The major television networks have won the right to start charging for their signals, but it will now be up to the courts - and the federal government - to determine whether consumers will pay more on their monthly bills.
In a decision that alters how the industry operates, the Canadian Radio-television and Telecommunications Commission decided Monday that CTV, Global Television and other private networks should be able to seek compensation from cable and satellite carriers for their signals.
"We're obviously very pleased with the CRTC, that they recognize there is a value associated with the content we provide," said Paul Sparkes, CTV's executive vice-president of corporate affairs.
The ruling is potentially worth hundreds of millions of dollars to the broadcasters and makes the private networks more like specialty channels, such as TSN or the Food Network, which are allowed to charge small fees each month per household.
But the fight is not over yet. Expecting a backlash from the cable industry, the CRTC has asked the Federal Court of Appeal to make sure that it has the jurisdiction to ask the companies to negotiate fees, since there are copyright laws involved - an area where the regulator does not set the rules. That opens the door for a battle in court with the distributors.
Read the CRTC's new policy "The new approach to licensing on the basis of ownership groups reflects the trend of media convergence"
"The CRTC referred it to the courts because … they were sure that others would if they didn't. We look forward to a strenuous debate at the Supreme Court," said Phil Lind, vice-chairman of Rogers Communications Inc.
At hearings in November, the broadcasters argued that in an environment of crumbling advertising revenues and fragmented audiences, they should have access to an additional revenue stream from the distributors that make money providing those signals to Canadian homes.
The result is not exactly what the broadcasters wanted. Originally they sought to collect a monthly fee, but Monday's decision simply puts the CRTC's endorsement behind a negotiation process.
Since CRTC chairman Konrad von Finckenstein said from the beginning that the regulator would not implement fees, a negotiation with the cable and satellite companies is the best the broadcasters could have hoped for.
If necessary, the broadcasters can pull their channels off the air until a deal is reached and black out programming on U.S. channels if they own the rights to those shows in Canada.
Mr. von Finckenstein said the CRTC will work to ensure the negotiations happen in good faith. If there are disputes, the regulator is prepared to arbitrate but only if asked to intervene.
With consumer habits changing quickly and new technology threatening the old TV model, the industry needs to focus on preparing for the future instead of bickering, Mr. von Finckenstein said. Cable and satellite carriers have vowed to pass any new fees on to consumers, but Mr. von Finckenstein suggested that may be dangerous.
"They better be careful that they don't impose it on the customer. Because the customer has an alternative that is free," he said, referring to the ability of consumers to watch television on the Internet. "You work out the solution by which you keep your customers."
The prospect of fees ending up on monthly bills also concerns the government. As early as last year, the government signalled to the CRTC that it believed compensating the networks would be damaging to consumers. That message was interpreted by the industry as a sign cabinet may seek to overrule the regulator.
Under the new system, the networks can choose every three years to negotiate compensation for their signals. If they opt to negotiate, they give up regulatory protections that require cable and satellite companies to carry conventional networks, while also placing them at a preferential point on the dial (on channel 8 instead of 508, for example).
It's a chance the networks are willing to take to be compensated.
"It's very obvious that we need that extra source of revenue to be able to continue to survive in this media landscape," Mr. Sparkes said. "We need to be paid."
But cable and satellite firms say that for broadcasters to be paid, consumers will have to pay up - and that any fees amount to a TV tax that will be added straight to cable bills. Although the actual fee will be left up to negotiation, the networks have said in the past they would accept 50 cents a month per household.
"It's not a good day for consumers," said Mirko Bibic, Bell Canada's senior vice-president of regulatory and government affairs. While cable companies make money, he said, Bell's satellite television service loses money every year, and cannot absorb such a cost. "Customers are ultimately going to end up paying more."
CanWest Global Communications, which owns Global TV, is confident a deal can be reached.
"We negotiate with cable and satellite companies on a regular basis for our specialty services. … I'm confident we will find a way to work together," said Charlotte Bell, senior vice-president of regulatory affairs at Canwest.
The only broadcaster left out of the new framework is the CBC. Because it is a public broadcaster, a negotiation process that could result in the network pulling its programming does not fit with the CBC's mandate, according to the CRTC.
CBC executives responded angrily to the decision yesterday to leave the public broadcaster out of future negotiations between the private broadcasters and the carriers.
"What the commission has done in this decision is say that we recognize that commercial revenues, advertising revenues, are under threat. … We have come up with a solution for the private element [private broadcasters] we have no solution for the public element," said Steven Guiton, the CBC's chief regulatory officer.
However, Mr. Von Finckenstein said that if the negotiations work for private broadcasters, the commission will need to develop a comparable system for meeting the public broadcaster's financial needs.
The decision comes after a CRTC report last Friday that showed broadcasters operated at a loss in 2009, for the first time since the commission began recording industry numbers in 1996.
Cable and satellite distributors again boosted their profits in 2009, and also boosted the fees they pay to specialty and pay-television channels for distributing their programming. The broadcasters now want a slice of those fees, which last year amounted to a total of $2.5-billion.
Private broadcasters lost $116-million before interest and taxes, wiping out an already meagre profit of only $8-million in 2008. However, they also spent more on foreign programming than ever before, a practice that was strongly criticized by the cable and satellite firms during the course of the debate.
The CRTC has introduced a minimum spending requirement for Canadian programming of 30 per cent for the three largest private broadcasters (CTV, Global and City-TV). The regulator will also allow more flexibility on how those companies distribute that spending among their conventional and specialty services.
With a report from Guy Dixon