Houses of the Oireachtas Joint Committee on Communications, Climate Action and Environment CIL Management Consultants 30 King Street Submission on retransmission fees on behalf of the pay TV Londonoperators T. +44 20 3829 2700 EC2V 8EH W. cilconsultants.com 27 September 2017 CIL Management Consultants 30 King Street London T. +44 20 3829 2700 Private & confidential EC2V 8EH W. cilconsultants.com 1 Remit and Team Context and qualifications Context Previous clients/employers • CIL was asked by the pay TV operators to undertake an independent review of the analysis and arguments for and against the introduction of retransmission fees in Ireland. • The work involved a review of materials submitted by the platform operators and RTÉ to the Houses of the Oireachtas Committee on Communications, Climate Action, and Environment. • We also reviewed data and analysis of precedents in other geographical markets including the UK and the US. • The arguments in this document represent the views of the CIL in light of this analysis. • The CIL team has extensive experience in media policy and regulation: • Tabitha Elwes has over twenty years’ experience in media policy and strategy, as head of the media practice at Spectrum Strategy Consultants, as a partner at Prospero Strategy Consultants and more recently as Head of Media at CIL; • Jon Zeff was formerly Director of the BBC Trust in the UK and prior to that held senior roles at the DCMS, including Director of Media. 2 Executive Summary Executive summary • There is limited international precedent for the retransmission fee arrangements being proposed for Ireland. In the UK, the DCMS explicitly rejected the introduction of retransmission fees, and the BBC has previously stated that it would not seek retransmission fees from Sky as it is already funded by a universal licence fee. • Replacing the current must carry/must offer with a commercial retransmission regime risks undermining the universal availability of public service broadcasting (PSB) and the licence fee funding model. • Any retransmission fees are likely to be passed on to consumers (as in the US), leading to a double charge. • Platforms are likely to negotiate hard and be particularly reluctant to set a negative precedent for other markets. • Platforms could introduce workarounds (as they have in other markets), giving consumers continued access to PSBs (albeit at some inconvenience) without agreeing retransmission fees. • As a result, there is a high risk of failure to agree, leading to PSB channels being blacked-out (as in the US) and/or the need for complex regulatory intervention – for which there is no obvious precedent. • The value relationship between PSBs and platforms is extremely complex; consequently the outcome of any negotiation is unpredictable and could deliver little, no, or negative value to PSBs. A glossary of terms and abbreviations can be found on p. 16 in the Appendix. 3 Executive Introducing retransmission fees in Ireland could pose significant risks, deliver uncertain Summary value, face major implementation challenges and undermine public service principles. 1. 2. The size and direction of 3. 4. RF could undermine The introduction of RF could A new RF regime could be payments resulting from RF fundamental principles of pose significant risks to and difficult, if not impossible, to negotiations are highly public service broadcasting costs for consumers and PSBs. implement effectively. unpredictable. in Ireland. Consumer risks/costs: • Value in the RTÉ-platform • International experience shows • The introduction of RF could relationship flows both ways: RF implementation is complex lead to consumers being • RF could lead to price rises for and contentious, and can charged twice for PSB (licence pay TV consumers (as in the US). • Broadcasters derive value from result in legal disputes and fee and broadcaster carriage wider reach and EPG • International precedents suggest a blackouts. fee). prominence; platforms derive high risk of PSB channel value from the presence of the • There is a high likelihood of a • The necessary removal of blackouts. PSB channels. commercial process ending ‘must-offer’/‘must carry’ • In the case of failure to agree up in litigation or dispute obligations for PSBs would • However a number of factors retransmission, workarounds resolution (if a dispute undermine their universal complicate the dynamics: could allow many consumers to resolution mechanism exists). availability obligations. continue accessing PSBs, but at • Consumer workarounds exist, • Any regulatory process is likely • RF would reduce the some inconvenience. and platforms can boost to be complex or potentially transparency and increase these. PSB risks/costs: impossible to deliver, given the the complexity of RTÉ’s • Platforms will want to avoid absence of an established funding model, altering the • Blackouts and workarounds could setting costly retransmission methodology, and the need for balance between its public impact PSB reach and precedents for other markets. multiple determinations. service and commercial economics and the delivery of objectives. public service obligations. • Negative impacts from • Consequently, there is a high blackouts would hit PSBs risk of regulatory error and • RF could increase resentment • The risks to TG4 could be immediately: platform impact litigation, which could delay among consumers, resulting in particularly high, as it is smaller (churn) would be medium term. funding benefits to PSBs by reduced support for the and its cost of negotiation would be years. universal licence fee, and disproportionately higher. • As a result, the outcome of any higher evasion rates. RF negotiation is highly unpredictable and could deliver little or no value to PSBs; it is conceivable that value could flow the other way. 4 1a. Risk/cost to consumers Retransmission fees could lead to price rises for pay TV consumers (as in the US). • Pay platforms may choose to pass on RF costs to consumers by adding an explicit ‘PSB charge’ in their bills, leading to an additional “tax” on top of the compulsory licence fee. • This is the case in the US (which has a commercial RF regime, though no universal licence fee) and has led to consumer price rises. Example US cable bill with • Many operators explicitly split out a ‘broadcast TV fee’ which passes ‘Broadcast TV Fee’ split out5 at least some RF costs directly on to their subscribers. For example, Comcast introduced a ‘broadcast TV fee’ at $18 p.a. in 2014; this has risen to $84 p.a. in 20171. • Cable end-user prices have risen at an average of 3.8% p.a. above inflation since 2005, with more rapid rises in the past few years2. • “…the costs we are charged to carry popular networks continue to increase significantly, especially broadcast television and sports programming, which are the largest drivers of increases in price adjustments.” Comcast1. • Expert analysis in 2011 and 2012 suggested this precedent would be replicated in the UK. • “We expect platform operators [in the UK] to pass on a substantial part of any charges payable to PSB to their subscribers” (Mediatique, 2012)3. • “The raising of costs to a number of rival [UK] platforms would be more likely to be passed on to consumers, ... the actual rise in price would be likely to reflect ... the fees paid by Virgin Media and [Sky] to the PSB Broadcast TV fee explicitly split out in channels” (Oliver & Ohlbaum 2011)4. consumer bills • If RF were introduced in Ireland, operators could decide to offer channel packages that exclude PSB channels enabling customers who want to to avoid the incremental “PSB charge”. Source: (1) Arstechnica.com; (2) FCC, Report on Cable Industry Prices, 12 October 2016; (3) Mediatique, Carriage of TV Channels in the UK: policy options and implications, July 2012; (4) Oliver & Ohlbaum, PSB Network Platform Re-Transmission and Access Charges in the UK - The Case For Change, June 2011; (5) www.consumerist.com 5 1a. Risk/cost International experience suggest a high risk of PSB channel blackouts, which would be to consumers particularly unpopular given that pay TV homes have already paid the licence fee. • If a commercial RF regime is introduced in Ireland, international experience suggest there is a significant risk that broadcasters and platform operators will 4 fail to agree terms and that channel blackouts will result. US headlines on retransmission blackouts • The US has seen a growing number of blackouts (where broadcast channels are removed from the pay platform) as a result of deadlocked RF disputes between broadcasters and pay TV operators. • From a mere 8 in 2010, the number of blackouts has risen dramatically, to 193 in 2015, 103 in 2016, and 153 in the first 9 months of 20171. • A total of over 800 blackouts have now occurred since 2010, with an average duration of over 2 weeks1. • These blackouts affect the main US network channels (e.g. ABC, CBS, NBC, and Fox), often in major cities like Boston, Miami, Atlanta, and Houston1. • Some blackouts have been substantial, e.g. Tribune Broadcasting pulled major channels in 33 cities for 85 days in 2016 in a dispute with the DISH satellite network, affecting millions of viewers1. • Blackouts have now started spilling into non-TV content as well, e.g. CBS recently withheld free online content from Time Warner Cable’s broadband customers2. • Italy has seen a dispute between Sky Italia and RAI, where Sky has refused to pay transmission fees and RAI has, in retaliation, refused to make its PSB channels available3. Source: (1) American Television Alliance; (2) Variety; (3) Advancedtelevision.com; (4) Variety, RapidTV, Fiercecable.com, Deadline, Wall Street Journal, Broadcasting & Cable 6 1a. Risk/cost In the case of failure to agree retransmission fees, workarounds could allow many to consumers consumers to continue accessing PSBs, but at some inconvenience. • Many pay TV consumers have access to alternatives that will Operator investment in workarounds to avoid channel enable them to use multiple remote controls to “toggle” blackouts2,3 between platforms in order to access PSB content, if it is not available on the pay platform.