CRTC to consider allowing broadcasters to pull the plug on their signals as they battle with cable companies over fees

Source: Globe and Mail

Canadian television networks may get the right to pull their feed from cable and satellite services, and possibly black out shows on U.S. channels, if the broadcasters can't reach a deal with distributors on compensation for their signals.

The power to yank hits such as Grey's Anatomy or House off the air – while also issuing a blackout on the corresponding U.S. network that carries a show that the domestic network owns the rights to in Canada – is a bargaining chip this country's networks have never held before.

Though it's unlikely the networks would use that hammer unless negotiations were to reach an impasse, the idea is being considered at the Canadian Radio-television and Telecommunications Commission as a way to give the broadcasters more clout in negotiations with the cable carriers. The regulator has dismissed the TV networks' pleas to charge the distributors monthly fees of 50 cents per subscriber for their feeds, and wants the industry to negotiate a solution for itself.

George Addy, a former head of the Canadian Competition Bureau who is now a senior partner at the law firm Davies Ward Phillips and Vineberg LLP, said the terms of licence for broadcasters would likely have to be amended to allow the networks to deny service. He compared it to a "nuclear weapon" for the networks.

"We all know it would be highly unlikely they would ever use it but it would provide leverage for the broadcasters I assume to go into that commercial negotiation," Mr. Addy said.

CTV and Global want compensation for their signals, similar to what specialty channels already collect, but the distributors argue they already give the broadcasters key perks such as prime channel placement on the dial and guaranteed carriage.

In order to force negotiations between the two sides, sources close to the situation say a framework is being discussed that could be put on the table this fall.

Cable and satellite distributors such as Rogers Communications Inc. (RCI.B-T32.42-0.27-0.83%) and Shaw Communications Inc., (SJR-B-T) are upset at the idea of being forced to negotiate, saying it is basically the same as allowing the networks to charge fees.

If an agreement cannot be reached, the CRTC has said it would put the matter to arbitration.

The risks are significant: If a broadcaster were to pull its signal and also be given the right to prevent the U.S. broadcast of a show they own the Canadian exhibition rights to here from being carried on cable or satellite, it would cost the network considerable advertising revenue, since the highest-rated shows drive ad income. An hour-long show such as CSI: Miami , for example could bring in anywhere from $1.5-million to $2.5-million in ad revenue per episode, according to some estimates.

Similarly, it would be a headache for the cable companies, who would likely be inundated by phone calls from angry customers wondering why their favourite shows are not on TV.

When CTV, CanWest Global Communications Corp. (CGS-T0.21-0.05-19.23%) and other conventional broadcasters such as the Rogers-owned CITY-TV network buy programs from Hollywood, they are given the copyright on all broadcasts shown within Canada. That copyright ownership is what allows the Canadian networks to insert their own commercials into the U.S. broadcasts of those same shows airing on ABC, CBS, NBC, FOX and others if they air at the same time. That process is known as simulcast and the U.S. networks and studios make more money selling the rights to their shows to Canadian broadcasters than they would by having their U.S. ads flow over the border. Last year, Canadian TV broadcasters spent a combined $775-million on foreign programming.

Rogers vice-president of regulatory affairs Ken Englehart said the cable company would challenge the move by the Canadian networks, and could still take the CTV or Global signal out of the air, and place it on the service.

"You can't stop cable from carrying a signal that people can get over the air," Mr. Englehart argued.

By the CRTC's calculations, the compensation the networks have been seeking would be worth $56-million to CTV, $72-million to CanWest. CTV is owned by CTVglobemedia Inc., which is also the parent company of The Globe and Mail.

The issue will be debated at regulatory hearings in October, and the CRTC will likely put the idea on the table ahead of the debate.

Ad executives aren't sure whether the tactic would work. Scott Stewart, director of communications planning for Calgary-based advertising firm Trigger Ltd., said the networks only have limited bargaining power with certain shows that would make the cable companies think twice. "I can't get my head around it, there would only be a few things that you could pull to have that kind of clout," Mr. Stewart said.

In the U.S., big networks can negotiate compensation for their signals, but must be willing to give up mandatory carriage in order to do so. Pulling signals there has resulted in messy situations for both the broadcasters and cable companies.

In 2000, a dispute between Walt Disney Co., owner of the ABC network, and Time Warner resulted in ABC being dropped for a day and a half. The decision affected 3.5 million homes, including parts of New York, Los Angeles and Houston.

Though not a direct comparison to the Canadian scenario, the fight was an example of the problems it created. Millions of viewers flooded the cable company with complaints when they could not see Who Wants to Be a Millionaire? , forcing the sides back to the table.

© Globe and Mail