The Toronto Star
Thursday, June 12, 1997

'Gray market' sparks red alert

Canadian cable companies issue ultimatum to U.S. satellite-TV firms

by Robert Brehl

Canadian broadcasters and satellite companies have opened a new front in their battle to shut down thousands of ``gray market'' DirecTV dishes in Canada.

They have issued an ultimatum to U.S. satellite companies to black out signals to the Canadian dishes within days, or face ``mega-lawsuits'' in U.S. courts, sources said.

In the middle of the satellite sabre-rattling are thousands of Canadians who have spent $1,000 for the dish and set-top box. Programming charges for up to 200 TV channels average more than $50 a month.

Also spinning are trade and cultural questions: Does Ottawa have firm control of its broadcasting policy? Should Canadians be restricted in any way in what they watch on TV?

DirecTV officials acknowledge Canadian broadcasters recently visited their California headquarters ``regarding gray market issues''.

``We've agreed to keep the contents of those discussions confidential'', DirecTV spokesperson Bob Marssocci said yesterday from Los Angeles.

So far, the war against the American dishes by broadcasters and Ottawa has been less than successful. It has failed to stop an estimated 300,000 Canadians from buying the products.

Canadian broadcasters and satellite firms argue DirecTV infringes on copyright rules, because while they pay for programming rights in Canada, DirecTV blasts in the signals, without proper authority to do so.

``If you rent a cottage for a week, you'll be damn upset if the owner's kids show up with their pals, beer, and jet skis, too'', said Chris Frank, vice-president regulatory affairs for ExpressVu Inc., a BCE-controlled satellite company planning to launch this fall.

Frank would not confirm that the Canadian cabal of eight companies has issued ultimatums to DirecTV and other U.S. satellite companies.

But he did say: ``We're looking at all kinds of ways to neutralize and repatriate the gray market in Canada. It causes distributors and programmers in Canada a lot of grief in lost revenue.''

If 300,000 Canadians pay an average of $50 a month, then almost $200 million leaks out of the Canadian broadcasting system.

Opening a beachhead in American courts may lead to a solution, one source said, claiming they have American allies in Hollywood who have not licensed DirecTV to beam their shows into Canada.

Threats of U.S. legal action are not unexpected. Gray market battles are bogged down in several Canadian courts now.

Because American satellite programming is not licensed in Canada, owners have accounts with U.S. mailing addresses to pay their bills.

(Some have paid $500 for ``pirate cards'' which hack into DirecTV's signal and allow viewers to watch programming without paying. That is the so-called ``black market.'')

Marssocci said it is DirecTV's policy to switch off gray market dishes, if they have proof they are in Canada.

``When we have knowledge there is a gray market subscriber in Canada we inform them we are not licensed to provide programming and then we immediately terminate the service'', he said.

``We believe we have been fully compliant with any applicable laws. We have no idea how large or how small the gray market is in Canada'', Marssocci said.

Others say that is bunkum and DirecTV knows which customers are Canadian, especially since many pay bills with credit cards from Canadian banks.

``It's gravy for DirecTV and they want to keep sopping it up, regardless of Canadian laws or who owns the rights to the programs here'', one broadcaster said.

A Canadian judge agreed recently.

He accused DirecTV of ``a thinly veiled scheme to circumvent the laws of Canada by accepting subscription fees directly from Canadians provided that they maintain a United States address.''

Now the broadcasters, led by Luther Haave of WIC Western International Communications Inc., claim they have proof, after a series of ``sting'' operations in which they set up gray market accounts, sources said.

Satellite dealers in Canada who set up gray market accounts for customers insist most customers need not worry about losing their programming, even if DirecTV acquiesces to ultimatums.

``Some of the smaller (satellite dealers) who haven't done their homework could be susceptible and lose customers'', said Brian Dinsdale, president of Satellite Communications Services, a Brampton gray market distributor.

``But most guys have done their homework and crossed the t's and dotted the i's'', so their customers won't be identified as Canadian, Dinsdale said.

He declined to disclose what tactics have been used.

But it's known that one thing they've done is register mailing addresses far away from the Canadian border, in states such as Oklahoma.

Consumers are voting for DirecTV dishes with their wallets and it is not their fault if the laws of copyright have not kept up with the new technologies, said Dinsdale, adding that the age of Internet ignores all national boundaries.

Copyright © 1997 by The Toronto Star. All Rights Reserved. Reprinted with permission.