Arbitration led by the National Communications Commission (NCC) on Feb. 13 succeeded in averting a crisis before the Lunar New Year holiday when Formosa TV agreed to give Taiwan Broadband Communications (TBC) a second temporary authorization to broadcast the Formosa News channel.
Industry experts warned that the dispute was only one of the many challenges facing the broadcast media regulator in an era of digital convergence.
Understanding the “ecosystem” of the nation’s cable service market clarifies the dispute and its source.
Most of the nation’s cable systems are controlled by TBC and four other multiple-system operators: Kbro, TWM Broadband, China Networks Systems and Taiwan Optical Platform.
Kbro is owned by Dafu Media, which was founded by Fubon Group chairman Daniel Tsai (蔡明忠). Tsai is also chairman of Taiwan Mobile and TWM Broadband.
TBC is owned by Asia-Pacific Telecom chairman Lu Fang-ming (呂芳銘).
Channel operators typically must pay fees to the cable system operators to be included in their cable channel lineups. The cable systems must pay channels to secure authorization to broadcast their content.
Channels defined by the media regulations as “must-carry” channels are the exception to this rule, with neither party paying a fee.
The amount to be paid by a cable operator or channel is settled through negotiations between the two parties. Channels retain agents who negotiate with the cable systems on their behalf.
Kbro and ERA Communications used to be the two giants of the channel agent business. Kbro and TWM Broadband jointly represented 29 channels, while ERA represented 27 channels.
TBC entrusted ERA chairman Lien Tai-sheng (練台生) with handling its negotiations with channels seeking to be added to its cable programming.
Because the multiple-system operators are also channel agents, negotiations in the past would focus on making sure that the channels that they represented were included in their competitors’ channel lineups. They would work out various deals among themselves.
For example, an agent might offer a cable system operator a discount or waiver on a content authorization fee if the operator would allow all channels represented by the agent to be broadcast on its system.
In the case of Formosa TV, the network was exempt from paying a channel lineup fee to TBC. In return, TBC did not have to pay a content authorization fee to Formosa TV.
However, this arrangement was disrupted following two critical changes made by Kbro and TBC at the end of last year.
Kbro announced that starting this year, it would cease acting as an agent for channel operators, and TBC ended its partnership with Lien, taking back its right to negotiate with channel operators.
The two multiple-system operators said that each channel could negotiate the authorization fee with them directly.
Most channel operators found new agents to represent them, but Formosa TV chose to handle its own negotiations with TBC. However, the negotiations between the network and TBC became gridlocked as the two parties failed to agree on authorization terms.
Formosa TV demanded that TBC carry the network’s other two channels — FTV One and FTV Taiwan — as well as Formosa News and that it pay for the content aired on the channels. TBC rejected both demands.
The network would have already been removed from TBC’s programming if it were not for two interventions by the NCC.
Recognizing that similar industry disputes were likely, the NCC said that Formosa TV, as well as TBC needed to change its mindset.
“Channel operators should not run their businesses as if they are still running analog TV channels, insisting that their channels have to be at the front of a lineup,” NCC spokesperson Weng Po-tsung (翁柏宗) said. “Most of the nation’s cable systems have been digitized and have more than enough capacity to accommodate numerous channels.”
“They should not use limited capacity anymore as an excuse to exclude a channel from their systems. Consumers should be the ones who decide if a channel is in or out,” Weng said.
Gridlocked negotiations are harmful, as they reduce the diversity of channels available to subscribers and reduce the value and output of cable TV systems, Weng said, adding that such disputes could eventually cause cable services to be replaced by other popular media platforms.
TBC did not explain why it decided to terminate its partnership with Lien, but Kbro said it had decided to “rewrite the rules of the market following years of doubts and criticism by members of the public about the role of channel agents.”
Some industry experts said that the incident signaled a potential tectonic shift in the cable service market, while others said Kbro was eyeing something more when it decided to end its channel agent business.
Kbro’s move helped to resolve tensions with the Fair Trade Commission, which last year fined the agent NT$53 million (US$1.8 million) for overcharging new cable system operators and consequently preventing them from competing fairly in the areas they served.
It also helped to clear Kbro’s reputation of an operator that monopolized the market.
By giving up the role of agent, Kbro gained more control over the channels listed on its systems, rather than simply accepting package deals from agents, who often combined highly rated channels with those that had lower ratings.
As the NCC pushes to implement a tiered system to charge cable subscribers, Kbro can put together various packages of channels offered by different agents and sell them to subscribers.
Being affiliated with Taiwan Mobile, Kbro could seek to set new terms through direct negotiations with channel operators, as networks striking deals with the company could have their channels aired on its new SuperMOD cable system, as well as Taiwan Mobile’s My Video online media platform.
Formosa TV has not spoken publicly about why it insisted that TBC take all three of its channels, although channel operators have complained over the years about the low content authorization fees they received from multiple-system operators.
Only about one-fourth of the revenue collected from cable subscription fees was paid to channel operators, while the rest went to the system operators. Falling advertising revenue has forced networks to either try to raise content authorization fees or increase their penetration rate so that they can survive financially.
The dispute between Formosa TV and TBC has revealed that new media powerhouse are in the making, such as Fubon Group and TBC. Owning telecoms, as well as cable systems — two of the most powerful mediums — has empowered Fubon Group to wield more influence and bargaining power in the market.
“You can see their people everywhere, from forums on the development of over-the-top content to panel discussions on issues related to the use of the tiering system to charge cable service subscribers,” a channel operator said about Fubon Group.
When Kbro in November last year planned to drop two of Formosa TV’s channels from the lineups of 19 cable systems, it was accused of retaliating against the network for broadcasting the channels on Chunghwa Telecom’s Multimedia on Demand system, Kbro’s main competitor. Kbro eventually dropped its plan after the NCC launched a formal investigation.
Kbro has submitted a plan to the NCC according to which it would list the channels owned or represented by Lien to channel No. 100 and higher.
The company has said that the move represents a simple adjustment based on TV ratings.
The NCC said it is still reviewing the local governments’ recommendations on the matter.
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