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[to previous Television section]

Broadcasting Distribution

I. Promoting effective competition  [back to Table of contents]

• Prior to 1995, cable television undertakings enjoyed a virtual monopoly within the broadcasting distribution undertaking (BDU) marketplace.
  
• With Public Notice CRTC 1995-183, the CRTC took its first official step towards removing competitive restrictions in the BDU marketplace.
  
• The Commission continued to develop its policies promoting competition among BDUs with Public Notices CRTC 1997-25, 1997-84, 1997-150 and its new Broadcasting Distribution Regulations, which came into effect January 1, 1998. Since that time, the BDU industry has been experiencing a fundamental shift towards increased competition.

    A. Subscriber levels of incumbent and alternative BDU delivery systems
         [back to Table of contents]

Table 1: All subscribers across Canada

Source: FDB3 Financial Summary Reports, September 14, 2000

• Table 1 reveals that the BDU industry has enjoyed stable overall growth since 1996, with particularly strong growth in 1999 in the form of about 360,000 new subscribers.
  
• Class 1 providers have had stable growth of approximately 60,000 subscribers per year as a result of population growth and new housing starts.
  
• The direct-to-home (DTH) industry accounted for 85% of the increase in total subscriptions in 1999.
  
• Prior to 1998, the BDU industry had a subscriber growth rate averaging about 1% per year. The annual growth rates for 1998 and 1999 were 3.5% and 4.4% respectively. The increased growth in 1998 and 1999 is a result of the DTH industry bringing new subscribers into the system.
  
• On an overall basis, annual cable subscriber growth was about 1% prior to 1998. In 1999, it was 0.35%.
  
• STV or subscription television undertakings provide over-the-air television service to small (rural or remote) communities in underserved areas. These undertakings broadcast their signals in an encoded or scrambled mode by means of low-power (about 20 watts) transmitters.
  
• The Telco Systems line represents the number of subscribers of cable, multipoint distribution systems (MDS) and DTH systems in which telephone companies have an ownership interest. The majority of the 1998 and 1999 subscribers are Bell ExpressVu's DTH.
  
• The following table presents the breakdown of cable subscribers by province. MDS and DTH operators have licences extending over several regions and provinces; they do not report a provincial breakdown to the Commission.

Table 2: Cable subscribers by regions - Provinces

Source: FDB3 Financial Summary Reports, June 01, 2000

    B. Relative market share of incumbent and alternative BDU delivery systems 
         [back to Table of contents]

Table 3: All subscribers across Canada

Source: FDB3 Financial Summary Reports, June 28, 2000

• Class 1 BDUs maintain the bulk of subscriber market share, although it is decreasing. Class 1 market share has fallen by almost 5% since the introduction of DTH and MDS services.
  

• Market share for DTH services grew by 3.4% of total subscribers in 1999 for a share of over 6% in only 2 years.
  
• The above table indicates that DTH growth is coming from all existing cable classes and new subscribers in areas not previously having access to cable service.

Table 4: Cable subscribers by regions - Provinces

Source: FDB3 Financial Summary Reports, June 01, 2000

    C. Rate deregulation of incumbent BDUs  [back to Table of contents]

• With the introduction of the new Broadcasting Distribution Regulations, the Commission initiated a process for basic service rate deregulation of Class 1 distribution systems. (New entrants are not rate regulated, nor are Class 2 and Class 3 systems.)
  
• Cable Class 1 systems can qualify for rate deregulation if they meet a two-pronged test: 1) if a licensed competitor is accessible to 30% of households in the incumbent's service area, (which is currently deemed to exist from DTH services); and 2) if the cable incumbent can demonstrate that it lost 5% or more of its basic subscribers since the competition entered its service area.
  
• To date, no Class 1 licensee has availed itself of this process. Based on the Commission's financial database, about eight Class 1 systems appear to have lost more than 5% of their basic subscribers between September 1, 1997 and August 31, 1999.

 

II. Promoting contributions to Canadian programming and local expression

    A. Contributions to programming funds  [back to Table of contents]

Table 5: Contributions to programming funds

Source: FDB, August 24, 2000

• The Cable Production Fund (CPF) began receiving money from cable distributors in January 1995. On September 9, 1996, the Minister of Canadian Heritage announced the creation of the Canada Television and Cable Production Fund (CTCPF). The CTCPF incorporated the CPF and Telefilm's Broadcast Fund, and was supplemented by new government funding.
  
• The new BDU regulations require that all Class 1 and Class 2 terrestrial distribution undertakings, as well as all DTH and MDS distribution undertakings, contribute a minimum of 5% of gross annual revenues derived from broadcasting activities to the creation and presentation of Canadian programming.
  
• The above table presents the growth of contributions to the CTCPF (now the Canadian Television Fund (CTF)) and to other eligible funds. (Contributions to local expression are examined in the following section.)

    B. Total community channel expenses  [back to Table of contents]

Table 6: Community channel expenses

Source: FDB3 Financial Summary Reports, June 28, 2000 and August 21, 2000

• Public Notice CRTC 1997-25 introduced flexibility to cable licensees in regard to the manner in which they contributed to Canadian programming and local expression.
  
• Large Class 1 cable distributors have generally decreased (by over 11% in 1998) their community channel expenses. Small Class 1 and Class 2 operators have increased spending on their community channel since the introduction of the new BDU Regulations in 1997.

    C. Number of systems maintaining a community channel  [back to Table of contents]

Table 7: Cable systems contributing to community channels

Source: FDB, August 25, 2000

• The table above outlines the number of Class 1 and Class 2 cable undertakings that have reported community channel expenses between 1996 and 1999. The figures do not necessarily represent the actual number of community channels in operation, as some channels are funded by more than one undertaking.
  
• There does not appear to have been any significant change in the number of systems operating a community channel since the introduction of the new regulations.

III. Affordability of basic service rates  [back to Table of contents]

    Comparison of Commission-authorised basic service rates to those charged by alternative BDUs

• The following table presents the average basic service monthly rates for the last four years for each distribution type. The basic service rates are regulated only for Class 1 cable systems.

Table 8: Average basic service monthly rates

Source: FDB3 Financial Summary Reports, June 29, 2000

• The average rates are calculated from the rates noted in the annual returns provided by the distributors and are weighted to account for subscriber numbers.
  
• The basic packages differ between systems, therefore value is not being compared.
  
• MDS and DTH systems offer a variety of basic and non-basic packages. Their prices may or may not include the decoder equipment. The web sites of the major new entrants report the following rates for basic service packages: SkyCable, $14.99; LOOK Communications, $21.95; Star Choice, [English Bronze $14.99] and [French Bronze $8.99]; and ExpressVu, [English (locals and U.S. networks) packages $15.90] and [French (French and English locals and U.S. networks) packages $17.85].
  
• As MDS and DTH services attempt to attract new subscribers and increase market penetration, they are offering various promotional discounts for equipment and program packages. These discounts may not be reflected in noted rates for these services.
  
• A Price Waterhouse study¹ [Footnote: Dated May 14, 1998.] commissioned by the CCTA analysed the cost, quantity and variety of programming of cable service in Halifax, Toronto, Calgary and Vancouver, and compared it to that offered in New York and Los Angeles.
  
• The study found that subscribers in the four Canadian cities have as much or more choice as those in the U.S. cities, yet American subscribers pay as much as 60% more for the "full cable service"². [Footnote: Includes the basic service and the majority of specialty services. Pay and PPV services are not included. Exchange rate is taken into account.]
  
• The study found that the average price of the four Canadian cities was CAN$28.68, whereas the average price of the two U.S. cities was CAN$47.58.

IV. Promoting a financially strong sector  [back to Table of contents]

    A. Total revenues

• The evolution of total revenues is presented in the following table.

Table 9: Total revenues

Source: FDB3 Financial Summary Reports, June 28, 2000

• The BDU industry as a whole has been enjoying strong growth, particularly in 1999 when total revenues increased over $400 million. Class 1 BDUs realized strong revenue growth in 1999 of almost 11% over 1998, and captured 83% of total BDU revenues.
  
• The growth in Class 1 revenues since 1996 has been almost entirely related to non-basic services. Since 1996, non-basic revenues have grown 66%, as compared to 7% for basic revenues. Non-basic revenues contributed 42% of total Class 1 revenues in 1999.
  
• While MDS providers have shown strong growth with a revenue increase of 150% in 1999, they continue to maintain a very small portion of total revenues.
  
• DTH providers increased 1999 revenues by almost 300% over 1998. Rapid DTH growth is expected to continue in 2000.
  
• The charts below illustrate the evolution of the shares of total revenue from 1996 to 1999. DTH's share has grown to 4.45%. While cable's share is declining, it still has about 95% of total BDU revenue.

Chart 1: Distribution of total revenues

Source: FDB3 Financial Summary Reports, September 22, 2000

    B. Profit before interest and taxes (PBIT) margins  [back to Table of contents]

Chart 2: Profit before interest and taxes margins

Source: FDB3 Financial Summary Reports, September 14, 2000

• The PBIT margins for Class 1, 2, and 3 cable systems remained within the 20-26% range between 1996-1999.

    C. Return on investment (ROI)  [back to Table of contents]

Chart 3: Return on investment on net fixed assets (NFA)

• The slight decrease in the ROI for Class 1 and 2 providers in 1999 is a result of the significant capital expenditures incurred by cable providers to upgrade their systems to roll out digital services.

V. Concentration / Vertical integration  [back to Table of contents]

    A. Top six distributors by total basic subscribers

• The following rankings have been the same since 1998. In 1997, Shaw Cablesystems Ltd. was in second place by the number of basic subscribers, but were surpassed by Vidéotron Ltée in 1998.

Table 10: Top six distributors by total basic subscribers

Sources: CRTC Internal Report `Ownership August 1999', August 2000 and FDB data

    B. Pay & specialty services owned by top six  [back to Table of contents]

Table 11: Ownership of pay & specialty services by top six distributors

Notes: ¹Owned 20% through YTV Inc.
           ²Currently 50% held by Corus Premium Corporation in trust with Keith Campbell (required to divest as a condition of approval to acquire remaining WIC Radio assets).
Source: CRTC Ownership and Industry Analysis Divisions

VI. Promoting digital technology   [back to Table of contents]

    Number and proportion of subscribers receiving digital services

        Current estimates

Table 12: Number of digital subscribers

Source: Cable, DTH and MDS Industry estimates, March 2000

• As can be seen from the table above, DTH providers are currently leading the way among digital service providers with a market share of near 71% of subscribers. Digital cable providers lag behind with a 24% share, and MDS providers with 5%.

        Forecasts

• As can be seen from the tables provided below, both the cable and DTH industries are predicting large increases in their digital subscriber bases.

Table 13: DTH subscriber projections

Source: Bell ExpressVu Ltd, March 2000

• The cable industry has provided digital projections that differ by over 100% under two different scenarios. The pessimistic scenario assumes the denial of applications for additional feeds of 4+1 and other Canadian distant signals, and that newly-licensed services are either unattractive to consumers, or they are not attractively priced. The optimistic projections assume that the applications by cable companies for expanded service are approved, and that attractive and affordable new programming services are approved for a September 2001 launch.

Table 14: Digital cable subscriber projections

Source: Long Range Digital Forecast for Cable Distribution Undertakings, CCTA, March 10, 2000

• The MDS industry is predicted to grow to over 312,000 subscribers by September 2005.

Table 15: MDS subscriber projections

Source: PriceWaterhouse Cooper study filed by the Craig's with "The Met" application

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