Cogeco 2013 Annual Report Download - page 23

22 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
The market for audio and video content services in Canada is characterized by high levels of supplier integration and structural rigidities imposed
by the Canadian Radio-television and Telecommunications Commission’s (“CRTC”) regulatory framework for broadcasting distribution. Following
the acquisition of several specialty and pay television properties earlier this year, Bell currently controls over 40% of our programming service
affiliation payments for the Canadian cable operations at current wholesale rates. While we have generally been able to obtain satisfactory
distribution agreements with programming service suppliers in Canada to date, we may not be able to maintain our current arrangements, or
conclude new arrangements that are economically favorable to us, and programming service costs may thus increase by larger increments in
future years. Moreover, vertically integrated programming service suppliers may change other material terms of the arrangements, extend
preferences to themselves for the distribution of their content to competing distributors, or push for the distribution of their content over the Internet
in the future.
We may be subject to future arbitrations and other administrative or regulatory proceedings relating to Canadian programming service suppliers
which could either help us obtain reasonable affiliation terms or compel us to pay increased programming fees or otherwise subject us to adverse
competitive conditions. To the extent any such increased costs cannot be passed on to our customers or otherwise adversely affect our operating
margins, our business could be harmed.
In recent years, the American cable industry has experienced a rapid escalation in the cost of programming, particularly sports programming and
retransmission of broadcast programming. This escalation may continue, and we may not be able to pass on programming cost increases to our
customers which would have an adverse impact on our cash flow and operating margins. In addition, as we upgrade the channel capacity of our
systems and add programming to our basic, expanded basic and digital service offerings, we may face additional market constraints on our ability
to pass on programming costs to our customers which could materially adversely affect our profitability.
In addition, we are also subject in the United States to increasing financial and other demands by broadcasters to obtain the required consent
for the transmission of broadcast programming to our customers. We obtain most broadcast programming through retransmission consent
agreements. Most agreements require payment of a flat per customer fee for retransmission of the broadcaster’s primary signal. In some cases
these agreements involve the exchange of other types of consideration, such as limited grants of advertising time, carriage of multicast signals
or, when applicable, limited VOD launch fees. We expect to be subject to continuing cash demands by broadcasters in exchange for their required
consent for the retransmission of broadcast programming to our customers. We cannot predict the impact of these negotiations or the effect on
our business operations should we fail to obtain the required consents.
We may not successfully implement our business strategies.
Our business strategies focus on:
• expanding service offerings and enhancing existing services or bundles;
• improving the networks;
• improving customer experience and business processes; and
• keeping a sound capital management and strict control over spending.
We may not be able to fully implement these strategies or realize their anticipated results without incurring significant costs, or at all. In addition,
our ability to successfully implement these strategies could be adversely affected by a number of factors beyond our control, including operating
difficulties, increased ongoing operating costs, regulatory developments, general or local economic conditions, increased competition,
technological changes and the other factors described in this “Uncertainties and Main Risk Factors” section.
We may also be required to make capital expenditures or other investments, which may affect our ability to implement our business strategies
to the extent we are unable to secure additional financing on acceptable terms or generate sufficient funds internally to cover these requirements.
Any material failure to implement our strategies could have a material adverse effect on our reputation, businesses, financial condition, prospects
and results of operations and on our ability to meet our obligations, including our ability to service our indebtedness.
Our Canadian business is subject to extensive government regulation and Changes in Canadian government regulation
or policies could adversely affect our business, financial condition, prospects and results of our Canadian operations.
Our Canadian electronic communications and cable telecommunications operations are subject to extensive government regulation and
in Canada. Canadian laws and regulations govern the issuance, amendment, renewal, transfer, suspension, revocation and
ownership of broadcast programming and distribution licenses. With respect to distribution, regulations govern, among other things, the distribution
of Canadian and non-Canadian programming services, distribution priorities and access to distribution, the resolution of disputes on the terms
of carriage for Canadian programming services and mandatory financial contributions for the funding of Canadian programming. There are
significant restrictions on the ability of non-Canadians to own or control broadcasting licenses and telecommunications carriers in Canada, although
the federal government recently eliminated the foreign ownership restrictions on telecommunications companies with less than 10 percent of total
Canadian telecommunications market revenues. This change may lead to additional competition from new industry players in Canada or to more
investment and financial resources coming from non-Canadian investors in support of the competitive activities of new entrants on the
telecommunications market in Canada.
Our broadcasting distribution and telecommunications operations (including Internet access service) are primarily regulated respectively under
the Broadcasting Act (Canada) (the “Broadcasting Act”) and the Telecommunications Act (Canada) (the “Telecommunications Act”) and regulations
thereunder. The CRTC, which administers the Broadcasting Act and the Telecommunications Act, has the power to grant, amend, suspend, revoke
and renew broadcasting licenses, approve certain changes in corporate ownership and control, and make regulations and policies in accordance
with the Broadcasting Act and the Telecommunications Act, subject to certain directions from the federal cabinet. In addition, Canadian laws