The long road for local broadcasters wanting to charge fees to cable and satellite companies for rebroadcasting their signals just got a little longer, as the Supreme Court of Canada has granted leave to hear an appeal a Federal Court of Appeal decision that upheld the ability of the Canadian Radio-television and Telecommunications Commission (CRTC) to establish such a regime.

The “Value for Signal” (VFS) regime was authorized by the CRTC in its 2010 group licensing framework decision, and was intended “to remove unnecessary barriers to the continued viability of private broadcasters and to ensure that broadcasters are able to obtain, through market-based negotiations, fair value of the programming they broadcast.”

However cable and satellite broadcasting distribution undertakings (BDUs) raised questions as to whether the CRTC had the jurisdiction to implement a VFS regime pursuant to the powers and authority granted under the Broadcasting Act.  Recognizing the significance of the issue, the CRTC referred the question to the Federal Court of Appeal.  As we noted in an earlier post, that Court ruled earlier this year in Reference re the Canadian Radio-television and Telecommunications Commission’s Broadcasting Regulatory Policy CRTC 2010-167 and Broadcasting Order CRTC 2010-168, 2011 FCA 64, that the Act did provide the CRTC with the authority to impose fee for carriage charges on broadcast distribution undertakings (BDUs).

As discussed in detail in our earlier post, one of the key issues that faced the Federal Court of Appeal was whether the right granted under s. 31(2) of the Copyright Act, which gives BDUs the ability to retransmit signals without payment of licence fees, was subject to limitations imposed by the CRTC pursuant to its mandate under the Broadcasting Act.  The majority found that it was subject to such limitations, but a dissent from Nadon, J. reasoned that the VFS regime was ultra vires the CRTC because it conflicts with Parliament’s clear intention in the Copyright Act that royalties must be paid only for the retransmission of off-air television signals outside the geographic area in which the signal can be received off-air, not for retransmission within the local broadcasting area.  This question will also be at the heart of the arguments to be made before the Supreme Court.           

Leave to appeal the Federal Court of Appeal’s decision was sought by some of Canada’s largest cable and satellite BDUs, which have long opposed VFS on the basis such a fee is unnecessary, would have a negative impact on consumers, BDUs and specialty broadcasters, and would be inappropriate in view of the regulatory advantages that local broadcasters receive, such as mandated carriage by BDUs.

For their part, private broadcasters lobbied for many years for the right to negotiate fair local retransmission fees with the BDUs, in order to allow broadcasters to continue to meet Canadian content and service obligations in an era of increasing challenges to the business model for conventional broadcasting.

Citing a lack of evidence that fee for local signal carriage was necessary or beneficial to the broadcasting system,  the CRTC rejected the concept in 2007, and again in 2008, before finding, in 2009, that conventional, advertisement-based revenue models were no longer sufficient for local broadcasters operating in increasingly fragmented markets.  Following a public hearing in the Fall of 2009 to determine the best method of implementing a new revenue system for private broadcasters, the Commission created the VFS regime that is now under appeal. 

It is worth noting, however, that the broadcasting landscape has changed in important ways since the Commission’s decision to allow for VFS. 

In this regard, the most recent financial results reported by the CRTC show that for the 2010 broadcast year, revenues for private conventional television grew substantially, putting local TV as a whole back in the black (although just barely).  The Commission’s most recent “Convergence Report” suggests that that the declines of 2008 and 2009 should be seen as short-term trends only and that TV advertising will see continued growth in the years ahead.  In addition, increased industry consolidation of BDUs and local broadcasters into ownership groups has resulted in some BDUs dropping their opposition to the VFS and aligning with their broadcaster affiliates. 

In addition, the terms of 5 of the current CRTC Commissioners are scheduled to end in 2012, including Chairman von Finckenstein, whose term will apparently not be extended.  Accordingly, by the time that the Supreme Court rules on the VFS appeal, the CRTC may be a very differently constituted body.

In light of these and other potential developments, beyond the important legal question of the CRTC’s legal authority to mandate a VFS regime, for some there may continue to linger the equally important policy question of the continued appropriateness of VFS against the backdrop of an ever-evolving Canadian broadcasting market.