Allarco Entertainment Calls on Heritage Committee to Update Broadcasting Legislation to Ensure Consumer Choice

EDMONTON, Alberta, March 17 /PRNewswire/ -- Allarco Entertainment, that owns and operates Super Channel, Canada's only national pay television network, today sent a letter to the House of Commons Standing Committee on Canadian Heritage (Heritage Committee), which reports to Parliament on matters related to broadcasting and media regulation in Canada. The letter calls on the Heritage Committee to acknowledge the ineffectiveness of the present regulatory system to enable the CRTC to achieve its mission of preserving fairness, transparency and consumer choice and to take immediate action to launch a national consultation on how to address the changes in the broadcasting environment, as well as long term cultural objectives.

As an immediate course of action, Allarco Entertainment urged the Heritage Committee to look at ways to enforce meaningful consequences to anti-competitive behaviour by:

• Securing Administrative Monetary Penalties (AMPs) under the Broadcasting Act; and
• Introducing civil remedies, under the Broadcasting Act for licensees harmed by breaches of regulatory obligations by Broadcast Distribution Undertakings (BDUs).

In support of ensuring a fair and open market, Allarco Entertainment urged the Heritage Committee to update current legislation to benefit consumers by:

• Revisiting the outdated broadcast legislation of 1991 to ensure the Canadian broadcasting system can continue to offer Canadian content to Canadian consumers; and
• Providing the CRTC with greater authority to manage the Broadcasting sector and prevent major BDUs from restricting consumer access to more Canadian programming choices.

Evidence of the Need for Action

On May 18, 2006, Allarco Entertainment was granted the only national licence by the CRTC for a new, national English-language Pay Television Network to provide more choice to Canadian consumers of premium broadcast entertainment. But as detailed in its letter to the Heritage Committee (included below), since the launch of Super Channel in November 2007, "Allarco has suffered unfair treatment from both Rogers Communications Inc. (TSX: RCI, NYSE: RCI) and Shaw Communications Inc. (TSX: SJR.B, NYSE: SJR) which, combined, control over 49% of cable and DTH subscribers in Canada."  Consequently Allarco's Super Channel has been unable to fulfill its mandate to serve as a competitive, alternate choice for consumers.

On September 18, 2009, the CRTC ruled that Rogers had breached its regulatory obligations by subjecting Allarco to undue disadvantage with respect to its marketing of Super Channel. It also found that but for Rogers breach, "…Super Channel would have received significantly higher revenues than it did in fact receive and that this situation is likely to continue unless Rogers' with respect to the marketing of Super Channel changes." The CRTC gave Rogers until October 19, 2009 to outline in writing how it would "ensure that in the future, its marketing of Super Channel does not result in the service being subjected to an undue disadvantage."  While the CRTC has stated that the remediation plan has been submitted by Rogers, the plan has not been made public. In any event, the CRTC also has no statutory authority to require BDUs to pay monetary fines or compensation for such breaches.

The root of the problem for both Super Channel and the consumers who want access to more Canadian programming choices is that customers must work through the BDUs, such as Rogers, to sign up for Super Channel. Super Channel has previously submitted to the CRTC and Heritage Committee compelling evidence derived from an independent survey that Rogers' Customer Service Representatives (CSRs), who are the primary customer interface, were aggressively selling services that compete with Super Channel, while in a great number of instances omitting to even mention the availability of Super Channel -- even when customers called specifically to sign up for Super Channel.  Allarco also expressed its concern that the problem is not just with the CSRs, but also within Rogers' marketing tools, including their websites, consumer mailings and public advertising.

This survey documented that Rogers' CSRs were found to have promoted The Movie Network 97% of the time and Super Channel less than 4% of the time.  As a result, the penetration rate for Super Channel into Rogers' customer base remained well under 1% for close to two years from its launch -- the worst adoption rate among Canada's other BDUs, many of which have penetration rates close to 10%.  

While Super Channel's market share with Rogers has somewhat improved as a result of the CRTC's decision in October 2009, it is clear that Super Channel's growth has been stunted by Rogers' failure to comply with its regulatory obligations.

Enforcing Meaningful Consequences

Allarco's experience with Rogers demonstrates that present regulations fall short when the interests of powerful, vertically integrated licensees are at stake, enabling them to systematically thwart the consumers' right to choose. In its letter, Allarco noted that "in the United States and in Great Britain, the FCC and OFCOM, both national broadcast and telecom regulators, have wide powers to impose fines on corporations that do not comply with the letter, intent or expectations of legislation, regulations and/or licence conditions.  This is not the case with our own CRTC."

Allarco urges the Committee to implement meaningful enforcement, saying "We strongly support the repeated requests before your committee by the Chair of the CRTC to immediately secure Administrative Monetary Penalties (AMPs) under the Broadcasting Act. We also propose that the Broadcasting Act be amended to facilitate civil remedies, including monetary damages, for licensees that have suffered past and future losses caused by regulatory breaches by BDUs."

Updating Current Legislation to Benefit Consumers

Since the current Broadcasting Act was established in 1991, the world has changed. BDUs, which were once just cable companies, are now also Internet, local IP telephony and wireless companies with broader business interests and more products to promote. While protection of Consumer Choice has become more challenging, it has never been more important especially with more and more BDUs getting involved in broadcasting.

In a separate statement supporting long-term, comprehensive reform to the current Broadcasting legislation, Charles Allard, Chairman and CEO of Allarco, concluded that, "Our experience with some of the major BDUs is but one indication that the regulatory structure has not kept pace with changes in technology and consumer demand for a more competitive marketplace.  As we turn the page on a new decade, the time is ripe to make regulations appropriate and responsive to current business realities and consumer expectations."

The text of the letter to the Heritage Committee follows:

Dear Sir,

As you may remember, our company made a formal presentation before your committee on May 4th 2009 when you were reviewing the Future of Canadian Television. Much has happened since then with regards to our operations within the Canadian broadcasting system and I thought it important to revisit some of the issues we had raised with the Committee.

Allarco Entertainment has been struggling since November 2007 to fulfill the mandate given to it by the CRTC to launch the only national Canadian Pay Television service (Super Channel) within the Canadian broadcasting system, thereby introducing competition to one of the only sectors that still had a monopoly in the market place. And, as we mentioned to your committee last May, our biggest difficulty in reaching out to Canadian consumers has been, and in many circumstances remains, the total disrespect and non compliance of CRTC decisions by some of Canada's major Broadcast Distribution Undertakings (BDUs), - essentially the terrestrial BDUs (cable). The direct result of BDUs omitting to abide by CRTC decisions has ultimately, particularly in our case, led to Court protection under CCAA since June 2009.

But let me put this in perspective for you. Allarco Entertainment 2008 Inc., and its predecessor, was granted a licence by the CRTC on May 18, 2006 (CRTC 2006-193). The terms of our licence clearly articulates and stipulates, among other things, that Super Channel would be offered comparable distribution to the regional incumbent pay television services operated by Astral and Corus.

The Commission went on to state that without such conditions, it would be unreasonable to expect the new Allarco service to meet its business plan, including its commitments with respect to expenditures and exhibition of Canadian programming and to fund an attractive service.

However, for the most part, with the exception of Bell and SaskTel, the major BDUs initially flouted the CRTC's decision, especially Rogers, whose founder Ted Rogers had verbalized in June 2008 our treatment by his company as "being outrageous." The situation with Rogers is just one example of BDU damages that have resulted in tens of millions of dollars in losses to date and put in jeopardy a number of Canadian distribution entities, independent producers and creators who depend on broadcasters such as Allarco Entertainment.

The broadcast distribution sector reaches over 90% of Canadian households and six BDUs - Rogers, Shaw, Bell TV, Shaw Direct, Videotron and Cogeco - control access to over 91% of cable and DTH subscribers.  In essence, this small number of BDUs has the capacity of life or death over new services such as ours, not to mention existing services as well.

Since our launch date in November 2007, Allarco has suffered unfair treatment from a number of BDUs, including both Rogers and Shaw. Combined, Rogers and Shaw control over 49% of cable and DTH subscribers in Canada – Shaw did not carry us for a full six (6) months after our launch. Through their actions, these BDUs have regularly demonstrated contempt for our regulatory system over the last few years, even though it is this same regulatory system that has allowed them to grow into very profitable entities. Canadian BDUs reported over 2.3 billion dollars of profits in 2008.

In the spring of 2009, we found we had no other alternative but to submit an undue
disadvantage /preference Complaint to the CRTC, with regards specifically to Rogers even though we had until then tried valiantly, for several months, to deal with senior management to address a number of pressing business issues.

It's only when we were basically told to "get lost" and to "deal with their lawyers" that we had no choice but to collect data for a number of months and file the Complaint. As you may know, such a regulatory process takes at least five (5) months before getting a decision from the Commission and during all of this time Roger's penetration remained well under 1% for almost two years (the worst of any BDU in Canada, many of which are now close to 10%).

The Commission issued a decision in our favour September 18, 2009 (CRTC 2009-588 attached) finding Rogers to "have subjected Allarco to an undue disadvantage in regard to the marketing of Super Channel" in contravention of section 9 of the Broadcasting Distribution Regulations. The Commission clearly stated that Rogers had not honoured the terms and expectations of the CRTC licensing of Allarco. "The Commission considers that Super Channel would have received significantly higher revenues than it did in fact receive and that this situation is likely to continue unless Rogers' conduct with respect to the marketing of Super Channel changes." And while it gave us some satisfaction to receive the decision from the Commission, it is also clear there are in effect no legislative or regulatory means at the disposition of the CRTC to rectify the heavy financial losses incurred by our company over the last two years.

Yes, Rogers has agreed, as a result of the CRTC decision, to improve its marketing of us these last few months. However, nothing in the Rogers remedial Plan submitted to the CRTC in October 2009 gives us comfort that they are going to deal with the negative sales pitches of Rogers Customer Service Representatives (CSRs), which is a critical issue we raised and documented in our undue disadvantage filing with the Commission. As we mentioned to your committee in our May presentation, Rogers CSRs were found, in a third party survey we commissioned at the beginning of 2009, to promote The Movie Network 97% of the time and Super Channel less than 4% of the time. In addition, we are concerned that it is not just with the CSRs that there is a problem but also within all of the marketing tools of Rogers: websites, consumer mailings and public advertising.

The CSRs and sales information websites are in effect at the front line in dealing with potential customers, and they are the ones who close the deal with the customer. If they fail to promote services such as ours, they in effect are deciding the outcome of CRTC decisions to the detriment of offering consumers more choice.

Furthermore, the Commission's decision to make most of the information in our undue disadvantage file confidential provides yet more evidence that the present regulatory process is grossly skewed in favour of the BDUs who have not been following CRTC licence decisions. Where is the transparency? And why is the public not informed of the daunting challenges a new licensee is faced with in dealing with the gate keeping BDUs?

Our research submitted to the Commission clearly showed that major terrestrial BDUs have abandoned the Canadian broadcast programming services segment of their business, preferring to direct their efforts to their higher profit margin businesses including Internet, local IP telephony and wireless. This became even clearer when listening to Rogers and Shaw executives at the recent Commission hearing on the Value of signal for local television broadcasters in November 2009.

This brings us to why we are requesting immediate action on the part of your Committee to undertake at the earliest an extensive review of Canada's existing broadcasting legislation which has proven over and over again in recent years to be ineffective, especially with regards to the increasing power, concentration and vertical integration of BDUs.

We strongly support the repeated requests before your committee by the Chair of the CRTC to immediately secure Administrative Monetary Penalties (AMPs) under the Broadcasting Act. We also propose that the Broadcasting Act be amended to facilitate civil remedies, including monetary damages for licensees that have suffered past and future losses caused by regulatory breaches by BDUs.

In the United States and in Great Britain, the FCC and OFCOM, both national broadcast and telecom regulators, have wide powers to impose fines on corporations that do not comply with the letter, intent or expectations of legislation, regulations and/or licence conditions.  This is not the case with our own CRTC.

We urge your committee and Parliament to introduce much needed changes to the Broadcasting Act to provide the CRTC with more teeth in dealing with powerful broadcasting distribution groups that have become extremely vertically integrated and who refuse to abide by existing regulations and licence conditions. As the Committee knows, BDUs are becoming more and more present in traditional broadcasting, which raises a number of issues that need to be reviewed especially in the area of conflict of interest.  

In addition, it is your responsibility as parliamentarians to ensure that when the CRTC favours competition in the market place, as was the case when the Commission gave our company a licence for a new competitive Canadian Pay television service, consumers should get a chance to benefit from such competition. As we mentioned previously, such competition cannot occur if Customer Services Representatives (CSRs) hardly ever mention to customers the existence of our service in total contradiction with the expectations of the CRTC decision.  

In closing, I wish to reiterate, as I did before your committee in May, that we fully support the CRTC Chairman's request for changes to legislation to give the Commission increased authority to manage the Broadcasting sector. We believe strongly that our case in point shows the ineffectiveness of present regulations to deal with non compliant and powerfully vertically integrated licensees such as Rogers and Shaw. It is time to revisit the outdated broadcast legislation of 1991 to ensure the Canadian broadcasting system can continue to offer Canadian content to Canadian consumers. The Canadian consumer's interest should not be hijacked by the narrow interests of self-serving BDUs.

I am of course available to meet with you at your convenience to discuss this most important undertaking and to ensure your committee is fully cognisant of the difficulties now being faced by new Canadian programming services such as ours.

Thanking you for your consideration,

Allarco Entertainment 2008 Inc.

Per:

CHARLES R. ALLARD

c.c. Members of the Heritage Committee

About Super Channel

Super Channel is Canada's only national pay television network, consisting of two HD channels, four new SD channels, and Super Channel On Demand.

Super Channel's vision is to expand the Canadian premium TV experiences by offering a broad range of fresh, entertaining movies, series and live events.  Super Channel is owned by Allarco Entertainment 2008 Inc., an Edmonton-based media company.

Super Channel is currently available on Bell TV, Shaw Direct, Rogers PersonalTV, Shaw Cable, Cogeco Cable, Access Communications, Bell Aliant TV, Mountain Cablevision, Source Cable, SaskTel, MTS, Novus, EastLink, Delta Cable/Coast Cable, TELUS and other regional providers.

SOURCE Allarco Entertainment

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