August 25, 2022
The CRTC has nudged the regulatory needle in the direction of independent programming services seeking better terms of carriage from cable TV companies.
That makes OUTtv CEO Brad Danks “a small ‘h’ happy,” as he told Cartt.ca in a recent interview.
The reason for Danks’ muted joy was the Commission’s licence renewal of his LBGTQ+ focused channel on August 18th. OUTtv is owned by the privately held Stern Partners, but Danks is its long time guiding light and an articulate champion of independent programming services in an industry dominated by big media companies.
The plight of independent programmers gets little public notice. It’s the cable and satellite companies — known in CRTC-speak as “broadcasting distribution undertakings (BDUs)” — that are customer-facing.
Programming services like OUTtv survive by making distribution deals with the BDUs that have more bargaining power. The programmers look to the CRTC to balance the commercial relationship through regulation.
The story of OUTtv is an instructive episode in the David versus Goliath regulatory drama.
The Commission’s renewal of OUTtv’s 2013 licence was the programming service’s first renewal since the Commission relaxed regulatory rules in 2015 governing how programming services obtain BDU carriage.
Before the 2015 changes, OUTtv was one of many licenced Category A channels enjoying “must carry” privileges on BDUs.
“Must carry” was paired with “genre exclusivity,” a CRTC-enforced monopoly benefiting niche Canadian channels, including OUTtv because of its LBGTQ-focussed programming. The “rate card” compensation that BDUs paid to channels like OUTtv was negotiated or if talks broke down fixed by binding arbitration.
But in 2015 the Commission abolished the must-carry/genre exclusivity privileges along with the “Category A” label.
To mitigate the repeal of must-carry, the Commission ordered the vertically integrated BDUs Bell, Rogers, Québecor’s Videotron, and Shaw to carry as many independent channels as their own broadcast services (the “one-to-one” rule). It’s a measure of the BDUs’ dominance of the specialty TV market that, in spite of the one-to-one rule, their own specialty channels still earn $3 for every $1 of revenue earned by the independents.
The Commission also updated the Wholesale Code. Those are the rules of engagement between BDUs and independents around good faith bargaining, reasonable rates and other commercial terms, again backed up by binding arbitration.
The few remaining “must carry” specialty channels on BDU platforms are the so-called “section 9(1)(h)” channels hosted on the basic TV dial: the Aboriginal Peoples Television Network, weather channels, news services for minority anglophone and francophone communities, accessibility programming for disabled Canadians, and most recently the multi-lingual OMNI network. OUTtv is not among them.
Must-carry in the BDU “basic” television package that includes local Canadian and American stations gives these services maximum audience exposure and —-importantly—- a rate-card fixed by the CRTC.
Since its change of ownership in 2017, OUTtv has steadily increased its spending on original Canadian programming. It broadcasts in most of the CRTC’s priority genres with the heaviest concentration in drama, comedy, lifestyle content and documentaries.
Like any niche content channel, OUTtv’s business model is built on the authenticity of its content. But to be profitable, it must build out audience scale.
In past rulings the CRTC acknowledged the importance of OUTtv’s programming for two reasons: to serve an LBGTQ+ audience that is underrepresented in television and to provide a “bridge” to the mainstream audience.
As Danks put it in his recent licence application, OUTtv programming provides his community with authentic content and positive encouragement while offering straight viewers more insight into the LGBTQ community than they might see on the major TV networks.
The Commission agreed:
44. The Commission agrees with the licensee and the interveners that OUTtv plays an important role in the Canadian broadcasting system as it is the only service in Canada that targets LGBTQ2 communities with all of its programming. OUTtv responds to the needs and interests of these communities and contributes to raising greater awareness and understanding by all Canadians. In addition, OUTtv Network invests significantly in original first-run productions, thereby ensuring the reflection of LGBTQ2 communities in television programming while contributing to the diversity of programming available to Canadians. The licensee also uses independent producers who identify with LGBTQ2 communities. The Commission considers that the service contributes directly to fulfilling objectives of the Act by providing a unique contribution that targets and reflects the LGBTQ2 communities.
But like all television companies today, OUTtv’s linear TV business has faltered over the last decade.
Despite OUTtv increasing programming expenditures devoted to Canadian content (now an eye-catching 58% of revenue), CRTC filings for 2016-2020 show its annual revenues for linear TV in steady decline.
In 2020, it sustained a 30% operating loss ($1.6 million on $4.1 million of revenue). Subscriber numbers grew and peaked in 2019 at 1,056,752 but fell hard to 890,525 the following year.
OUTtv responded by expanding its online audience and digital revenue in Canada and abroad through distribution deals with Amazon, Roku and other platforms, an increasingly common strategy for niche broadcasters. But OUTtv’s bread and butter remains carriage on regulated Canadian BDUs to reach the biggest domestic audience.
In response to an e-mail, Danks said “we have been working hard to grow our revenue in the online platforms in Canada and around world. However it is important that OUTtv be treated fairly on the Canadian system as well. Maintaining these revenues is important to give us time to make the transition to the future.”
To achieve that, CEO Danks wanted three things from the Commission.
First he asked to keep the must-carry BDU privileges from his expiring Category A licence.
Second, he wanted the Commission to fix the tariff at which BDUs would pay for carrying his channel (a difficult ask given the Commission hasn’t done that since 2006 except for the handful of “section 9(1)h” services on the basic dial).
Most importantly, he proposed a better deal from the BDUs on how his channel is sold to cable customers.
This latter point is called “best available packaging” in the CRTC’s Wholesale Code. In the world of specialty TV where audience scale is the key to profitability, placement in the most popular pre-assembled bundles or theme packages is where the success of independent programming services is made or broken.
Currently Bell, Rogers and Shaw relegate OUTtv to their most costly and least subscribed premium bundles and still remain in-bounds of the CRTC’s forgiving interpretation of “best available packaging”.
Other BDUs like Telus —-which offer customers small theme packages instead of general bundles— have placed OUTtv’s unique content in lower-penetration “variety” packs grouped with home improvement and women’s channels.
The promised land for OUTtv and most independent programmers is inclusion in a BDU’s lowest-priced but well subscribed general bundle of specialty channels.
However BDUs don’t let just anyone into the promised land. They are gatekeeping dozens of programming services (including their own), all clamoring for maximum audience exposure.
Protecting their own bottom line, BDUs may package independent channels with a loyal following in a manner that drives customer traffic to a less popular but more expensive package. Fairly or not, popular programming services can be conscripted as cross-subsidizers of other independent services.
More troubling from the independents’ point of view, the BDUs are motivated to look after their own specialty channels first, although that practice is limited by the Wholesale Code’s rule against self-preferencing.
OUTtv had a bad experience with the CRTC’s interpretation of “best available packaging” rules in 2012 when Telus chose to assign OUTtv to its less popular Lifestyle Extra pack with five per cent market penetration instead of the higher (50%) penetration Lifestyle bundle. The Commission’s solution was to leave OUTtv in the Lifestyle Extra pack but order Telus to do a better job marketing it. The Commission’s bottom line was:
Requiring TELUS to place OUTtv in the “Lifestyle” package in the circumstances would unreasonably undermine TELUS’s overall packaging flexibility and lead to less choice for consumers….the differing penetration levels of packages should not be sufficient in and of itself to sustain a finding of undue preference or disadvantage.” (Emphasis added).
If that was what the Wholesale Code’s prescription of “best available package” really meant for independent programmers, Danks was looking to fix this in his next licence renewal.
In the end the Commission gave OUTtv some of what Danks was asking for in its licence renewal released August 18, 2022.
The decision’s headliner was a “must-carry” order for OUTtv in the licenced English language market.
As a former Category A channel, OUTtv’s “must carry” represents the status quo. But at least the order deprives BDUs of the opportunity to play hardball with OUTtv over distribution deals by serving notice of non-renewal.
On the more important issue of packaging, the Commission appears to have struck a compromise between BDU and OUTtv interests.
Instead of giving Danks the binding order he was seeking, the Commission gave his BDU partners a non-binding “expectation” of packaging privileges that expands on the limited rights of programming services found in the Commission’s Wholesale Code:
To this effect, clause 9 of the Wholesale Code states that “[a]n independent programming service shall, unless the parties agree otherwise, be included in the best available pre-assembled or theme package consistent with its theme, programming and language.” Given the exceptional importance of OUTtv to the achievement of the objectives of the Act, the Commission considers it appropriate to set out the following expectation:
The Commission expects broadcasting distribution undertakings to include the OUTtv programming service in pre-assembled or thematic packages, consistent with its theme, programming and language and with the highest penetration rates. (Emphasis added)
What the Commission did here is to request but not compel BDUs to recognize OUTtv as a special case because of the public interest in its LGBTQ+ content and for that reason defined “best available” package as the one with “the highest penetration rates.”
This gives Danks almost everything he needs to get a better deal on packaging.
It does not however temper any of the hardball negotiating tactics —-low balling the rate-card and delaying arbitration proceedings top the list— that independent programmers often accuse BDUs of using (denied by the BDUs, to be sure).
On this point, the Commission gave Danks a consolation prize with another non-binding directive to BDUs:
52. In addition, the Commission encourages BDUs to treat the OUTtv programming service fairly and to avoid withdrawing the service, imposing punitive or retaliatory measures, imposing unreasonable rates, significantly altering the packaging or otherwise substantially reducing the wholesale payment for the service. (Emphasis added)
A dissent from BC/Yukon Commissioner Claire Anderson would have converted the majority’s expectations and encouragements into mandatory orders.
Now that the Commission’s ruling has made Danks “small ‘h’ happy,” OUTtv is headed for some lengthy negotiations with all BDUs, big and small.
The outcome may not be known for months, especially if disputes over rate cards and packaging go back to the Commission for arbitration.
Is this a precedent for future licence renewals of other independent programmers?
It would be optimistic of them to think so.
The OUTtv ruling is clearly tethered to the public interest of giving a boost to underrepresented programming by and for an equity-seeking community. This is similar to what the Commission just did for indigenous, racialized, and disabled communities in the CBC licence renewal.
Meanwhile the independent programmers’ list of grievances against the BDUs were recently aired at the CRTC’s Rogers-Shaw merger hearings but mostly deflected by the Commission.
The independent programmers see themselves getting squeezed by BDUs which are responding to their own profit pressure from Netflix and other foreign Internet competitors.
Verifying that perception, since 2016 the specialty channels owned by Bell, Rogers, Québecor and Shaw have shrunk by two per cent of revenues while the independents are down seven per cent. The PBIT profit rate for the BDUs’ specialty channels was 30% in 2020 while the independents were at ten per cent, even lower if the programming services that enjoy a secure flow of “section 9(1)h” subscriber fees are factored out of the calculation.
The independent programmers also see themselves, along with independent film producers, as the heartbeat of authentic Canadian broadcasting content.
They are not going down without a fight, nor should we want them to.