When the crtc laid out the exemption criteria for direct-to-home satellite services last August, it looked as if Expressvu had locked up a primary position in the Canadian market. Expressvu, owned by Canadian Satellite Communications, WIC Western International Communications, BCE Inc. of Montreal, and Tee-Comm Electronics of Milton, Ont., is the first Canadian dth satellite service set to launch this September.

In the decision last summer, the crtc said any satellite television service broadcasting in Canada must use Canadian satellites exclusively, a criteria that effectively prevents Expressvu’s potential competition, Power DirecTv, from launching in Canada. Like DirecTv, its sister company in the u.s., Power DirecTv would use u.s. satellites to transmit American broadcast signals.

In the months since that decision, the issues surrounding dbs satellite services have become increasingly complicated, enough so that the federal government has appointed an independent task force to review the regulator’s policy on dth satellite services. Its mandate is to ensure that the crtc has struck a viable balance between encouraging competition and protecting Canadian content.

New voices in the debate include the federal Bureau of Competition Policy, which publicly questioned whether regulations protecting Canadian satellite systems undermine the principals of competition. While with the public support of the Canadian Cable Television Association and the Canadian Film and Television Production Association, Family Channel and Cancon have threatened DirecTv and Power DirecTv with legal action if the u.s. service doesn’t block any signals being sent to Canadian subscribers.

Thousands of Canadians are believed to be illegally receiving DirecTv’s signal using small dishes and decoder boxes, forming what is known as ‘the grey market.’

At press time, Cancom and Family Channel were still in the process of deciding whether to go ahead with a lawsuit, said Barbara Bailie, director of communications for Family Channel.

Linda Brill, a spokesperson for DirecTv in Los Angeles, confirms DirecTv hasn’t received a legal summons, or had any kind of response from the Canadian companies since it replied to a letter from Cancom and Family Channel.

Taking issue

Cancom and Family Channel are taking issue with DirecTv’s broadcasting of u.s. services that are illegal in Canada, like Disney Channel. Family Channel owns much of the rights to Disney programming in Canada.

For the dth satellite industry overall, the controversy revolves around two primary issues: DirecTv’s 60 channels of pay-per-view programming potentially broadcast through its Canadian counterpart, Power DirecTv, and the mandatory usage of Canadian satellites to transmit signals.

On the issue of pay-per-view, the crtc’s licence exemption criteria specifies that dth services must broadcast licensed Canadian services. Two Canadian ppv services are already operating, Viewers’ Choice and Home Theatre. To offer a ppv service, DirecTv would have to pick up one of these services. Instead, it intends to offer a North America-wide ppv service.

Jay Thomson, vice-president legal and regulatory affairs for the ccta, says it’s a licensing issue. Canadian cable service owners have no problem with competition. ‘But if they want to operate a pay-per-view service, get a licence.’

Licence application

According to DirecTv’s Brill, the u.s. service provider will consider applying for a licence only after the crtc allows it to broadcast in the country. ‘When the crtc authorizes us to deliver, then we’ll look at other issues we need to face and that would be one of them.’

For its part, Power DirecTv argues that Canadian movies would receive more exposure if 60 services, offering one-in-20 Canadian movies, were distributed throughout North America.

‘(Canadian) movies will take their place in the lineup available on the North American footprint, a vastly more promising vehicle for Canadian films than that afforded by theatrical distribution,’ says Power DirecTv’s submission to the dth panel, which accepted position papers until Jan. 10.

Says Joel Bell, chairman of Power DirecTv: ‘It would be the first time Canadian-content regulations are applied in the u.s. market.’

John McKee, senior vice-president of Power DirecTv, adds that Viewers’ Choice and Home Theatre target viewers through the cable systems and aren’t participating in a dth satellite service. ‘They have all their revenue and viewers from cable. I don’t know how we would compete with them when we’re on a completely different system.’

But Claude Lewis, executive vice-president of Cancon, says Viewers’ Choice and Home Theatre would have a difficult time surviving in any communications distribution system if the competition was a u.s. company with big pockets and a subscriber base that mirrors the difference in size between the two countries.

‘Once you start a bidding process for viewers, particularly with DirecTv, owned by General Motors, it won’t take long for Home Theatre and Viewers’ Choice to lose out it the mix.’

Cheaper

On the issue of using only Canadian satellites, Lewis says the crux of the matter is the fact that American satellites are cheaper to use. Canadian satellite owners must use Canadian satellites, and if DirecTv were allowed to u.s. satellites, it would easily be able to offer a much cheaper service, he says.

‘The playing field would be dramatically tilted. The flip side is that if they approve DirecTv to use American satellites in Canada, then why can’t we (Canadian distributors) use them to bring in any programming we want cheaper? Soon Telesat would be out of business,’ says Lewis.

Power DirecTv’s Bell argues that if it is cheaper to use American satellites, Canadians should be able to do so.

‘If there is a cost advantage to using American satellites, use them. It’ll make the system overall more cost-effective for subscribers.’

Modification

Addressing the issue of using American satellites in its submission to the task force, Power DirecTv is proposing a modification of its service which would put more Canadian services on the system for the Canadian market. An American dbs satellite would still be used to pump in u.s. broadcasting signals, but all American channels not authorized in Canada would be blacked out, says McKee.

Bell reinforces Power DirecTv’s decision to continue using American satellites.

‘Why should we transfer signals like Newsworld, which is already up on the American satellite for the Canadian market, to a Canadian satellite? If we spend money to re-uplink the services, then we spend more on infrastructure and delivery and less on content. We sacrifice the producer and the creator.’

As the issues of pay-per-view services and using Canadian-only satellites twist through the regulatory environment, there is little to prevent more disgruntled cable users from buying a dish ordering DirecTv services.

The grey market relies on a loophole in the Broadcast Act which regulates the broadcasters that provide the programming, but not the equipment that receives the signals. Having the dish is not illegal, but receiving the signal is.

In the letter to DirecTv and Power DirecTv, Cancom and Family Channel state their belief that DirecTv is capable of identifying Canadian subscribers and turning off the signal.

Brill confirms that Canadians can be identified through their area codes but only if they order the equipment that attaches to the telephone and lets them punch in codes to order ppv movies. If they don’t have the hookup, short of physically sending a person to verify each address, it’s impossible to trace the source of the decoder, says Brill.

Decoder number

She adds that unrecognized Canadian subscribers can access ppv movies without the phone hookup by calling the DirecTv operator and providing the decoder number.

Bell doesn’t deny that it’s possible, but says the issue is less whether DirecTv can identify its Canadian subscribers and more whether it should.

‘I’m not saying they don’t have the technical ability. I’m saying that no one is going to make the effort, spend the money, and do the things one has to do to identify the Canadian players unless they have some incentive to do so. If we were in business, we would find them because we have a business interest in doing so.’

Deadline for filing rebuttal submissions to the task force is Feb. 23.