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Undue Intervention: Why the CRTC Got It Wrong on Exclusive Content

The CRTC yesterday issued a ruling involving a Telus complaint over Bell’s exclusive rights over NFL and NHL content for its wireless services and its inability to negotiate similar rights for mobile carriage. The Commission found that Bell gave itself an undue preference contrary to its 2009 new media decision and ordered Bell to take steps to ensure that Telus can access the programming on reasonable terms. While there are dangers of undue preferences in the mobile environment and of unfair behaviour arising from the vertical integration, it is hard to see how this case qualifies.

The CRTC analysis involves a two-step process. First, it considers whether an undertaking has given itself a preference or subjected another person to a disadvantage. If it finds a preference, it moves to a second step to determine whether the preference is undue. Note that the burden of demonstrating that the preference was not undue rests with the undertaking that has granted it.

In this case, the Commission found that Bell granted itself a preference by entering into an exclusive contract for NHL and NFL programming. Note that the NFL programming is not something that Bell produces or otherwise owns. There is also no indication that the Bell’s wireless access to the NFL is linked to similar licenses for its broadcasting properties (Bell says the NFL deal was concluded before its purchase of CTV). If this constitutes a preference, then any exclusive contract will seemingly rise to the level of a preference and the party that enters into it may be faced with the burden of demonstrating that it is not an undue preference (which appears to be precisely what the Commission has in mind).

Given the finding of a preference, Bell was obligated to demonstrate that it was not an undue preference. Bell pointed to Telus wireless growth and the availability of other sports programming to suggest Telus wasn’t harmed, but the CRTC found that other programming was not comparable to the NFL and NHL and that the exclusivity would “have a significant adverse impact on TELUS’ ability to attract mobile subscribers for its broadcasting content.” This may be true, but it is hard to see how this justifies CRTC intervention given that this licensing arrangement that was presumably open to any of the carriers to pursue and does not appear to be connected to vertical integration concerns.

So when should the rules apply? In the case of undue preference in the wireless environment, the CRTC rule arose largely due to complaints by Pelmorex Media (which runs the Weather Network) about unfair treatment for its wireless applications by the carriers. It identified a wide range of concerns that put it at a disadvantage that cried out for regulatory power to prevent such abuse. The Pelmorex problem points to undue preferences by carriers against content providers. This case doesn’t involve a complaint by a content provider, however, but rather a potential carrier of content.

This case was not decided on the basis of the recently developed vertical integration rules, though CRTC Chair Konrad von Finckenstein has suggested the outcome would have been the same. I have been supportive of rules that guard against the problems that may arise due to vertical integration where a company like Bell grants an undue preference to its own content (such as CTV content or soon its Toronto Maple Leafs content). Yet those rules are still under development as the Commission is scheduled to release a proposed amendment to the new media exemption order by the end of the year and launch a notice of consultation on draft regulations. Whether the Commission creates restrictions against all exclusive deals or focuses more specifically on those with linkages to vertical integration remains to be seen.

The CRTC has seemingly decided that any exclusive content arrangement will be viewed under the existing new media rules as a preference and will face potential scrutiny to determine whether it is undue. It sends a strong signal to avoid exclusive content deals and foreshadows near-continuous regulatory review of licensing contracts that feels like undue intervention.

10 Comments

  1. “The CRTC has seemingly decided that any exclusive content arrangement will be viewed under the existing new media rules as a preference and will face potential scrutiny to determine whether it is undue. It sends a strong signal to avoid exclusive content deals and foreshadows near-continuous regulatory review of licensing contracts that feels like undue intervention.”

    Excellent! Exclusive content (i.e. monopoly) deals are bad. Dr. Geist argues “this licensing arrangement that was presumably open to any of the carriers to pursue”. Why, if you want legal access to [a], [b], and [c] should you have to enter into largely overlapping contracts with Bell for [a], Telus for [b] and Rogers for [c]?

    It seems again that it’s all about business interests and the interests of the consumer are irrelevant.

  2. This commentary should be clear about two things.
    First, the commentary suggests that this decision seemingly makes any exclusive content arrangement a preference that may or may not be undue. But if Professor Geist reviews the vertical integration policy, he will see that this decision was not required to achieve that result, as that is exactly what the CRTC’s clear policy already was, which applies to any forward-going behaviour. So “seemingly” or otherwise, there is nothing new here.

    Second, Professor Geist should be clear on what “exclusive” means in this context. It does not refer to exclusive availability from one website or another. It does not stop iTunes or Netflix or YouTube Movies from having the exclusive online rights to a movie, or NFL from requiring anyone wanting to watch the SuperBowl to subscribe to the NFL’s package. It only stops that exclusivity from being tied to a particular access subscription — for instance, Rogers cannot make a deal with the NFL to make those subscriptions available to only Rogers ISP subscribers and withhold them from Teksavvy ISP subscribers.

  3. Network Neutrality in Disguise?
    Network neutrality appears to be what is being enforced here – as a wireless customer, your access to NHL content should not be constrained by which carrier you are with.

    I get the strong impression here that the CRTC is telling carriers that they must pro-actively avoid exclusive content deals that would disadvantage other carriers. In other words, when offered the exclusive deal, it’s up to Bell to say “no”. The NHL might find an exclusive deal a better business propostion (one big deal vs many small deals) but that would constitute undue preference – and a carrier can say no.

    The only defence I could see applying here is if Bell could show that the NHL would *only* provide one exclusive license for the playoff games. In other words – Bell did say no, but the NHL then said that would mean no deal at all.

  4. Carrier-exclusive content
    Chris, if a telco were allowed carrier-exclusive content on the condition that the content provider swore up and down that it wouldn’t sell the content into the Canadian market if it had to be made available to subscribers of more than one carrier — the exact opposite of the Vertical Integration rule — then you can be pretty sure that content owners would soon be swearing exactly that. It’s an easy loophole. The question is, what content provider is so determined to tie its content to a single carrier that it’s willing to forego an entire market if it can’t? Or is it, in fact, the carriers who have an interest in making the content exclusive to their subscribers? Come to think of it, how is this any different than unlockable DRM that says you have to run Windows and not Linux to watch a DVD, or have to use an Amazon e-reader and not Kobo or an ePub reader to read a book — or Rogers and not Teksavvy to watch a football game?

  5. Jean-François Mezei says:

    The answer is functional separation ! (oh no! not that darned keyword again).

    CTV can get exclusive rights. But it needs to be separate from Bell Mobility so that it can sell access to any canadian irespective of which mobile network the person is on.


  6. I missed the part that declared NFL and NHL “essential services” (that need to be regulated).

  7. I don’t see the big deal. If Bell can’t give Telus the content on the account of licensing rights, then why doesn’t Telus strike up a deal where they pay NFL/NHL licensing fees, and Bell can let them access the content through their network, or at least pass it down to them.

  8. Jean-François got it right.

  9. @Joe
    “the Commission found that Bell granted itself a preference by entering into an exclusive contract for NHL and NFL programming.”

    Where “exclusive” is of course the operative word. Want NHL/NFL on your wireless device? Sign up with Bell. Now, if Telus were to enter into a similar contract with F1, you will also have to sign up with Telus if you want to see live F1 coverage on your wireless device. Oh? Like NBA? Sign up with Rogers. And NASCAR might be with yet another provider.

    I hope we can all agree that, from a consumer point of view, this would be a bad situation. And I’d like to one-up Jean-Francois on his comment: CTV should be forced to offer the same reasonable terms to Bell as it would to Rogers, Telus, etc. to offer coverage.


  10. @Byte: “CTV should be forced to offer the same reasonable terms to Bell”

    Yeah, like Bell is offering the same reasonable terms to everyone… lol…

    Hey, “it’s just business”. Anything goes.