It may well go down as one of the rockiest product launches in the history of Canadian television. On Jan. 1, cable companies across the country began offering their 7.5 million subscribers seven new Canadian-owned specialty channels. But even before the services were on the air, the companies, and several Ontario MPs, were swamped with telephone calls from angry consumers. The complaints focused on the industry's so-called negative option marketing: viewers, after receiving the new channels free for several weeks, would be billed automatically for the additional services, unless they opted to cancel. Public anger was aimed primarily at industry giant Rogers Cablesystems Ltd. of Toronto, which quickly retreated and made a new introductory offer that could cost the company more than $30 million. Other Canadian cable firms - including Fundy Cable Ltd. in Moncton, N.B., and Trillium Communications Ltd. in southern Ontario - followed suit, hastily making changes to their cable service and marketing packages. Said Rogers Cablesystems president Colin Watson, in a nationally televised news conference from Vancouver: "We made a mistake and we apologize."
Although the Rogers move appeared to appease the public, the consumer revolt may have lasting implications for both the cable companies and Canadian specialty TV. Provincial politicians in British Columbia plan to introduce legislation to prohibit negative marketing, while politicians in Ontario are threatening to do the same. Such moves, experts say, would make it more difficult for the new specialty channels to establish themselves. Watson conceded that the controversy had prompted 100,000 calls per week and about 4,000 of Rogers' 2.6 million subscribers to disconnect from the optional services. He said it could also undermine public acceptance of the new services, which include a women's network, a country music channel and an arts and culture station. "The unfortunate byproduct of this," added Watson, "is that they are going to have more difficulty establishing their credibility among Canadian consumers and that's nobody's fault but our own."
The public backlash, according to some observers, also raised questions about the willingness of Canadians to support domestically produced programming. The Canadian Radio-television and Telecommunications Commission approved the new cable channels last June largely in anticipation of the potential threat posed by direct broadcast satellites, which are expected to make hundreds of American channels available in Canada within the next few years. But CRTC vice-chairman Bud Sherman, who appeared at a hastily arranged Ottawa news conference immediately after Watson's announcement, dismissed any suggestion that the public was rejecting the CRTC policy of promoting Canadian-owned services. "Historically, Canadians have said they want a distinctive broadcasting system," Sherman said. "Over the past month, they've been telling us they didn't like the way one particular company marketed the new services."
Only last month, the parent company, Rogers Communications Inc., received CRTC approval for its $3.1-billion takeover of Toronto-based Maclean-Hunter Ltd., which controlled publishing (including Maclean's), printing and cable assets. That acquisition gave Rogers control of 31 per cent of the Canadian cable market, well in excess of its nearest rival, Montreal-based Le Groupe Vidéotron, which holds a 15-per-cent share. In most of its markets, Rogers shuffled its specialty channel lineup, packaging certain new services with such popular existing services as TSN, CNN and the U.S.-based Arts and Entertainment network. Subscribers were informed, through brochures included in their monthly statements in late December, that they must subscribe to the newly assembled packages in their entirety, at an extra cost of roughly $4 a month, or lose all specialty services.
Both Rogers officials and other cable executives insisted that the packaging of existing and new services was done to comply with new CRTC regulations, which stipulate that they must offer one Canadian specialty service for every American service in a package. But thousands of cable subscribers were enraged by what they saw as arbitrary price increases and lack of choice. In Vancouver, the consumer protest began between Christmas and the new year. Irate subscribers could not get through to customer service representatives for several days. As a result, hundreds of customers lined up outside Rogers' offices in the Vancouver area on Jan. 3, the first business day after the holiday, to complain or to cancel their service.
Consumers were equally upset in some parts of Ontario, and hundreds took their complaints to local MPs, largely because the cable companies are federally regulated. Liberal Dan McTeague, who represents a riding east of Metro Toronto, said that he received 350 calls over the holiday. In fact, the volume of calls was so heavy at one point that his answering machine broke down. "It's good that people did what they did," said McTeague. "They made the companies wake up and realize how grossly unfair these rate increases were."
In the midst of what was rapidly becoming a major marketing and public relations fiasco, Watson called a news conference for Jan. 5 and admitted that negative option marketing will remain in place: subscribers will still have to notify the company if they want to decline the new, larger package and keep only the channels they now have, or be billed for them. By keeping only their existing lineup, customers will face a previously approved increase of 79 cents per month. The new services - known as extended basic - will cost an extra $2.65 a month, and the free viewing period has been extended to the end of February, from Jan. 31. As well, Watson said, the company plans to send each subscriber two letters outlining the options, and customer service phone lines will operate 24 hours a day, seven days a week. "We misread the public," Watson said. "We underestimated the desire of people to keep exactly what they had at exactly the same price." That underestimation could prove to be costly for Rogers. The company says it will lose between $30 million and $50 million by changing its original plans. Part of that loss comes from the cost of installing devices to block signals to those people who do not want the new channels.
For their part, several smaller cable operators contend that they introduced the new channels, without upsetting their subscribers, by offering them the status quo as an option. Kenneth Fowler, senior vice-president of planning for Edmonton-based Shaw Cablesystems Ltd., the country's third-largest cable company, said that the firm conducted extensive market research, through the use of focus groups, to find out what people wanted. Fowler said that Shaw used those results to offer its customers four packages, including the existing lineup at no additional cost. In Nova Scotia, Shaw announced last Friday that it would not appeal a provincial ban of negative option marketing.
Cable executives said that new computerized electronic devices may be available, within a couple of years, which will allow consumers to choose precisely the services they want rather than pre-assembled packages. According to Fred Wagman, president of Regina Cablevision Co-operative Ltd., his company has already installed a decoding machine in 9,000 of its 58,000 subscriber households as part of a service upgrading program. Rogers and Shaw, meanwhile, are counting on the development of a system called digital video compression that will permit viewers to choose from up to 200 channels.
Although these devices would likely make their negative option marketing obsolete, politicians in two provinces were still contemplating legislation to prohibit the practice, which was previously banned in Quebec and Nova Scotia. B.C. Consumer Services Minister Joan Smallwood advised Ted Rogers, chairman of Rogers Communications, to end negative option marketing or face government legislation. Ontario Tory MPP Cameron Jackson prepared a private member's bill outlawing the practice and providing for fines of up to $25,000 for companies using it. In response to pressure from opposition leaders, however, the province's Consumer Affairs Minister Marilyn Churley said the government may introduce its own bill.
But for the creators of the new specialty channels, a legislated end to negative option marketing could be disastrous. They would then be forced to sell their programming directly to the public, and build their audiences, as well as their revenues. Instead, the CRTC has allowed negative marketing so that the services have a secure source of revenue to launch and establish themselves. In return, the owners of the seven services have promised to plow over $500 million into domestically produced programming during the course of their six-year licences. "We're delivering Canadian points of view," said Linda Rankin, president of Winnipeg-based Women's Television Network. "Without that, we watch American television. I can't think of any other country in the world that would sit still for that." But following last week's controversy, cable subscribers may no longer be prepared to sit still, and pay for services they do not want - even if they are made in Canada.
Maclean's January 16, 1995