12, 2014, at paras. 10267-10268.

  • 14

    34. These proposals, if adopted, would result in the Commission micromanaging the specific terms and conditions of access in commercial affiliation agreements. Such an approach

    would, in lieu of market outcomes, impose commercial arrangements by regulatory fiat,

    contrary to the Commissions stated objectives in BNC 2014-190.

    Other Commission proposals should either not be implemented or be introduced more

    gradually

    35. Consistent with the proposed stepped approach, Shaw recommends that many of the other proposals in BNC 2014-190 and the Working Document that significantly impact

    programmers should not be implemented until after the next series of licence renewal

    hearings, and in some cases should not be implemented at all. This will provide the

    industry with necessary time to consider the impact of the new framework and to adapt to

    the new environment. Moreover, this approach will ensure that the totality of the proposals

    do not result in unintended negative consequences for consumers and do not undermine

    achievement of the fundamental content objectives of the Act. The foregoing approach

    should be made applicable to several proposals, as set forth below:

    Simultaneous Substitution: The record was clear that simultaneous substitution allows Canadian broadcasters to realize the full value of the rights they purchase by providing

    viewers with the most popular non-Canadian programming while also licensing and

    exhibiting high quality Canadian programming. The result is more programming choice

    for Canadians at no additional cost. Shaw does not agree with proposals that

    simultaneous substitution should be eliminated for live event programming. This would

    be far too intrusive and would have the practical purpose and effect of protecting access

    to non-Canadian advertisements at the expense of the objectives of the Act. A less

    intrusive step would be to establish a working group process to ensure that all or most

    technical issues that impede effective substitutions are addressed. Shaw reiterates our

    commitment to participate in such a working group.

    Preponderance: The ability of BDUs to satisfy the preponderance rule through the offer approach should not be implemented until December 15, 2016 to minimize the

    impact on programming services.

    Affiliation Agreement Issues: The Enhanced Code would apply to all programmers and BDUs, whether or not they are vertically integrated; provide a framework for dispute

    resolution; and include expectations to help ensure customer choice and affordability.

    Going forward, and if necessary, a follow-up proceeding could be held to assess the

    need for further changes to the Enhanced Code as the market, consumer expectations

    and the broadcasting system evolve. The Commission can consider whether additional

    action is necessary to address situations of non-compliance (incl. COLs).

    Access for non-vertically integrated (VI) programming services: This measure would be implemented through the Enhanced Code. Shaw submits that the requirement that

    BDUs facilitate multi- platform programming strategies is unreasonable: the concern

  • 15

    is rooted in the potential for anti-competitive behavior, which should not be extended to

    include a requirement to enhance the position of competitors. A prescribed expectation

    to do so would impede market developments and would likely result in unjustified

    regulatory gaming, undermining the effective roll-out of services to consumers.

    Finally, the Commission should delay implementing any changes to the genre protection policy and to programming exhibition and expenditure requirements until the

    next series of licence renewals.

    Conclusion

    36. Our objective is to work with the Commission and other participants in the Canadian system to achieve an adaptable and sustainable policy framework to increase choice, while

    preserving jobs, ensuring continued contributions to Canadian content and strengthening

    the broadcasting system, all of which have been accomplished in a measured and calibrated

    manner over the last four decades.

    37. Shaw submits that our original Guidelines, now incorporated in our Enhanced Code of Conduct and other proposals, as set forth above and in our earlier written and oral

    submissions and responses to undertakings (which are incorporated by reference), will

    provide an appropriate level of regulatory oversight to the Commission, while at the same

    time allowing the industry to respond to the real challenges facing our system, produce

    high-quality Canadian content, and maximize choice and flexibility for Canadians. The

    dual objectives of more value, choice and competition alongside a thriving Canadian

    broadcasting system can be realized through a carefully managed and stepped approach to

    introducing a new television framework.

    38. There is a way forward. This is not about protecting the status quo. To the contrary, Shaws objective is to assist in the development of a modernized framework that sets the stage for

    competition, innovation, choice and exceptional customer experience. This modernized

    framework will, among other things, unbundle channels while protecting as many jobs as

    possible.

    Sincerely,

    Peter Bissonnette

    President