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BP-396E
CABLE SPECIALTY SERVICES:
THE CONSUMER PROTEST OF EARLY 1995
Prepared by Susan Alter
Law and Government Division
January 1995
TABLE OF CONTENTS
INTRODUCTION
THE
TECHNOLOGICAL ENVIRONMENT
THE
REGULATORY ENVIRONMENT
A. The 1993 Structural Hearing
B.
Key Rules Governing Cable Specialty Services
1.
Basic and Discretionary Cable Services
2.
The CRTC's Distribution Rules
C.
Fees for the New Services and their Regulation
D. The Marketing of the New Specialty Services
CONCLUSION
SELECTED
REFERENCES
CABLE SPECIALTY
SERVICES:
THE CONSUMER PROTEST OF EARLY 1995
INTRODUCTION
In 1994 the Canadian
Radio-television and Telecommunications Commission (CRTC) licensed six
new English-language and two new French-language specialty services: Bravo!,
The Country Network, The Discovery Channel, Lifestyle Television, Showcase,
YOU: Your Channel, Le Réseau de l'information, and "Arts et Divertissement."
In doing so, the Commission's two primary objectives were: (1) to strengthen
the Canadian presence in the Canadian broadcasting system, especially
in anticipation of invasions by American direct-to-home satellite services
(the infamous "deathstars") and (2) to ensure that the widest
possible selection of new Canadian services would be available at a reasonable
cost.
The first day of
January 1995 marked the début of the new line-up of cable specialty services.
But, much to the apparent surprise of the industry and the CRTC, they
were not warmly welcomed everywhere. The new channels, which were added
in most cases to subscribers' existing discretionary service for an additional
monthly fee, aroused many viewers' ire, not their interest. Sparking much
of the angry protestation was the marketing strategy employed, mainly
by Rogers Cablesystems, the country's largest cable operator, to "sell"
the new services: negative-option marketing. Higher fees and the repackaging
and repositioning of channels also fuelled the dissension.
By the fifth day
of January, Rogers Cablesystems had partly capitulated, apologizing for
its mistake in not presenting the new services as a separate, discretionary
package. It offered customers the choice of keeping only their current
package of discretionary specialty channels, at the old price, or of adding
the new package of specialty services at an additional fee. The much-reviled
negative-option-marketing scheme used to launch the new line-up, however,
remained firmly in place, leaving the onus on the consumer to refuse the
new package.
Although it is
too soon to tell, some commentators have suggested that the protesters
may have won a pyrrhic victory. Their resolute assertion, now, of freedom
to choose their cable packages could jeopardize the range of Canadian
choices available to everyone in the multi-channel, pick-and-pay universe
of the future.
This background
paper will describe the technological and regulatory environments in which
the cable revolt unfolded and discuss some of its implications.
THE TECHNOLOGICAL ENVIRONMENT
The capacity of
the multi-channel universe has grown exponentially over the last few years,
from 100 to 200 and then 500 channels. For channel surfers, however, this
bountiful choice is simply science fiction, not yet having graced their
living rooms. Interactive technology, as well, which will ultimately provide
users with a cornucopia of video games, videotext and interactive television
services, is currently more dream than reality, existing largely as field
trials in selected communities.
The current analog
system of signal transmission must evolve to a digital system before the
promise of pick-and-pay and interactive multimedia cable services can
be delivered. The evolution is set to begin with the distribution of special
set-top boxes, called digital video compression boxes or DVC boxes, to
cable subscribers. DVC technology allows cable companies to squeeze more
services on to the space now occupied by one channel and then to transmit
them, in digitized form, to homes where DVC boxes translate the compressed,
digitized signals back into analog format, receivable by subscribers'
TV sets.
The cable industry's
move from analog to digital transmissions -- in other words, from the
world of basic and discretionary tiers of service, pay TV and pay-per-view,
to the world of pick-and-pay and interactive multi-media cable services
-- is slated to be completed only around the turn of the century. Thus,
television and the cable industry are currently in a period of transition;
program selection is increasing but the technology to give viewers real
choice has not yet arrived.
THE REGULATORY ENVIRONMENT
A. The 1993 Structural Hearing
Mindful of the
dramatic changes on the horizon for the broadcasting system, in 1993 the
CRTC held a hearing on cable television ("the structural public hearing").
The purpose of this hearing was to help the Commission design a regulatory
framework appropriate for ushering in the new generation of television.
In the words of Keith Spicer, Chairman of the CRTC, "Our main objective
was to build a regulatory framework that will serve as a bridge for the
Canadian broadcasting system as it prepares for this consumer-driven market
of the year 2000."
The CRTC decision
issuing from the structural hearing process, released in June 1993, unleashed
a number of regulatory reforms, many of which were implemented through
the approval and introduction of the new line-up of cable specialty services
in the latter half of 1994. For example, through these public processes,
negative-option-marketing strategies were debated and tacitly approved,
and refinements to the rules governing the distribution and packaging
of specialty services were engineered.
In light of cable-subscribers'
revolt in January 1995, the soundness of the CRTC's regulatory framework
has been challenged. Consumer advocates, in particular, have been calling
on the government to amend the Broadcasting Act to force the CRTC
to protect consumer interests, not just cultural interests, when regulating
the cable industry monopoly. Nevertheless, as of mid-January, the Commission
remained resolute in its regulatory vision for the transition of television,
defending its decision to license the newest fleet of Canadian specialty
services, standing by its rules for distributing and packaging cable programming,
and deflecting complaints about the marketing, cost and channel alignment
for the new services, for the most part, onto the cable companies themselves.
The CRTC's plans
to help empower cable consumers appear to have only a long-range dimension.
Speaking to cable industry players at the May 1994 annual convention of
the Canadian Cable Television Association, CRTC Chairman Keith Spicer
acknowledged that television consumers want more control; however, he
also indicated, they would not have it until after the year 2000:
They want,
deserve, and will increasingly settle for nothing less than the maximum
control possible over which services they select and pay for. As a
consumer and CRTC Chairman, I agree one hundred percent with this
goal. Full pick-and-pay, beyond a few rock bottom, common national-interest
services, can come only after this decade; but I believe it must come.
In the meantime,
the Chairman is looking after cable subscribers' interests by simply urging
cable operators to pay more attention to cable consumers' demands:
Over the long
term, competitors will develop the means to offer virtually the same
services, and the regulator will not block consumers from gaining
access to competing sources of the services they want to buy. That's
why it's vital for cable to articulate a strategic industry vision,
to adapt your technology as fast as possible and, I would triple underline,
to listen to consumers very carefully, treating them with the greatest
sensitivity and respect.
B.
Key Rules Governing Cable Specialty Services
The CRTC's convoluted
rules governing the distribution and packaging of cable services are at
the heart of the specialty services dilemma. An explanation of these rules
is therefore necessary to an understanding of the circumstances that spawned
the cable subscribers' rebellion.
1. Basic and Discretionary Cable Services
The rules governing
the distribution and packaging of cable services in Canada have evolved
and become more intricate as the services available have increased. In
1983, as the number and range of cable programming services grew, the
CRTC was faced with deciding how to manage their volume and cost. The
Commission decided to divide cable services into two levels or tiers:
basic and discretionary (Public Notice CRTC 1983-245: Cable Television
Service Tiering and Universal Pay Television Service).
Basic cable
service is the standard
package of services that all cable companies must provide to all subscribers
in their service area for a basic monthly fee. The carriage of some programming
in the basic package is mandatory, while other programming may be provided
on an optional basis. Section 9 of the CRTC's Cable Television Regulations,
1986 prescribes the programming that must be carried as part of the
basic service. For example, it says the basic service must include the
CBC English and French network services, local and regional stations,
provincial educational television services, and a community channel. The
programming services that are optional to the basic service include most
of the Canadian specialty services and the major American networks.
Some specialty
services, however, are not allowed to be included in the basic service.
They include Chinavision, Talentvision (formerly Cathay), Telelatino,
and any single or limited point-of-view religious specialty service. They
must be offered as part of the discretionary services.
A discretionary
service is any programming service that is not included in
the basic service. Therefore, discretionary services may include specialty,
pay TV and pay-per-view channels, as well as other existing Canadian and
foreign services not included in the basic service. They are programming
services provided to cable subscribers for an extra fee, over and above
what is paid for the basic cable service, to which one must subscribe
to receive discretionary services. Discretionary services are offered
to cable subscribers in the form of programming packages or "discretionary
tiers."
The make up of
each discretionary tier or package is partly governed by the CRTC's "linkage
rules" which restrict how many foreign (generally meaning American)
satellite services can be bundled together with Canadian specialty and
pay TV services in the tier. New linkage rules with respect to Canadian
specialty services came into play 1 January 1995; these require that each
channel allocated to carry a Canadian specialty service within a discretionary
tier be linked with no more than one channel allocated to carry a foreign
satellite service. In other words, as a result of the linkage rules, no
more than one non-Canadian satellite service can be offered on a discretionary
tier for every Canadian specialty service placed there. Previously, the
linkage ratio of non-Canadian to Canadian was 2:1.
The signals for
discretionary services can either be unscrambled or scrambled (requiring
the subscriber to have a decoder to receive the transmission). In the
recent past, large cable companies operating outside Quebec have typically
distributed their discretionary packages in both forms, sending out a
discretionary tier called the "extended tier" in unscrambled
form while scrambling pay TV and pay-per-view services. Cable companies
have usually distributed the unscrambled, extended tier to all households,
including those subscribing only to the basic service, and have then removed
the extended tier service at basic-service-only households using a trap
or filtering device installed outside the premises. Due to the high market
penetration of the extended tier, which reaches over 90% of cabled households,
this approach was the most cost-efficient way to deliver the service.
2. The CRTC's Distribution
Rules
The CRTC's distribution
rules determine whether a specialty service is carried as part of a cable
company's basic service or in a discretionary package. The latest official
rules were published in the CRTC's June 1994 Public Notice CRTC 1994-60:
Distribution and Linkage Requirements. The Cable Television Regulations,
1986, November 1994 amendment, now incorporate these rules by reference
in section 10.
Essentially, these
rules provide that, aside from those specialty services that can only
be carried as part of a discretionary service, all the other specialty
services have double status; thus, depending on the circumstances, they
can be carried either as part of the basic cable service or as part of
a discretionary tier. The CRTC has assigned certain specialty services
to the basic cable package and other specialty services to a discretionary
tier. Either by consent or agreement, however, a specialty service can
be re-assigned or re-located from its designated position on the basic
service to a position on a discretionary service or vice versa.
Specifically, Public
Notice CRTC 1994-60 assigned the following pre-existing and new specialty
programming services to be part of the basic cable service, unless
the company originating the specialty service consents in writing to its
distribution on a discretionary tier: CBC Newsworld, Vision, YTV, MuchMusic,
TSN, Canal Famille, MétéoMédia/Weather Now, Musique Plus, Réseau des Sports,
TV5, Le Réseau de l'information (RDI), and The Country Network. Thus,
for example, Rogers Cablesystems is obliged to distribute RDI in its basic
cable package, unless the CBC consents in writing to bump it to a discretionary
tier.
The notice further
stipulates that a cablesystem having 6,000 or more subscribers may elect
to distribute the following new specialty programming services: Showcase,
Bravo!, Lifestyle Television, The Discovery Channel, Arts et Divertissement,
and YOU: Your Channel. When does the cable operator chooses to do so,
it is required to distribute the services as part of a discretionary package,
unless it and the specialty programming service operator agree
to distribution as part of the basic cable service. Thus, for example,
The Discovery Channel would automatically be placed on a cable company's
discretionary tier of services unless if the owners of Discovery and the
cable operator agreed to put it in the basic cable package.
Given the apparent
flexibility in the distribution rules, the ultimate configuration of a
cable company's basic and discretionary service packages appears to depend
partly on what arrangements (by consent or agreement) it makes with a
particular specialty service operator. The obligation to meet the CRTC's
linkage requirements, discussed above, is another factor that determines
the ultimate configuration of a discretionary tier.
In spite of the
apparent flexibility, the CRTC has not been shy in letting cable companies
know how it would like them to configure their new services. In Public
Notice CRTC 1994-59, the CRTC decision announcing the approval of
the latest line-up of specialty services, the Commission stated that it
would prefer all the new English-language specialty services to be distributed
as part of one or more high-penetration discretionary tiers, rather than
being included in the basic service. It gave two reasons: first, putting
these services on a discretionary tier would keep down the cost of the
basic service; second, since the services provided on the discretionary
tier are optional for all cable subscribers, consumers would be given
greater choice in whether to subscribe to them.
C. Fees for the New Services and their Regulation
Considering the
wide range of programming available to cable subscribers on the basic
service and the fact that all discretionary services are provided on an
optional basis, the Commission long ago decided it would regulate the
fees only for the basic service and not for discretionary services (Public
Notice CRTC 1983-245: Cable Television Service Tiering). Consequently,
the fees it sets for specialty services pertain only to the services when
they are distributed on the basic tier, not when they are placed on a
discretionary tier.
The Commission
announced the regulated cost of the new specialty services for basic cable
subscribers in Public Notice CRTC 1994-59. The rate for the package
of six new English-language specialty services was set at $1.70 per month,
before taxes; for the package of two new French-language services it was
set at $1.61 per month, before taxes.
At the same time,
the Commission announced that it expected that the new English specialty
services distributed on the "extended tier" would have a corresponding
retail price, before taxes, not exceeding $3.00. Apparently, the Commission,
though it does not regulate prices for services on the discretionary tier,
is not averse to declaring unofficially what it would regard as a reasonable
price to charge subscribers.
D. The Marketing of the New Specialty Services
The Commission
has never regulated or attempted to regulate cable companies' use of negative-option
marketing techniques for promoting discretionary cable services. It appears
to have chosen deliberately not to pronounce publicly on the appropriateness
of such marketing practices. After all, it is cognizant of the fact that
they have contributed to the successful launch of other specialty services
and helped to fulfil the Canadian cultural development objectives of the
Broadcasting Act. It is also aware that the Broadcasting Act,
which requires it to supervise and regulate the implementation of the
broadcasting policy, does not direct it to protect cable consumers from
unpopular marketing ploys.
Criticisms of the
Commission's failure to regulate negative-option marketing, especially
prior to the latest launch of new specialty services, have been officially
registered. At the structural public hearing in 1993, some participants
raised concerns about the difficulty of understanding cable bills and
the subscription options available, and specifically denounced the use
of negative-option marketing techniques. Further to these discussions,
the Commission required the cable companies to be more forthright in explaining
the nature and cost of their services to customers.
In the public notice
issuing from the structural hearing, the Commission announced that cable
companies must henceforth clearly identify, in plain and easily-understood
language, those services that are part of their basic package and those
that fall into the discretionary tier, the fee for each service or package
of services, and the actions the subscriber must take to subscribe to
or discontinue the services. Furthermore, the Commission insisted that
in providing this information the cable companies should avoid using misleading
or confusing marketing terms such as "Full Cable Service," "Extended
Basic Service," and "Extended Basic Tier," which had sometimes
led subscribers to think that they had no choice in receiving these services.
In the regulatory
revisions flowing from the structural hearing, however, the Commission
avoided expressly condoning or condemning negative-option marketing, simply
acknowledging that this subject had been discussed. This silence, coupled
with the introduction of requirements for greater billing clarity, has
been interpreted by some as tacit Commission approval of negative-option
marketing techniques for cable services.
Some uncertainty
exists as to whether or not the Commission even has the jurisdiction to
regulate or prohibit such negative-option marketing. Two provinces, Nova
Scotia and Quebec, have already asserted jurisdiction under their respective
Consumer Protection Acts by generally outlawing the sale of any
services using negative-option techniques. And, at least three other provinces,
British Columbia, Manitoba and Ontario, have indicated in the press that
they are considering banning such marketing of services.
Thus, some provinces
have already asserted jurisdiction. An argument could, however, be made
for federal jurisdiction over the negative-option marketing of cable services,
if the federal government could establish that CRTC's regulation of the
marketing of cable services is essential to the regulator's fulfilling
its mandate and achieving the objectives of the Broadcasting Act.
As Professor Hogg has pointed out in his treatise on the Constitutional
Law of Canada, with respect to the subject of consumer protection,
neither level of government has unequivocal jurisdiction (third edition,
p. 564). He notes that the phrase "consumer protection" is too
broad and vague to serve as a "matter" for the purposes of locating
it under either the federal or provincial heads of power. He observes
that, like inflation, pollution or health, consumer protection must be
broken into smaller, more distinct concepts, before it can be determined
which of its aspects properly fall under federal or provincial jurisdiction.
CONCLUSION
Reactions to the
cable subscribers' new year's revolt, have come in two forms -- defences
of and attacks on the aggressive measures used to introduce the new specialty
services. The defenders summon cultural, economic and technical arguments
to justify the approach taken by the Commission and the cable companies.
For example, they say that the Commission acted in keeping with the Broadcasting
Act's requirement for it to help build a stronger Canadian broadcasting
system; that offering the new specialty services in established and highly
subscribed discretionary packages bolsters their chances of success and
spreads out their costs, making them more affordable; and that packaging
the new services separately in the unscrambled discretionary tier would
cause too many subscribers to opt out, thus forcing the cable companies
to incur huge expenses for filtering out the unwanted new package.
The attackers criticize
the approach used to introduce the new services on the grounds of fairness
and the consumer's right to choose. They argue that consumers should have
the right to select the brand of programming they want, rather than having
it imposed on them by a paternalistic regulator and monopolistic industry;
that negative-option marketing favours corporations and disempowers consumers;
and that the Broadcasting Act is too one-sided in requiring the
CRTC to protect only Canadians' cultural interests, not their consumer
concerns.
Such is the debate.
Cable viewers and others are staying tuned to see which point of view,
if either, will triumph in the end.
SELECTED
REFERENCES
Canadian
Radio-television and Telecommunications Commission (CRTC). Public Notice
CRTC 1993-74: Structural Public Hearing. CRTC, Ottawa, 3 June 1993.
CRTC. Public
Notice CRTC 1994-59: Introductory Statement - Licensing of New Specialty
and Pay Television Services. CRTC, Ottawa, 6 June 1994.
CRTC. Public
Notice CRTC 1994-60: Distribution and Linkage Requirements. CRTC,
Ottawa, 6 June 1994.
CRTC. Fact Sheet:
The Evolution to Digital, Pick-and-pay Cable Service. CRTC, Ottawa,
1994.
CRTC. Fact Sheet:
Distribution of Cable TV Services in Canada. CRTC, Ottawa, 1994.
CRTC. Fact Sheet:
Distribution and Cost of New Specialty and Pay TV Services. CRTC,
Ottawa, 1994.
Stencel, Sandra,
ed. "The Future of Television." CQ Researcher. Vol. 4,
No. 48, Congressional Quarterly Inc., Washington, D.C., 23 December 1994.
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