Konrad von Finckenstein berates TV, cable executives

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Canada's big television networks and the cable industry have fought a bitter war against each other in recent months, but the two sides came under attack from a common enemy Monday - Konrad von Finckenstein.

Looking visibly frustrated and angry with executives from both sides, the head of the Canadian Radio-television and Telecommunications Commission lashed out at the networks and the cable companies for refusing to negotiate with each other on fees the broadcasters want to collect.

"I think you and the [broadcasters]are destroying each other," Mr. von Finckenstein told Rogers Communications Inc. chief executive officer Nadir Mohamed and vice-chairman Phil Lind.

His comments came on the first day of contentious federal hearings to discuss a proposal by the big TV networks - CTV, Global and CBC - to begin charging cable and satellite companies for their signals. The debate has dominated the industry over the past few years, but was taken to a new level of bitterness this summer when each side began running attack ads trying to paint the other as greedy, cash grabbing businesses.

The TV networks want to collect about 50 cents a month per subscriber from the cable and satellite companies, arguing they make rich profits reselling their signals to consumers. The distribution companies have vowed to fight the idea at all costs, and say they will pass those fees onto consumers as a TV tax if the idea is approved.

Though Mr. von Finckenstein is well known for his gruff and abrasive approach, he raised his voice at the Rogers executives, though directing his comments also at CTV, which testified earlier in the day.

"We are talking about money. You make this sound like a religious crusade," Mr. von Finckenstein said. "I don't know why you two don't realize it's in your long-run interests to come to some solution, rather than scaring the daylights out of Canadians."

Earlier in the afternoon, Rogers accused the networks of being locked in an "irrational" bidding war for U.S. programming, telling the CRTC that the broadcasters should not be allowed to collect the fees.

Mr. Mohamed said the networks don't need more money to support cash-strapped local television stations.

"The destructive overspending by CTV and CanWest on U.S. programming is well known," Mr. Mohamed said.

His comments came after Canada's largest television network, CTV, asked the CRTC during a morning presentation to let it seek compensation from cable and satellite companies for its signal.

CTV argued the subscription money is needed to stabilize local television stations, but the cable industry argues the cost of operating outlets in small markets is not the problem.

Instead, the annual trips the networks take to buy Hollywood shows such as House and Grey's Anatomy are costing too much, Rogers argued.

The cable company said CRTC figures show growth in spending by Canadian networks on U.S shows grew to more than $700-million in 2008 from roughly $400-million in 2000.

The cable company said that increase of about 75 per cent compared to signal growth of about 16 per cent for the broadcaster.

Rogers, which owns its own conventional network, CITY-TV, says it believes the business can operate without subscription fees, relying solely on ad revenue rather than the subscriber fees cable channels enjoy.

Despite its criticism of U.S. program buying, Rogers has also become a more aggressive buyer of foreign shows since purchasing the CITY-TV network in 2007.

Rogers told analysts in the summer that its program expenditures have risen significantly as it buys up more programs for CITY's prime-time schedule. Executives with the company said Monday they spent $88-million on foreign programming last year at CITY-TV, compared to what they estimated was more than $350-million for CTV.

The TV networks overwhelmingly rely on more popular U.S. prime-time programs to drive their advertising revenue, since it is those shows that dominate the ratings and command higher ad rates.

On Monday morning, CTV proposed a major shakeup of the Canadian television sector that would see the country's large networks yank their signal or black out popular programming if they are unable to agree to financial terms with cable and satellite carriers.

The concept was formally put on the table at Monday morning's CRTC hearings.

Executives with CTV, the country's largest conventional TV network, told the regulator a negotiating "regime" needs to be put in place. Under the plan, CTV said networks would have to decide every three years whether they wanted to negotiate compensation for their signals with distributors, but would have to give up their guaranteed priority carriage to get it.

(Current regulations require that the big networks get guaranteed carriage on cable in a place that is low on the dial.) If a deal can't be reached, the networks would have the right to pull their signals off cable and satellite services such as those owned by Rogers and Shaw Communications Inc. The networks would also have the right to force the cable companies to black out programs to which they own the rights in Canada that are also shown on U.S. networks.

CTV and Global buy the Canadian rights to many top U.S shows that are also shown on U.S. networks available in Canada. Currently, the networks are allowed to have their Canadian signals run during the U.S broadcast, including commercials they sell, if the shows are aired at the same time.

Having the right to black out shows would give the broadcasters more of a hammer in negotiations with the distributors, which the networks argue have become too powerful.

Mr. von Finckenstein told CTV the proposal would anger consumers and said he was frustrated by the "confrontational" nature of relations between the broadcasters and distributors.

"Isn't this the same as a strike?" Mr. von Finckenstein asked. "When you have a strike both sides lose. But here it's not only both sides but the consumer as well."

CTV said a similar system used in the U.S. in negotiations between TV networks and the cable and satellite distributors has only resulted in a small number of disruptions, and has otherwise created negotiations between the two sides.

"The signal will be available over the air, so the consumer won't be harmed. It is the [cable and satellite distributor]that would be harmed," CTVglobemdia Inc. chief executive officer Ivan Fecan said.

Mr. von Finckenstein said he was concerned the proposal would end up costing consumers more.

"We subsidized the construction of their nation-wide delivery systems that have enabled digital services, telephony and Internet businesses," Mr. Fecan said. "They have grown rich off the 40-year investment we made in them. And now it's time to benefit from our investment."

"We need to collect what is ours, or we need to walk away in whole or in part. Our investors deserve nothing less," Mr. Fecan said.

The network told the CRTC that almost six million Canadians watch Canadian local programs on conventional stations at dinner time, according to ratings tracker BBM Canada.

"What we're saying is, let the market decide. If we are creating value, we need to get paid for it," Mr. Fecan said. "It would be an old-fashioned negotiation."

As a business, small-market local TV does not earn back its cost of capital plus a competitive profit margin, CTV said.

Mr. Fecan told the CRTC that those who believed they could run a local station better have missed "a golden opportunity" to buy TV stations on the cheap this year.

Both CTV and CanWest Global Communications Corp. attempted to shed stations this year for the cost of a few dollars, provided the buyer was willing to absorb ongoing losses and assume the associated debt. Stations in Hamilton and Montreal were sold for $6 each, while stations in Red Deer, Alta., and Brandon, Man., were shut down when no buyer could be found.

"Any cable company, or any producer could have stepped forward and bought them for the cost of two double-doubles and a box of Timbits," Mr. Fecan said.

CTV is owned by CTVglobemedia, which is also the parent company of The Globe and Mail.

The hearings come after months of public battles between the cable and satellite distributors and the big conventional TV networks.

The broadcasters have said in TV commercials that the fees would help save cash-strapped local TV stations, though the CRTC is concerned about whether the money would be targeted at the small markets that need it most.

The cable companies, in ads of their own, have branded the idea a TV tax, and have vowed to pass any costs on to consumers. If allowed, the proposal would probably add a few dollars to a monthly cable or satellite bill in most markets.

However, the proposal has been estimated to be worth about $70-million a year in new revenue to each TV network, based on an earlier suggestion of charging 50 cents per subscriber each month.

Mr. von Finckenstein opened the day telling the industry the hearings were nothing short of a procedure to determine the future of Canada's television sector.

"This hearing is not about the past," he said. "And it's not about taxing consumers."

In addition to discussing the fee debate, the hearings will also look at creating a new licensing regime for Canadian TV that would evaluate broadcasters as groups rather than individual assets.

For example, CTV and Global's conventional networks are now licensed separately from their more profitable specialty channels on cable. If those assets were taken together, the CRTC believes it could get a clearer picture of the profitability of the broadcasters, rather than looking only at the struggles of local television stations separately.

CTV owns specialty channels such as TSN and Bravo, while CanWest owns channels such as HGTV and the Food Network.

The hearings will also look at whether spending limits should be placed on how much the big networks can spend on foreign programming. There have been concerns at the regulator that the escalating amount the networks have spent in recent years bidding against each other for the rights to new shows from Hollywood has hurt their financial situation.

More than usual for these types of hearings, the audience on Monday was dotted with industry executives for opening testimony from CTV, including Rogers' Mr. Mohamed and CanWest CEO Leonard Asper.