Honour system between cable and specialties is broken says CAB
Source : Cablecaster
December 16, 2003
OTTAWA - Owners of Canadian specialty services are not convinced that the cable companies carrying their signals are properly counting their customers and want the Commission to come up with a new, mandated, audit procedure and dispute resolution process.
On Friday, the Canadian Association of Broadcasters sent a letter to the CRTC on behalf of its members calling on the Commission to issue a public call for comments as a first step towards amending the broadcast distribution undertaking regulations to set out more stringent rules for audits of customer levels of Canadian cable companies. It also suggested its own audit guidelines, which are the same ones the CAB asked the Commission to apply to Star Choice and Bell ExpressVu earlier this fall and which www.cablecastermagazine.com then speculated might be applied to cablecos, too.
Independent audits are already a part of the BDU regs and provided for in the contracts between broadcasters and cable companies, but, as the CAB letter says, the specialty service owners say they are having an increasingly hard time getting those audits done - and that every one that has been completed has turned up underpayments.
"As you know, in Public Notice CRTC 2001-66, section 3 paragraph 4, the Commission outlines the principles that apply to the relationship between programmers and distributors," reads the CAB letter. "Among those principles is an assurance that: 'a programming service is entitled to obtain, at its own expense and on an annual basis, independently verified subscriber numbers for the service in question to validate the basis for programmer compensation.'
"Notwithstanding this principle, programmers continue to be frequently frustrated in their attempts to obtain independent verification of subscriber numbers, a situation evident in the growing number of disputes currently before the Commission," adds the letter.
"Our members are at the mercy of the BDUs here," the CAB's specialty and pay senior vice-president Wayne Charman told www.cablecastermagazine.com Monday. "We'd like to resolve these as quickly as possible… members feel they're to get paid what they're owed." The CAB letter didn't identify any cable company culprits specifically and Charman declined to elaborate on how widespread the problem is. Suffice to say though, that the CAB wouldn't be taking this step over bad audits at small MSOs.
A contributing factor in this, too, is that the CRTC's existing dispute resolution system is a slow, lumbering leviathan of a process that takes too long.
"While the CAB appreciates the right of aggrieved parties to seek dispute resolution as per section 12 of the BDU Regulations, the CAB submits that the dispute process is too often onerous and unduly time-consuming," reads the letter. "It is not an appropriate mechanism for ensuring the accuracy of affiliate payments on a regular basis. The dispute resolution process should be a last resort, not the principal means by which programmers can be satisfied that they are being fairly paid for their services."
With so many channels, so many package options offered by the BDUs and so many customers taking advantage of all that choice, the number of reporting mistakes have risen, say the broadcasters. "The CAB submits that the increasing number of services and the various ways in which they are packaged and sold have increased the likelihood of reporting errors in affiliation payments," says the letter.
"Compounding this situation is the fact that some BDUs refuse to sign affiliation agreements on a timely basis, or have included onerous audit provisions, if any, that prevent programmers from exercising reasonable audit rights. Even where these provisions exist, programmers continue to find discrepancies between publicly disclosed subscriber figures and those on their remittances, but are repeatedly frustrated in their efforts to verify the basis for these discrepancies.
"That said, specialty and pay programmers who have recently conducted affiliate audits have uncovered underpayments in 100% of the audits conducted. This is an untenable situation that reinforces the need to augment the current 'honor system' by which affiliate payments are remitted with a clear audit verification process captured in the BDU Regulations," says the letter.
Canadian Cable Television Association acting president Michael Hennessy says that since audits are already part of the regulations and that there already exists a dispute resolution process, he doesn't see a reason for the Commission to make any moves. Plus, any move to add a new item like this must be accompanied by a broader review of the regulations, he said, calling the CAB's letter an "ad hoc attempt at regulation.
"It's more than just the audit provisions. We would want to look at most favored nation clauses," Hennessy told www.cablecastermagazine.com. "How can distributors ensure the rates they are receiving are fair compared to other distributors?"
"That's an equally important issue to be put on the table… (and) companies affiliated with a competitor is a problem."
Hennessy didn't say so by name, but the fact that cable operators compete with Bell ExpressVu while revealing its numbers to corporate sister, Bell Globemedia-owned TSN, for example, is disconcerting and is one of the reasons that if the Commission is going to take the CAB's advice and look at audits and dispute resolution, a far more broader review is necessary.
"It's hard to have the regulated system we have with the competitive structure we have," he said. "There are cracks in the system arising from the competitive environment."
Below are the CAB's proposed audit principles:
(i) Intervals: programmers will have the right to audit Affiliates once per year.
(ii) Range: programmers will have the right to audit the Affiliate's records for the preceding 3 year period, where necessary, to verify that payments remitted accurately reflect subscriber levels and contractual terms. (Note: a period previously audited should not be re-audited unless new information has surfaced, or there are probable grounds to re-audit)
(iii) Choice of Auditor: programmers will have the right to send either staff or third-party auditors to conduct audits.
(iv) Confidentiality: programme providers participating in a group audit agree to have the selected auditor sign a confidentiality agreement ensuring that any and all information related to unaffiliated programmer providers or distributors shall not be disclosed to other parties.
(v) Interest on shortfall: affiliates will be assessed an interest charge where the audit uncovers a shortfall in remittances.
(vi) Notice period: within 60 days of notification by a programming service of its intent to audit, the affiliate must agree to a mutually acceptable date for the commencement of the audit.
(vii) Resolution: discrepancies will be resolved and settled within 30 days of receipt by the affiliate of the auditor's report.
(viii) Scope: the audit will establish whether affiliation payments were made in conformity to with affiliation agreements. As such, the scope of the audit might entail the reviewing and testing of any documents, business processes or information systems involved in the processing of affiliate payment information.
(ix) Administrative: programmers' auditor will have the right to retain copies of any documentation that directly serves to substantiate the auditor's conclusions. All relevant documentation, and the main point of contact, will be made available to the auditor as of the commencement of the audit.
(x) Pre-existing audit provisions: where audit provisions exist within existing affiliation agreements, those pre-existing provisions shall take precedence over the provisions contained within this framework.
