ARCHIVED - Broadcasting Decision CRTC 2002-255

Broadcasting Decision CRTC 2002-255

Ottawa, 29 August 2002

Bell Globemedia Inc. on behalf of Netstar Communications Inc. and Le Réseau des sports (RDS) inc.

Quebecor Media inc., on behalf of Vidéotron ltée.

Complaint by Netstar Communications Inc. and its subsidiary Le Réseau des sports (RDS) inc. alleging that Vidéotron ltée. contravened section 9 of the Broadcasting Distribution Regulations

The Commission allows the complaint filed by Netstar Communications Inc./Le Réseau des sports (RDS) inc. and concludes that Vidéotron ltée, licensee of a broadcasting distribution undertaking, contravened section 9 of the Broadcasting Distribution Regulations which prohibits licensees from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage..

The parties

1.

Vidéotron ltée (Vidéotron) is a wholly owned subsidiary of Le Groupe Vidéotron ltée, a corporation all of whose shares are held and controlled by Quebecor Media inc. (Quebecor Media).

2.

Le Groupe TVA inc. (Groupe TVA), the licensee of Le Canal Nouvelles (LCN), is also a subsidiary of Le Groupe Vidéotron ltée, which is controlled by Quebecor Media.

3.

Le Réseau des sports (RDS) inc. (RDS) is a wholly owned subsidiary of Netstar Communications Inc. (Netstar)¹. Netstar is a corporation in which Bell Globemedia Inc. (Bell Globemedia), through subsidiaries, holds 80% of the voting shares. ESPN holds the other 20%.

4.

Bell Globemedia is controlled by BCE Inc. (BCE), which holds 70.1% of the voting shares. The Thomson family holds the other 29.9%.

5.

Bell ExpressVu Inc. (ExpressVu) is a wholly owned and controlled subsidiary of BCE.

6.

Vidéotron and Netstar/RDS have an affiliation agreement, which will remain in effect until December 2002, and which includes a "most favoured nation" clause.

The complaint

7.

Netstar/RDS filed a complaint with the Commission dated 22 April 2002, alleging that Vidéotron had contravened section 9 of the Broadcasting Distribution Regulations (the Regulations).

8.

Netstar/RDS received two letters from Vidéotron. The first was dated 13 December 2001 and the second, 1 March 2002. The letters stated that because Netstar/RDS was tolerating ExpressVu's practice of offering multiple terminals for a single subscription, Vidéotron was justified in implementing the most favoured nation clause contained in the affiliation agreement between the parties by unilaterally imposing two reductions in the negotiated fee set out in the agreement. The reductions lowered the payment made to RDS by 62%. If those reductions remain in place, they will result in a decrease in the payments made to RDS of approximately $16 million by December 2002.

9.

Netstar/RDS argue that such a large, unilateral and arbitrary reduction compromises RDS' ability to meet its obligations pursuant to the Broadcasting Act (the Act) and its conditions of licence.

10.

Netstar/RDS allege that Vidéotron decided unilaterally and arbitrarily that 100% of ExpressVu's subscribers had two terminals, but paid for only one subscription, and that RDS tolerates this situation. According to Netstar/RDS, Vidéotron should have filed a complaint with the Commission against ExpressVu and allowed the Commission to act rather than take matters into its own hands, to the detriment of RDS.

11.

Netstar/RDS allege that Vidéotron appears not to have imposed those same unilateral reductions on LCN, even though all programming services are affected in the same way by the practice that ExpressVu is allegedly using. This, in their opinion, gives an undue preference to Vidéotron.

12.

Netstar/RDS submit that Vidéotron has abused its position as a major player in the Francophone market and has gained an undue financial advantage.

13.

Netstar/RDS believe that the allegations made against Vidéotron should not be seen as a simple contractual and business dispute between two undertakings, despite the affiliation agreement between the parties that is effective until December 2002. They consider that the Commission has full jurisdiction to intervene, because the dispute, according to them, has an impact on broadcasting objectives and is contrary to the existing regulatory framework.

Vidéotron's position

14.

In response, Vidéotron argues that, in cases where there is a signed agreement between parties, the Commission usually leaves it up to the courts to resolve this type of dispute. Vidéotron therefore requests the Commission to dismiss the Netstar/RDS complaint, which, according to Vidéotron, lacks substance and is ill-timed.

15.

Vidéotron explains that it reduced the payments made to RDS because ExpressVu, also owned by BCE, follows the marketing practice of selling multiple terminals to a number of subscribers. As a result, those subscribers would pay only one subscription fee, but could have more than one terminal. According to Vidéotron, the fact that Netstar/RDS had tolerated this practice justifies Vidéotron's application of the most favoured nation clause set out in the affiliation agreement with RDS, and the consequent reduction of the payments to RDS.

16.

With respect to the issue of a distributor offering multiple terminals requiring only one subscription, Vidéotron claims that it has every reason to believe that it will know the extent of that phenomenon in the coming months.

17.

Vidéotron adds that it treated RDS no differently than it treats other programming services, included LCN. Vidéotron points out that all programming services with which it has an agreement that includes a most favoured nation clause received a letter similar to the letter sent to RDS. Vidétron has no affiliation agreement with LCN. Because there is no agreement, and thus, no such favoured nation clause, Vidéotron did not reduce LCN's royalties. In Vidéotron's view, it therefore did not confer any undue preference.

The Commission's analysis and determinations

18.

The public file includes all documentation and schedules filed by the parties pertaining to this dispute: the complaint by Netstar/RDS dated 22 April 2002, the response from Quebecor Media dated 10 May 2002, the reply from Netstar/RDS dated 13 May 2002, and two letters filed with the Commission by Quebecor Media dated 23 and 30 May 2002 in response to information requests from Commission staff dated 22 and 27 May 2002.

The Commission's jurisdiction

19.

The Commission is of the view that, pursuant to the Act, Regulations and policies, it has the authority to intervene in a dispute involving two parties that have entered into an affiliation agreement. In this instance, the Commission finds that it is in the public interest to intervene. This finding takes into account, on the one hand, the actions of Vidéotron, a major player in the Francophone market, which decided unilaterally to cut payments to RDS by 62% and, on the other hand, the major impact of that unilateral decision with regard to the objectives of the Canadian broadcasting system.

20.

Section 9 of the Regulationsreads as follows:

No licensee shall give an undue preference to any person, including itself, or subject any person to an undue disadvantage.

21.

With respect to undue preference, the Commission notes that the complainant must first provide enough evidence to prove that there is a preference and/or a disadvantage, and second, that the preference and/or disadvantage is undue.

Section 9 of the Regulationsand Vidéotron

22.

In order for the Commission to conclude that Vidéotron gave itself an undue preference, and that it thus subjected Netstar/RDS to an undue disadvantage, Netstar/RDS must first prove their allegation that Vidéotron reduced the payment to them by 62%. Secondly, Netstar/RDS must demonstrate that the preference and/or disadvantage caused by this reduction is undue as having material and serious consequences that are contrary to the public interest for RDS and/or for the Canadian broadcasting system.

Preference and/or disadvantage

23.

Vidéotron is a major player in the Quebec broadcast distribution market, particularly the French-language market. It provides the RDS service to almost 65% of the total number of analog and digital subscribers in Quebec.

24.

In its response to the Netstar/RDS complaint, Vidéotron admits having reduced the pass-through charges agreed to in the written agreement between Vidéotron and RDS on two occasions and for different reasons. Moreover, Vidéotron justifies the reductions through reference to the most favoured nation clause in the agreement between Vidéotron and RDS, claiming that RDS has given a preference to a competitor, namely ExpressVu.

25.

According to Netstar/RDS, the reductions imposed by Vidéotron equal 62% of the payment due to RDS pursuant to the affiliation agreement. If those reductions remain in place, they will result in a decrease in the payments made to RDS of approximately $16 million by December 2002.

26.

The Commission finds that the facts clearly demonstrate that Vidéotron's unilateral decision to reduce by 62% the payments otherwise owing to RDS pursuant to the affiliation agreement benefits Vidéotron alone, to the detriment of RDS, and potentially to the detriment of subscribers themselves.

27.

The Commission is also of the view that Vidéotron has not provided proof of its allegations concerning ExpressVu's marketing practice, since it admitted in written filings that it does not know the extent of that practice and has no specific criteria for determining and justifying the reduction in payments to RDS. The Commission has no indication of the number of subscribers that could be affected by this practice and the impact of that number on revenues.

28.

The Commission is of the opinion that Vidéotron, without having the essential facts or concrete evidence, arbitrarily reduced royalties payable to RDS. The Commission finds that Vidéotron, by unilaterally reducing the royalties payable to RDS, gave itself a preference and thus subjected RDS to a disadvantage.

Undue preference and/or disadvantage

29.

To find the preference and/or disadvantage as being undue, the Commission has to find that Vidéotron's actions had material and serious consequences that are contrary to the public interest for RDS and/or the Canadian broadcasting system.

30.

First, with respect to the public interest, section 3(1)(t)(iii) of the Actstates that distribution undertakings "should, where programming services are supplied to them by broadcasting undertakings pursuant to contractual arrangements, provide reasonable terms for the carriage, packaging and retailing of those programming services". Thus, by unilaterally reducing the payments, Vidéotron is no longer providing RDS with reasonable terms for the carriage of the programming service. The reduced payments could potentially compromise the viability of RDS, given the impact of the loss of $16 million by the time the contract expires. In light of the above, the Commission finds that the reduced payments offered to RDS for distributing its service are contrary to the public interest.

31.

Secondly, section 3(1)(s) of the Act stipulates that "private networks and programming undertakings should, to an extent consistent with the financial and other resources available to them, (i) contribute significantly to the creation and presentation of Canadian programming, and (ii) be responsive to the evolving demands of the public". In Renewal of the licence for the national French-language specialty television service, Le Réseau des sports, Decision CRTC 2001-735, 29 November 2001, the Commission renewed the RDS licence from 1 December 2001 to 31 August 2008. The Commission notes that RDS could have difficulty complying with the conditions of licence set out in its renewal decision or may be unable to comply altogether, because of the unilateral reduction imposed by Vidéotron. This objective of the Act may consequently become difficult to meet.

32.

Thirdly, section 3(1)(d) of the Act stipulates, among other things, that the broadcasting system should provide a wide range of programming. By unilaterally reducing the payments, Vidéotron is compromising the ability of a programming service, namely RDS, to provide its programs to subscribers. Less diversity means fewer choices for subscribers which, in the Commission's view, is contrary to the public interest.

33.

Moreover, the Commission considers that Vidéotron acted abusively by unilaterally imposing unreasonable payment terms on RDS without having exhausted all reasonable means at its disposal, including those mechanisms established by the Commission, to resolve this dispute.

34.

The Commission is thus of the view that the preference Vidéotron gave itself and the disadvantage to which Netstar/RDS were subjected have serious consequences for RDS and the entire broadcasting system that are contrary to the public interest.

Conclusion

35.

The Commission finds that Vidéotron, by unilaterally reducing the royalties payable to Netstar/RDS pursuant to the affiliation agreement gave itself an undue preference and subjected RDS to an undue disadvantage, contrary to section 9 of the Regulations.

Section 9 of the Regulationsand LCN

36.

In order for the Commission to conclude that Vidéotron gave an undue preference to LCN and to itself, Netstar/RDS must first prove their allegation that LCN's payments were not reduced by 62%, as the payments to RDS had been. Second, Netstar/RDS must demonstrate that the preference and/or disadvantage is undue as having material and serious consequences for RDS and/or the Canadian broadcasting system that are contrary to the public interest.

Preference and/or disadvantage

37.

Vidéotron cited ExpressVu's multiple terminal practice as justification for Vidéotron's application of the most favoured nation clause. In Vidéotron's letter dated 10 May 2002, it stated that, since it has no affiliation agreement with LCN, there is no most favoured nation clause to implement. It explained that it is for this reason that LCN did not receive a letter similar to the letter that RDS received.

38.

In the Commission's view, the facts demonstrate that, although Vidéotron and LCN are currently negotiating an affiliation agreement, Vidéotron gave a preference to LCN over RDS. It did so by not reducing the payments to LCN. Vidéotron also gave itself a preference in that, because Vidéotron is related to LCN, Videotron does not suffer any adverse financial impact.

Undue preference and/or disadvantage

39.

The Commission reiterates the following statement taken from Ownership of analog discretionary services by cable undertakings, Public Notice CRTC 2001-66, 7 June 2001 (Public Notice 2001-66). This notice is relevant in the present circumstances because Vidéotron owns LCN. The notice states, in paragraph 3:

40.

The Commission considers that Vidéotron used its position as a major player in the Quebec market and its links with LCN to increase its revenues, and to impose payment terms on RDS that are different from those imposed on LCN. These actions are contrary to the objectives set out in Public Notice 2001-66.

41.

The Commission is of the view that the financial losses incurred by RDS, projected at $16 million by December 2002, and resulting from the unilateral imposition of payment terms that are disadvantageous for RDS, compromise the financial health of RDS, despite its affiliation with BCE.

42.

The Commission believes that the preference that Vidéotron gave to LCN and itself has serious consequences for RDS and for the entire broadcasting system that are contrary to the public interest.

Conclusion

43.

The Commission finds that by unilaterally reducing payments made to RDS, and by not concurrently reducing those payable to LCN, Vidéotron gave an undue preference to LCN and to itself, in contravention of section 9 of the Regulations.

Actions to be taken by Vidéotron to rectify the contravention of section 9 of the Regulations

44.

The Commission requires Vidéotron to make all payments owed to Netstar/RDS that have accumulated from the date that the first unilateral reductions where imposed. Also, within 10 days of this decision, Vidéotron must provide the Commission with a written explanation of how it intends to comply with this decision. Furthermore, in the event that Vidéotron does not comply with this decision, the Commission may convene a public hearing to examine why it should not issue an order or use other enforcement measures at its disposal.

Vidéotron's request for confidentiality

45.

Pursuant to section 20 of the CRTC Rules of Procedure, Vidéotron requested that the Commission treat some documents as confidential, such as those dealing with policies established between itself and LCN and various email messages exchanged during discussions between the parties concerning the negotiation of agreements. Vidéotron stated that those documents constitute private business information that is extremely valuable to competitors, who could use it to the detriment of one or more of the parties.

46.

The Commission is of the view that Vidéotron demonstrated that the public interest would be best served by treating the information as confidential. The request for confidential treatment is therefore allowed.

47.

In accordance with CRTC policy, all correspondence related to this complaint other than confidential information, shall be placed on the public file.

Secretary General

This decision is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca