ARCHIVED - Broadcasting Commission Letter Addressed to Mr. Rudy Buttignol and Mrs. Pamela Dinsmore (Knowledge-West Communications Corporation and Rogers Communications Inc.)

Ottawa, 7 November 2017

BY EMAIL:

Mr. Rudy Buttignol
President
Knowledge-West Communications Corporation
rudyb@knowledge.ca

Mrs. Pamela Dinsmore
Vice President, Regulatory, Corporate Affairs
Rogers Communications Inc.
Pam.Dinsmore@rci.rogers.com

Re: Dispute regarding the continued carriage of BBC Kids by Rogers Cable

Dear Sir / Madam,

On 1 September 2017, Knowledge-West Communications Corporation (Knowledge) filed a request for staff-assisted mediation with Rogers Cable (Rogers) in light of Rogers’ notice of non-renewal with respect to the distribution of BBC Kids.  Knowledge stated that given Rogers’ scale, non-renewal threatens the very viability of the service, leaving no choice but to shut the service down.

In its 7 September 2017 reply, Rogers stated that it did not wish to participate in staff-assisted mediation because it does not intend to renew the distribution agreement for BBC Kids. It indicated that its reason for not seeking renewal of the agreement is commercially valid and based on the extremely low viewership to the BBC Kids service.

Commission staff wrote to the parties on 26 September 2017, setting out the applicable regulatory framework, as follows:

Sections 12(1) of the Broadcasting Distribution Regulations (BDU Regulations) and Section 14(1) of the Discretionary Services Regulations (Discretionary Regulations) permit one or both parties to a dispute concerning carriage or terms of carriage of a programming service to refer the matter to the Commission for dispute resolution.

Section 15.01 of the BDU Regulations requires that, during a dispute between a broadcasting distribution undertaking (BDU) and a programmer, the BDU continue to distribute the programming service at the same rates and on the same terms and conditions as it did before the dispute (the “standstill” rule).

Based on the foregoing, Commission staff found that the parties were engaged in a dispute and that the standstill rule applies until the parties resolve their dispute or the Commission issues a decision concerning this unresolved matter. 

To assist the Commission in considering this matter, in a letter dated 26 September 2017, the parties were asked to demonstrate that fair commercial negotiations have taken place and to submit the following information:

• BBC Kids must demonstrate that Commission intervention is warranted e.g. that the loss of carriage would compromise its ability to contribute to the achievement of the objectives of the Broadcasting Act; and
• Rogers must substantiate its decision to cease distribution of the channel, e.g. demonstrate, with evidence, that it has valid commercial reasons for doing so.

The parties responded on 2 October 2017.

Position of Parties

Knowledge stated that Rogers represents a significant share of BBC Kids’ subscriber base and an important share of the service’s revenues.  It also stated that without Rogers, BBC Kids is projected to incur net operating losses significant enough that Knowledge may not be able to continue operations under these financial circumstances.  Further, Knowledge argued that termination by Rogers would signal to other distributors that there is no longer a competitive reason to maintain their carriage of the service – lessening diversity and reducing choices for Canadians looking for a “family-friendly, non-commercial alternative service.”

As for viewership, Knowledge acknowledged that there have been overall declines in viewing for kids programming, and volatility for BBC Kids.  It stated that programming and marketing strategies have been implemented to address these challenges and that, in recent months, viewership has increased. 

Finally, Knowledge argued that fair commercial negotiations have not taken place, that Rogers had not expressed any concerns about viewership in previous renewal discussions, and that unilateral termination of negotiations over an 11th hour ratings concern is prima facia evidence that fair negotiations have not taken place. Knowledge argued that mandated mediation would go some way towards balancing the public interest and levelling the playing field between a vertically-integrated company and one of the few remaining Canadian independent services in the children’s programming sector, and the only remaining non-preschool commercial-free service.

In its 2 October 2017 letter, Rogers argued that despite broad distribution, BBC Kids’ viewership has been at or near the bottom of the 15 channels it offers in the kids and family genre, and this despite the fact that over half of Rogers’ households subscribe to a package containing the service, a level higher than nine of the other kids channels Rogers offers. Rogers also stated that Numeris’ AMA (average minute audience) data also shows that BBC Kids ranks last among the 13 kids and family channels that Numeris rates and that BBC Kids’ viewership has actually declined in 2017, providing additional evidence in support of the decision to cease carriage.

Rogers argued that as a Category B service without access rights, BBC Kids’ consistently poor performance and the fact that the affiliation agreement expires at the end of the year are valid commercial reasons for the decision to cease distribution of the channel. Rogers further argued that in the absence of an actual dispute, the decision to cease distribution of the service should not engage subsection 12(1) of the BDU Regulations.

Finally, Rogers stated that given the above, it is not acting in an anti-competitive manner and has not used the threat of non-renewal to gain a better wholesale rate or other concessions from Knowledge, having simply made a business decision to cease distributing BBC Kids.

Analysis and Determinations

The Commission’s dispute resolution regime is designed to ensure a healthy and dynamic wholesale market, one in which negotiations are conducted fairly and in good faith. Similarly, the standstill rule was put in place to level the field during negotiations between programmers and distributors and to ensure that subscribers are not deprived of services while parties are engaged in negotiations. The Commission is prepared to intervene where it finds that parties are acting in an anti-competitive manner. Such targeted intervention may be necessary to ensure a healthy, dynamic retail market that maximizes consumer choice and flexibility and provides Canadians with access to a diverse range of programming.

The BDU Regulations contemplate dispute resolution on the question of carriage as well as disputes regarding terms of carriage (including rates, packaging, marketing). Therefore, the parties are indeed in a dispute, and, under the standstill rule, Rogers is required to distribute BBC Kids at the same rates and on the same terms and conditions as it did before the dispute, until the parties resolve their dispute or the Commission issues a decision concerning this unresolved matter.

Rogers is correct that, as a Category B service, BBC Kids has no access rights and that Rogers is under no obligation to carry the service. Further, the Commission did acknowledge in its Let’s Talk TV framework that with an increased reliance on market forces for the distribution and packaging of discretionary services, and an environment marked by greater subscriber choice, some services may not survive.  At the same time, the Commission is conscious that in the absence of carriage rights, dispute resolution is the last resort for programming services.  Accordingly, consistent with the approach applied in Decisions 2016-38 and 2016-74 regarding the continued carriage of Avis de recherche, the Commission must be assured that the programming service has had a fair chance at negotiation and that the BDU has valid commercial reasons for its decision to terminate the affiliation agreement.

In this case, the Commission has taken into consideration the fact that Rogers represents a significant share of BBC Kids’ subscriber base.  As a result, losing access to those subscribers would have serious financial repercussions on BBC Kids.

Under these circumstances, the Commission wishes to ensure that BBC Kids has a fair opportunity to make its case for continued distribution to Rogers. 

Accordingly, in accordance with section 12(4) of the Regulations, the Commission requires the parties to participate in a mediation with Bernard Montigny, Senior Director, Dispute Resolution. Mr. Montigny’s staff will be in touch shortly to confirm dates.

Yours sincerely,

Scott Hutton
Acting Secretary General

Date modified:

2017-11-07