As Canada’s proud new specialty channel owners sign up for master classes in ‘Beyond the licence: living well with cable and satellite’, a number of scenarios are emerging to predict how well casters and carriers will work together toward the launch of the first all-digital tier next fall.

The crtc’s decision to license 21 channels in Category 1, guaranteed carriage, and some 260 in Category 2 (on their own to persuade carriers to take them) has been generally applauded by the industry. Observers are happy that 16 English- and five French-language channels were licensed in Category 1, and pleased with the increased diversity in channel ownership and the channel themes greenlit by the commission. (The crtc says the licences for Women’s Sports Network and PrideVision, a gay/lesbian service, are world firsts for these niches.)

The current size of the Canadian digital universe – viewers with set-top boxes installed – is close to 1.5 million, with cable in the 450,000 range. More than 5.5 million households are digital ready. The digital rollout hinges on the price issue – what will customers pay for new programming, and will they buy or lease a box at a monthly charge of about $11.

Many questions also remain as channel owners begin forming committees – one of which is spearheaded by the Canadian Association of Broadcasters – to hammer out by February an access code that addresses such issues as channel packaging.

Canadian Cable Television Association president and ceo Janet Yale says it’s essential any access code be entirely reciprocal between channel owners and distribs.

‘The thing that worries my members [is that] for example ctv could give a preference to Bell ExpressVu. If we have to make a commitment not to treat our services more favorably than services [the cablecos] don’t own, then ctv has to be prepared to say they won’t treat Bell ExpressVu more favorably than they’d treat a cable company.’

In a recent speech to the Canadian Club of Ottawa, Yale advanced a five-point plan, which includes public policy options aimed at accelerating the digital rollout:

* continue to remove restrictions on vertical integration;

* develop incentives such as tax credits or contributions to drive the penetration of high-speed Internet services and digital set-top boxes that support interactive services;

* consider expenditures on programs related to Internet content and portals as legitimate investments in supporting Canadian content requirements and in producing on-line cultural content;

* the crtc should adopt the same hands-off approach to interactive tv that it established for new media and the Internet; and,

* recognize the greater control over programming and packaging choices for consumers made possible by digital technology.

The backdrop to all these negotiations is the assumption that the crtc will hold hearings next spring to review its position on ownership of pay and specialties by cable companies.

Cablers are currently restricted to 9.9% ownership in specialty channels, and hold equity in many of the new licensees. One insider wonders whether carriers will try to increase their equity holdings by suggesting to Category 2 licensees that if they want carriage, they’ll have to fork over an equity stake. ‘Before you know it,’ says the observer, ‘most of the Category 2s will have [cablers owning] 9.9%.’

Meantime, events such as the bce-ctv takeover are pushing the regulator to revisit producer/broadcaster/distributor ownership regulations. The commission has limited, or prohibited, cableco and affiliates’ equity stakes in pay and specialtycasters over fears of undue preference. Now it’s calling for comments on the changing broadcast environment by Jan. 26 and comments on the comments a month later. Jumping in early with the Vision tv position is the non-profit’s new president, Bill Roberts, who wants the whole commentary process pushed back a month. In its comments, Vision will declare it’s: ‘not opposed to cable expanding its role if there are adequate and long term safeguards in place for public service broadcasters.’

Yale says the talks between suppliers and distribs will be very different than in the lead-up period to previous specialty launches. ‘I think the negotiations [between distributors/bdus and channel owners] are going to be very different this time for a few reasons,’ says Yale. It’s the first set of negotiations where programmers will sit separately with cable, dth and wireless distributors, and with the dth base by far the largest.

Unlike the ‘take it or leave it’ analog packages of the past, the new digital services will be offered in a variety of combinations, and the bdus will compete for the best marketing and packages.

Although the new digital specialties are hot properties, most observers expect they’ll lose money for half a decade and there’s little consensus on what a sound revenue model will look like, and what will drive audiences to watch these stations.

Says Peter Miller, vp business and regulatory affairs, Chum Television: ‘I think people are going to lose their shirts on these channels for three to five years. At a minimum, you’ve got to be prepared to lose $5 million a year if you’ve [already] got a suite of channels, more if you don’t. There’s going to be very little in the way of subscription revenue and very little in the way of advertising revenue.’

Paul Robertson, president of television, Corus Entertainment, and chair of the specialty and pay-tv committee of the cab, concurs that digital channels will take longer to show a profit. It will be ‘maybe five years before they roll over into the black. This [prospect] may not look good, but [digital is] the next big wave. Strategically, you have to be there,’ Robertson says.

Costs are naturally higher, he adds, for new casters which don’t already have such expensive overhead items as satellite transponder space. ‘We expect that those that don’t have the infrastructure will be looking to buddy up. They may look to rent the infrastructure rather than start it fresh.’

As for Category 2 licensees, Robertson says, ‘their prospects got dampened by the high number of Category 1 licences. There’s not as much room as we’d originally hoped for the 2s.’

Miller told a cab convention audience last month that ‘if there is a business model for digital, it’s not hd, it’s not advertising, it’s not subscription. It’s in the interactive elements [built into] the programming and the advertising.’ Therefore, he cautions, if the distribution deal worked out with cablers and satelliters doesn’t guarantee pass-through of a channel’s interactive elements to consumers, ‘I don’t have a business.’ While Bell ExpressVu has indicated it sees the importance of pass-through interactivity, Miller fears cablers ‘want no regulation. They want to be the gatekeepers.’

He also says interactivity can offer viewers more information on a show, different storylines, details on a product or a star and can provide advertisers with more information about buyers. With such personalized recording devices as TiVo, he adds, if people are skipping ads, the key is product placement in programming.

Maintaining the big picture view, Yale sums up: ‘The consumer will ultimately pick the winners and losers in a digital marketplace. And even with the Category 1s, while we have to carry them, the consumer doesn’t have to take them.’ *

-www.crtc.gc.ca

-www.cab-acr.ca

-www.ccta.ca