ARCHIVED - Broadcasting - Commission Letter concerning the marketing and distribution ofMoviePix and MovieMax on high penetration unencrypted tiers
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LetterOttawa, 2 March 2000 Please see list of addressees attached Dear Madams/Sirs:
The parties The Commission has carefully reviewed all the documentation provided in this matter. This includes the original complaint letter of 21 July 1999 filed jointly by the four complainants, Alliance Atlantis Broadcasting ("Alliance"), CHUM Limited ("CHUM"), Craig Broadcast Systems Inc. ("Craig"), and Salter Street Films Limited ("Salter"), the responses from Cogeco Cable Inc. ("Cogeco") of 31 August 1999, Astral Television Networks ("Astral") of 2 September 1999, and WIC Premium Television Ltd. ("WIC"), Mountain Cablevision Ltd. ("Mountain") and the Canadian Cable Television Association ("CCTA"), all of 3 September 1999, as well as the complainants' reply of 17 September 1999. Commission decisions The complainants requested that the Commission order MoviePix to cease and desist marketing its service for distribution on the unencrypted high penetration tiers of broadcasting distribution undertakings (BDUs), and to cease and desist accepting such distribution. The Commission, by majority, hereby requires that neither MoviePix nor MovieMax market or permit their respective services to be distributed on unencrypted tiers. It appears from the record that, currently, MovieMax is not distributed on unencrypted tiers while MoviePix's unencrypted distribution is limited to the Mountain and Cogeco cable systems. The Commission has decided that it will not, at this time, require these two licensees to cease providing their subscribers with the MoviePix service on an unencrypted basis. However, noting that the current MoviePix and MovieMax licences expire on 31 August 2000, the Commission hereby informs these pay licensees that it wishes to discuss this matter as part of the upcoming renewal process. These licensees should, therefore, include in their renewal applications their respective rationales for why they should be able to market their respective services for distribution on unencrypted high penetration tiers and to permit continued or new distribution on that basis. In the interim, should further unencrypted high penetration distribution of the services by additional broadcasting distribution undertakings be sought, the licensees and distributors are reminded to obtain Commission authorization prior to doing so. The Commission denies the complainants' request that the Commission require BDU's carrying MoviePix on unencrypted high penetration tiers, to distribute all Canadian specialty television services on no less favourable terms than those accorded to MoviePix (and any US stations linked to the distribution of MoviePix). It should be noted that the Broadcasting Distribution Regulations provide for a dispute resolution process to assist parties in resolving carriage and terms of carriage disputes. This process, at the initiative of either programming undertakings or distribution undertakings, would be the appropriate means to deal with this request. Reasons for decision Classic Channel's (now MoviePix) and MovieMax's original licensing decision (Decision CRTC 94-278) described the services as ".offering programming consisting of Canadian and foreign feature films copyrighted at least five years prior to the broadcast year in which they are distributed." and ".financed entirely by subscription revenues, and... delivered to cable systems for distribution on a fully discretionary basis." The decision included an expectation that ".each licensee, consistent with its business plan, not permit its service to be offered as part of any unencrypted high penetration tier." This expectation reflected commitments made by the parties during the licensing process. Amongst other things, MoviePix argues that it is not being distributed on a high penetration tier as that term was understood in the context of Decision 94-278. The term "high penetration tier", has never been explicitly defined by the Commission. However, at the time of the MoviePix licensing decision, there was typically only one extended basic tier with a penetration in the vicinity of 80%, with some systems exceeding this level, while others did not. Licences for the new "classic" movie pay services were granted to the owners of the existing premium pay services. The business plans filed were based on the new services' ability to serve primarily as adjuncts to the existing premium movie pay services in order that they could provide enhanced value to the premium tier. Additionally, it was thought that a limited number of subscribers might subscribe to the new services on a stand alone basis. It is the Commission's view that MoviePix's current carriage on the Mountain and Cogeco cable systems is inconsistent with the expectation contained in its initial licensing decision which was intended to address carriage on tiers other than the traditional premium pay tiers which, typically, had penetrations not exceeding the 10% to 15% range. The Commission has also noted the complainants' assertion that unencrypted distribution of pay services on high penetration tiers erodes the differentiation between pay television and specialty television services. Interested parties will have an opportunity, as part of the upcoming renewal process for the two affected pay services, to provide detailed submissions on this point. In accordance with Commission policy, all correspondence relating to this matter will be placed on the parties' public examination files. Yours sincerely,
Ursula Menke List of Addressees
Ms. Phyllis Yaffe
Mr. Drew Craig
Mr. Mark Rubinstein
Ms. Cathy Tait cc's
Mr. Luther Haave
Ms. Lisa de Wilde
Mr. Les Boris
Mr. Yves Mayrand
Mr. Len Cochrane Dissenting opinion on MovieMax from Commissioner Stuart Langford I disagree with the majority decision in this matter. It is an unconvincing effort to inject into a six-year-old Commission decision meaning and direction which the wording of that document simply does not support. The decision in question is Decision CRTC 94-278 (94-278) released June 6, 1994. Through it, the Commission licensed the cable offerings now called MovieMax and MoviePix as pay television services. In doing so, the Commission imposed a number of strict conditions referred to in the body of the decision and set out in detail in two appendices to the decision itself. The Commission also included in the body of 94-278 certain hopes and expectations it had for the pay television industry as a whole, its impact on the cable television industry and the way the two new services being licensed would be offered to subscribers. It is this last issue, the Commission's expectations regarding carriage that underlies the application that has resulted in today's majority decision and my dissent. Great expectations: The Commission's broad objectives for pay television were set out 18 years ago in Decision CRTC 82-240 (82-240) as follows:
It seems fair to say that when the Commission penned these words it had great expectations for Canadian pay television services and high hopes about the positive impact such services would have on programming and production in this country. Nothing in 94-278 leads one to conclude that those levels of expectation and hope had diminished when MovieMax and MoviePix were licensed. To the contrary, the very passage from 82-240 set out above was quoted in full in 94-278. In that decision, the Commission reiterated these ambitions for pay services and declared that the newly licensed services were "consistent with these goals". Money counts: In licensing MovieMax/MoviePix, however, the Commission was clearly concerned about the bleak carriage prospects for the new services which as stand-alone products would command a "wholesale rate of between $5.00 and $6.00 per month." The Commission was encouraged by the licensees' business plans that contemplated distribution of the new services, "as part of an attractive, complementary and affordable package." When distributed as part of a "larger discretionary package" (including the licensees' existing pay services and, under the linkage requirements, as many as five foreign specialty services) the Commission anticipated a more marketable "per-subscriber wholesale rate in the range of $2.00 to $2.50." It is obvious from the language of 94-278 that the Commission regarded packaging, rate reductions and the likelihood of higher penetration as a result, as good things. Not either, or: In encouraging the licensees to distribute their new pay services as part of a discretionary package, the Commission sounded only one note of caution:
The opening three words of this short paragraph, "The Commission expects", and the closing three words, "high penetration tier", are, in my view, key to reaching an appropriate decision in this matter. The first three indicate that the Commission was setting out an expectation, not a condition of licence. In the last three, the words "penetration tier" were modified by the adjective "high". That too is pertinent. At the risk of beating this syntactical point to death, I point out that the wording of the Commission's expectation regarding carriage was "unencrypted high penetration tier". It was not "unencrypted or high penetration tier". Nowhere in 94-278 did the Commission state that the new pay services it was licensing were to be barred from carriage on an unencrypted analog basis. The only direction provided regarding carriage was an expectation, not a condition of licence, that if unencrypted distribution should occur it could do so only on tiers that were not "high" penetration. How high is high? The term "high penetration tier" has never been explicitly defined by the Commission. On June 6, 1994, when 94-278 was released, as the majority decision in this application states: "... there was typically only one high penetration extended basic tier with a penetration in the vicinity of 80% with some systems exceeding this level, others not attaining it." For the majority, as it does, to take the extra step of referring to the penetration levels (10% to 15%) of "... tiers other than the traditional premium pay tiers... " is to add to the 94-278 decision a direction or test that is not there. That 1994 decision states that the Commission "expects" that the pay services in question will not be distributed as part of an unencrypted "high penetration" tier (80% penetration). The expectation or direction is stated in negative terms. No positive test is supplied. No attempt is made to define what less than "high" is. Did the Commission in framing its expectation in 94-278 have in mind a fixed percentage (say, 10% or 15%)? The majority decision draws that conclusion but upon what evidence is not clear to me. The price of success: The Commission, in 1994, was wise not to elaborate on its "high" qualification. Had it tried, it might have placed services like MovieMax/MoviePix in the very sort of untenable situation that the majority decision in this application creates. A few speculative questions demonstrate the scope for difficulty inherent in the majority decision. For example, what would become of services like MoviePix/MovieMax if they were packaged as part of what might loosely be called a "low penetration" tier only later to discover that their popularity pushed penetration above the 10% to 15% level retroactively established by today's majority decision? Would the Commission, at the application of parties who perhaps sought to displace these services with their own, be expected to order such services to find another less popular tier? And if the licensees complied and transferred these services to an unpopular tier only to later find that once again the value added by these movie services enhanced the penetration levels of their new tier until they could be characterized as "high", would they have nothing to look forward to but yet another application designed to displace them? Is that the price of success? Could that be what the Commission intended in 82-240 when it visualized pay television as a driver for Canadian production, programming and regional reflection? It seems unlikely. A recent decision by the Commission further demonstrates the weaknesses inherent in the majority decision in this matter. In May, 1999, the Commission licensed four new French-language specialty services in Quebec. One cable undertaking serving areas in and around Montreal where a significant number of subscribers are English speaking complained to the Commission that the market for a French-language specialty tier in those areas was not financially viable. It would lose money. The Commission agreed to allow the cable operator in those areas to package the four new services with an English service popular enough to drive penetration levels. And which service did the cable operator choose? MoviePix! In 94-278, the Commission made no effort to freeze the definition of a tier that is not high penetration at 10%, 15% or any other level. By in effect doing so retroactively, the majority decision in this matter may have captured the 1994 Commission's unexpressed intention. Or it may not have. Certainly there is no indication in the wording of 94-278 to suggest that the Commission harboured any such intention. Accordingly, I find it unreasonable to imply one and respectfully dissent from the majority decision in this matter. |
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