OTTAWA - Allarco Entertainment, owner of SuperChannel, has lost its bid to have Shaw Communications’ Movie Club and Corus Entertainment’s Movie Central banned by the CRTC. At the heart of the complaint was a dispute over whether on-demand programming offered by Shaw Movie Club can be considered an on-demand extension of its linear service if it does not duplicate all of its linear programming.
The CRTC decision is a welcome one for Shaw which launched its Movie Club service last year in direct response to the increasing competition from Netflix’s OTT service. Shaw’s Movie Club lets viewers access movies for a flat rate of $12 a month, $17 if they also want HBO Canada. The service is available only to current Shaw customers but downloads don’t count against their cap if they are viewing the movies on their TV through their set top box. At the time it prompted a heated response from consumer advocacy organization OpenMedia.ca, which was critical of Shaw's plan to count Netflix against users' caps, but exempt their own.
Allarco alleges that Shaw Movie Club is in breach of the license requirement that prohibits Subscription Video on Demand (SVOD) services from offering a Canadian SVOD package that is directly competitive with a genre-protected Canadian linear pay or specialty service, unless the package is an on-demand extension of the Canadian linear pay or specialty service.
But Corus responded that Movie Club is “mainly a branding and pricing exercise to meet the Netflix proposition.”
“The Movie Club, with fewer than 2,500 paid subscribers, has a minimal impact on the pay TV market,” writes Gary Maavara, Executive Vice President and General Counsel for Corus Entertainment in its CRTC filing.
But Allarco maintains that the Shaw Movie Club SVOD package is not an extension of a Canadian linear pay service since an on-demand extension known as Movie Central on Demand already exists which is complementary to the linear Movie Central subscription.
Allarco adds that Shaw and Corus are also in breach of their licences for offering versions of Movie Central that only contains three of its four multiplexed channels instead of the entire package including HBO Canada.
“The creation of two-tier pricing will have a profound impact upon SuperChannel and the other Pay Television licensees. It will serve to embolden BDUs engaged in contractual renewals to press for price reductions, and to thereby destroy the value attributed to a suite of multiplexed channels. This would also, impact consumer choice,” writes Allarco in its filing to the CRTC.
“In Alberta, for example, Shaw Cablesystems has now under-cut the retail pricing structure of Pay Television services, by $5 per month. By packaging Movie Central along with Movie Club, Shaw has conferred an undue preference upon a licensee which is part of its vertically-integrated empire. It is difficult for licensees who comply with the Pay Television regulations, to compete in an area where a BDU and its related service have conspired to influence pricing. The net result is that there is a significant price differential between Movie Club/Movie Central and SuperChannel. SuperChannel is unduly disadvantaged by the Movie Club marketing arrangement.”
Shaw and Corus responded that Shaw Movie Club does constitute an on-demand extension of Movie Central since all of the content offered on the SVOD package is sourced from Movie Central.
They did acknowledge that Shaw Movie Club did not include content from HBO Canada and that Movie Central and Shaw Movie Club were offered at two different price points. But they maintained that there is no regulation or policy prohibiting the offering of more than one on-demand extension of a service or requiring the SVOD extension of a pay or specialty service to be exactly the same in terms of content.
The Commission ruled that Shaw Movie Club does not have to offer all the programming found on Movie Central to be considered an extension of Movie Central. It further ruled that “nothing in the policy prevents a pay or specialty service from having more than one extension or from offering different extensions at different price points.”
“Accordingly, the prohibition on being directly competitive with a genre-protected Canadian linear pay or specialty service set out in standard condition of licence 7(b) for VOD undertakings does not apply,” ruled the CRTC.
In its response to Allarco’s charges, Maavara also wrote that it had “failed to adduce any evidence that it has been harmed. In fact, the opposite is true; they are free to experiment in the manner that we are.”
He added that “To suggest that a VOD service that uses the content of a licensed linear service is prohibited because it is competitive with a genre-protected linear service would mean that no linear service could have a VOD application. Clearly the intent of the Commission was to prevent the introduction of new VOD platforms in competition with linear channels as evidenced in the policy.”
Maavara warned that the introduction of OTT services present a threat to the Canadian broadcasting system in a variety of ways and that Corus had to respond.
“It can take away content from the system; it can increase costs to the system; it can reduce the consumer’s value perception of pay TV; and it can cause consumers to cord cut or cord shave. Corus has been impacted directly by all of these factors, but we have not sought any intervention by the Commission or other regulators. Our view is that Canadian consumers deserve a market response rather than some form of prohibition or tax. Corus has been working with BDU, mobile and OTT operators to meet this perceived consumer demand.”