Canada: CRTC Proposes Compensation Regime For Distribution Of Private Local Conventional Television Signals

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Communications, March 2010

The issue of whether compensation should be paid to Canadian local over-the-air (OTA) television stations by the broadcasting distribution undertakings (BDUs) (e.g., cable, direct-to-home satellite) that distribute the television stations' programs has been the subject of discussion for many years and, more recently, was the subject of a proceeding before the industry's regulatory body, the Canadian Radio-television and Telecommunications Commission (CRTC, the Commission). This issue was characterized for many years as fee for carriage. On March 22, 2010, the CRTC issued a decision on the fee for carriage issue by instituting a regime for a negotiated solution between the OTA broadcasters and the BDUs that distribute them.

In Broadcasting Regulatory Policy CRTC 2010-167 (the Policy), the Commission proposes a market-based resolution of the issue of BDU compensation for the value of private local OTA signals. In its decision, the Commission stated that the new policy was necessary to ensure that OTA broadcasters continue to have the necessary resources to fulfill their obligations to contribute to the creation and presentation of Canadian programming pursuant to the provisions of the Broadcasting Act. The CRTC determined that the current system needed revision in light of a reduction in the profitability of conventional television stations, in large part due to rapidly changing technology, the fragmentation of television audiences to new media platforms and particularly to the growth in popularity of national specialty television services for which compensation is paid by BDUs. The CRTC noted that most Canadian consumers now receive local OTA signals through a paid subscription to BDU service instead of free over the air.

An understanding of the Commission's new Policy requires first a consideration of the current set of regulatory rules governing the distribution of local OTA signals by BDUs. Although BDUs are not required to pay private local OTA broadcasters for the right to carry their local OTA signals, OTA broadcasters generally benefit from a number of regulatory protections. These protections include: the mandatory requirement that BDUs distribute the OTA service, priority or preferential channel placement on the BDU's system and, simultaneous or non-simultaneous substitution of their signals with that of out-of-market signals (to protect the territorial program rights acquired by OTA broadcasters).

The regime to be implemented by the Policy would give private local OTA broadcasters a choice to either seek a fee for carriage from the BDUs, and lose their current regulatory protections, or forego the fee for carriage but maintain the regulatory protections.

If the OTA broadcasters choose the fee for carriage option, they will have to do so for a fixed term of three years. In addition, the OTA broadcaster will be required to negotiate compensation with the BDUs as the Commission did not set the fee as part of the Policy, instead leaving it to the industry participants to determine on a case-by-case basis. The compensation could be monetary or non-monetary, or both, and negotiated on an individual local television station basis or, more broadly, with entire ownership groups. Negotiation would take place for a fixed period during which existing regulatory protection would continue to apply. The Commission would only intervene where there is evidence that the parties are not negotiating in good faith and Commission arbitration would only be available on both negotiating parties' request. In the event that a fee cannot be agreed to with the BDU, the OTA broadcaster will now have the right to require a BDU to delete any program owned by the local television station or for which it has acquired exclusive contractual exhibition rights. In addition, the OTA broadcaster will have the right to demand that the BDU cease broadcasting, in other words blackout, the airing of any programs that the OTA broadcasters have the exclusive rights for in their market from the signals of other services distributed by the BDU, including popular U.S.-based programming on services such as ABC, NBC, CBS or Fox.

Although the publicly supported broadcaster, the Canadian Broadcasting Corporation (the CBC), participated in the request for compensation for its own local OTA services, the Commission determined in the Policy that its proposed market-based regime would apply only to private local OTA broadcasters and that the distinctive situation and needs of the CBC would be addressed in the context of the CBC's next licence renewal.

The CRTC stated in its decision that it has on record conflicting legal opinions on its jurisdiction to implement the Policy. The CRTC is in the process of seeking judicial confirmation from the Federal Court of Appeal that the Commission has the requisite legal authority to impose the Policy under its empowering legislation. Given the long-standing and continuing tension between OTA broadcasters and BDUs on the issue of fee for carriage, the implementation of the CRTC's compensation proposal may take some time to resolve.

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