Integrated media companies that own both TV channels and the means to distribute them are playing with "money that goes from the left hand to the right hand within the same entity" - a reality that opens the market up to abuse, executives from Cogeco Cable Inc. told Canada's broadcast regulator.
The Canadian Radio-television and Telecommunications Commission heard from Cogeco on Thursday, at the fourth day of its hearing in Gatineau, Que., to discuss increased consolidation in the industry, with more cable and satellite companies owning more television content. This trend picked up speed last year when BCE Inc. bought the former CTVglobemedia broadcast assets, and Shaw Communications Inc. bought the former CanWest TV stations.
These types of integrated companies have every incentive to raise the fees cable and satellite companies pay for their specialty channels, Cogeco executives said. Cogeco is among the non-integrated cable players that do not own media assets.
"Either we're absorbing that cost - creating a margin squeeze - or we're passing it on to our customers," said Cogeco chief financial officer Pierre Gagné. "Our pricing to our customers would be much higher over time than what Bell could do. So we would be in a disadvantaged position."
Of course, integrated players such as Bell would still have to pay if other integrated players raised their prices as well. But that is "a zero sum game," Mr. Gagné said. If, for example, BCE raised its price for TSN, and Rogers Communications Inc. raised its price for Sportsnet, those companies would essentially be "exchanging a dollar for a dollar," he said.
Cogeco speaks from experience, chief executive officer Louis Audet said. In Portugal, where the company bought the Cabovisao cable service in 2006, it has faced higher prices and margin squeezing from its competitor, ZON Multimedia SGPS SA, which owns cable and satellite services as well as TV channels - including 50 per cent of a highly lucrative sports network. Cogeco is especially concerned about price hikes for sports channels here in Canada, such as TSN.
In fact, Bell Media is currently negotiating new deals with cable and satellite carriers for the TSN service, along with a higher per-subscriber fee, Bell Media president Kevin Crull told reporters at the hearing after BCE's presentation on Tuesday. TSN's fee has been regulated under old CRTC rules, but with changes coming in September it is free to negotiate an increase.
The cost of acquiring TV rights to sports events has "gone up exponentially," Mr. Crull said, predicting that rights fees could double every four to five years when contracts are renegotiated.
"We've been negotiating with distributors across Canada and deals are getting done," Mr. Crull said.
But a deal has not been done with Cogeco. Its deal to carry a number of BCE-owned channels expired late last year, and the two companies have made proposals to each other for a new agreement. While BCE has not threatened to pull any channels from Cogeco's service yet, the company remains concerned that competitors such as BCE have an incentive to hike prices.
"You have a dominant distributor that owns dominant programming that has marquee value, that is intent on extracting as much as possible large rents from consumers who are connected to anything else but its own platforms," said Cogeco vice-president of corporate affairs Yves Mayrand.
While Cogeco does not own a wireless service, it also argued that integrated players must not be allowed to have exclusive deals for TV shows or other video content on their mobile phones, arguing that mobile networks are simply another form of TV distribution.
Cogeco along with other non-integrated players such as Telus Corp., submitted a joint proposal for principles that should guide the industry in the future. These include not pulling TV channels from competing cable and satellite services during a dispute over fees; fair pricing; and a ban on exclusive deals, among other terms.
Integrated companies BCE, Shaw and Quebecor Inc. have argued a new code of conduct - something the CRTC is considering - is not necessary and would stifle innovation in the new media world. But Mr. Audet urged the CRTC not to accept "soft promises" that could be broken later.
"You should not treat these as expectations, you should treat them as rules," he said. "We're not talking about a voluntary code. We're talking about compulsory rules ... That is all."