CRTC Proposes Value for Signal Regime Regulatory Update $SPY

CRTC Proposes Value for Signal Regime
Event: The CRTC issued its decision pertaining to group licensing of television ownership groups, under which it confirmed its intention to implement a regime under which private conventional television stations may negotiate a fee for carriage with cable and satellite distributors. The framework is still preliminary and the CRTC has asked the Federal Court of Appeal to rule on its authority to implement such a regime. Publicly funded CBC is not part of the negotiated fee regime proposal.

Outlook: A negotiated fee regime is consistent with our expectations. Importantly the CBC is not included, which would limit the ultimate magnitude
payments over time. Also importantly is that if a conventional broadcaster opts for negotiations it will lose most of its regulatory protections, including simultaneous substitution. This means that the negotiating regime is not one in which broadcasters have nothing to lose but can only gain. If the regime is ultimately adopted then we would expect broadcasters will take a measured course in negotiations and would focus likely on a few large market stations as opposed to all of their local affiliates. Moreover, we expect that negotiations will largely focus on non-cash payments, such as re-implementing simultaneous substitution, advertising on VOD, online video, etc. and accordingly we do not anticipate a meaningful cost headwind for cable over the near term. Also positive for cable and satellite distributors, and the specialty television companies, is that the LPIF fee of 1.5% of revenues was not increased, nor was it broadened to include the specialty and pay television sectors.

The purer-play specialty and pay television companies, Corus and Astral, do not meet the minimum requirement for group-based licensing and, accordingly, the regulations that govern their television businesses do not change. This may be viewed as a small negative because their programming flexibility will not improve as it may for the larger ownership groups, but nonetheless a steady LPIF regime essentially offsets this.

As it pertains to the satellite distributors, there is no indication of mandating local into local in all markets and, accordingly, the greatest potential risk factor for satellite was avoided in this decision. Similarly for cable, the concept of a “skinny basic” package was not endorsed. Somewhat surprising to us was that advertising on local availabilities of U.S. services was not implemented, although that is a small element, likely representing $50-$60 million in annual  revenues for the sector over time. Overall the decision appears largely consistent with our view. We do not expect
broadcasters will have the ability to extract significant rents from the cable and satellite sectors. There remains some potential that the Courts or Government may declare that the CRTC does not have the authority to implement the regime.


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