HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 03/19/2019 - FIRST READING OF ORDINANCE NO. 051, 2019, AMENDINGAgenda Item 9
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AGENDA ITEM SUMMARY March 19, 2019
City Council
STAFF
Erin Shanley, Broadband Marketing Manager
Colman Keane, Broadband Director
Gerry Paul, Director of Purchasing & Risk Management
Cyril Vidergar, Legal
SUBJECT
First Reading of Ordinance No. 051, 2019, Amending Section 8-161 of the Code of the City of Fort Collins to
Add an Exception to the Competitive Purchasing Process for Purchases of Video Content Licensing.
EXECUTIVE SUMMARY
The purpose of this item is to amend City Code to create a limited exception to the competitive bid and
purchasing process for the purchase of video content licensing and services, as needed for delivery of video
services by Fort Collins Connexion. To provide video services, Fort Collins Connexion must secure license
agreements with local channels, national networks, and independent content producers. While most video
content will be acquired through membership in the National Cable Television Cooperative (NCTC), there are
some channels, groups of channels, and networks that will require direct individual license negotiations.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
As part of Fort Collins Connexion (Connexion) providing subscription video streaming services, license
agreements are required with local channels, national networks, and channel families, in addition to video
content consolidators (such as NCTC).
On February 19, 2019, Council approved Resolution 2019-025 Approving the Purchase of Video Content
Licensing and Services from the NCTC for Fort Collins Connexion as an Exception to the Competitive
Purchase Process. This Resolution allowed Connexion to become a member of NCTC and access licensing
with hundreds of networks through NCTC’s pre-negotiated agreements, thereby obtaining access to such
content in a cost-effective, efficient manner and often on better terms than would otherwise be available to
Connexion.
However, there are certain local channels (ABC, NBC, CBS, etc.) and networks not covered by NCTC that will
require direct negotiations. Connexion staff anticipates negotiating with roughly 20 of these providers not under
contract with NCTC. In addition, Connexion needs to maintain relationships and pay monthly content fees to
each directly negotiated channel and network. Contract agreements typically range from 3 to 5 years.
Connexion and Purchasing staff have identified certain limitations in current City purchasing practices and
requirements in the context of securing video content licensing rights. Currently, the City Code requires
competitive purchasing as the default purchasing model for all but a small set of exempt transactions
enumerated at Section 8-161 of the Code. The nature of the video content licensing market, however, is
distinct from the markets for construction and the majority of professional services the City most often
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purchases through existing competitive purchasing processes. Unlike the markets for which City competitive
purchasing practices were developed, the market for video content generally involves rights to unique video
content (goods) that has no immediately comparable alternative form or source. As such, producers (service
providers) in the video content market generally do not engage in competitive bidding. Similarly, video content
producers do not regularly transact with public bodies; rather, their practices are substantially developed for a
business-to-business environment wherein license rates are competitive and proprietary. Each
producer/provider has unique products not available from other sources. For example, HBO, Netflix or PBS
programming is not available from a variety of sources that could respond to a competitive bid request.
While City Code provides Connexion staff with the option to seek sole source justification through the
Purchasing Agent or other exceptions to default competitive purchasing practices when acquiring video
content rights, the volume of transactions needed to operate Connexin services will likely result in a backlog of
such requests. Existing procedures and exemptions in City Code do not offer an expedited option to efficiently
process the anticipated number of individual contracts Connexion will need with channels, channel families,
and independent producers. These limitations of the current Code have led Connexion and Purchasing staff to
recommend expanding the scope of the enumerated exemptions to competitive purchasing practices.
Staff is proposing for City Council adoption a new subsection (g) to Section 8-161 to specifically authorize the
Purchasing Agent to acquire video content licensing rights outside of standard City competitive purchasing
practices. Such authority will be conditioned on the Purchasing Agent providing a summary to the City
Manager for all transactions made under the subsection, and to report to City Council along with the City
Manager on all such transactions that exceed an annual expense of $1,000,000. This grant of authority
balances the spirit of the City’s competitive purchasing practices and the unique demands of the video content
licensing market with City Council’s obligations under the City Charter to authorize all municipal spending.
CITY FINANCIAL IMPACTS
Channel / Network Costs
• Detailed cost estimates are unavailable until such time as a contract is negotiated with each provider.
However, estimates can be provided:
o Considering experience with other municipal providers, Connexion anticipates an estimated range of
costs anywhere from $0.50 - $18.00 per month per subscriber for video content, based on the specific
network/channel family. Connexion’s projected internet service take rate is 28.2%, with a stretch goal
of 50%.
o The budgeted take rate for video customers is 60% of internet customers, while the industry average is
closer to 80%.
o Over the last decade, video content costs have increased dramatically with average annual increases
ranging from 8% to 12 %.
o All these variables yield a wide range for a projected 5-year potential cost. The range for direct video
content is $283K to $11.2MM for low-range and $660K to $23.8MM for high-range for the 5-year
period.
Pricing estimates for illustrative
purposes only
Low High
ESPN $7.50 $12.00
TruTV $0.50 $0.80
HBO $18.00 $29.00
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Low Range Estimate (28.2% take rate, 60% video penetration)
28.2% Take Rate, 60% Video Penetration
Network 2019 2020 2021 2022 2023 2024 Total 5 yr.
ESPN $7,416 $174,974 $628,725 $1,205,762 $1,408,662 $774,039 $4,199,579
TruTV $505 $11,794 $42,380 $81,276 $94,952 $52,175 $283,082
HBO $18,026 $425,446 $1,528,732 $2,931,785 $3,425,132 $1,882,061 $10,211,182
Higher Range Estimate (50% take rate, 80% penetration)
50% Take Rate, 80% Video Penetration
Network 2019 2020 2021 2022 2023 2024 Total 5 yr.
ESPN $17,298 $408,273 $1,467,025 $2,813,444 $3,286,877 $1,806,092 $9,799,010
TruTV $1,166 $27,520 $98,886 $189,643 $221,555 $121,741 $660,512
HBO $42,053 $992,708 $3,567,042 $6,840,832 $7,991,975 $4,391,475 $23,826,085
• Connexion video customers will pay monthly bills in advance, while fees paid by the City to content
providers are paid in arrears. The risk for the City is the small number of customers who may fail to pay
their bills after disconnection between billing periods. As long as bills are otherwise paid in a timely
manner, the revenue will nevertheless offset the cost of goods sold and cover occasional customer
defaults. Connexion will also be able to rely on existing Customer Connection service bill collection
practices to resolve delinquent bills.
• Content costs and contract terms will vary based on network and channels.
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ORDINANCE NO. 051, 2019
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING SECTION 8-161 OF THE CODE OF THE CITY OF FORT COLLINS
TO ADD AN EXCEPTION TO THE COMPETITIVE PURCHASING PROCESS FOR
PURCHASES OF VIDEO CONTENT LICENSING
WHEREAS, the Charter of the City of Fort Collins contains provisions concerning
purchasing practices in Article V, Part IV; and
WHEREAS, Chapter 8, Article IV of the Code of the City of Fort Collins prescribes
particular methods for competitive purchasing for the construction of improvements and the
procurement of services and materials; and
WHEREAS, on November 7, 2017, a majority of the City’s electorate approved an
amendment to the City Charter to authorize the City to operate and maintain telecommunications
utility facilities, including Internet facilities and services using technology having the capacity to
transmit data to enable users to originate and receive high-quality voice, data, graphics and
video; and
WHEREAS, on January 16, 2018, City Council adopted Ordinance No. 011, 2018,
establishing a telecommunications division within the City’s electric utility (“Fort Collins
Connexion”) and authorizing the Electric Utility Enterprise to exercise powers, consistent with
the City Charter at Art. XII, §7(b), regarding funding for the provision of telecommunication
facilities and services; and
WHEREAS, pursuant to authorities granted in the City Charter and City Code, the City
has begun acquisition and construction of telecommunications utility facilities in preparation for
Fort Collins Connexion to deliver Internet, telecommunication, and video services; and
WHEREAS, City staff has reviewed the competitive purchasing requirements in the City
Code and identified various issues that inhibit efficient procurement of video content licensing
rights by Fort Collins Connexion, due to the nature and practices of the video content rights
market, including uniqueness and limited availability of comparable content, consolidation of
supply, and proprietary content restrictions imposed by content developers on bundling and
duration of licensing; and
WHEREAS, based on the uniqueness of the video content market and the need of Fort
Collins Connexion to acquire such rights in order to effectively deliver telecommunication utility
services, staff has recommended that City Council exempt the acquisitions of video content
licensing rights from the City’s standard competitive purchasing practices; and
WHEREAS, City staff has recommended to City Council amendments to the City’s
competitive purchasing process in Chapter 8, Article IV of the City Code to specifically increase
flexibility in the Purchasing Agent’s exercise of authority to procure video content licensing
rights for the operation of Fort Collins Connexion telecommunication facilities and services; and
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WHEREAS, City Council has determined the amendments described in this Ordinance
are in the best interests of the City and its citizens.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That Section 8-161 of the Code of the City of Fort Collins is amended by
the addition of a new subsection (g) which reads in its entirety as follows:
Sec. 8-161. Exemptions to use of competitive bid or proposal.
...
(g) Purchase of content for City-delivered video programming and streaming services. The
Purchasing Agent shall have the authority to negotiate without formal competition the purchase
of video content licensing rights for the City’s delivery of cable or other subscriber video
content, programming, and streaming services. The Purchasing Agent is authorized to procure
such licensing from local channels, individual channels and channel families, and video content
aggregation companies when he or she determines i) viable market demand supports obtaining
rights to deliver the specific content, and ii) the anticipated cost to acquire such rights is
reasonable based on the uniqueness of the content, region, and market. The Purchasing Agent
shall submit a summary of such transactions and determinations to the City Manager’s Office for
each purchase under this Subsection. The Purchasing Agent and the City Manager designee with
direct responsibility to manage City telecommunication facilities and services, as defined in
Section 7(f) of Charter Article XII, shall jointly advise City Council regarding any purchase
under this Subsection that exceeds an annual cost of one million dollars ($1,000,000).
Introduced, considered favorably on first reading, and ordered published this 19th day of
March, A.D. 2019, and to be presented for final passage on the 16th day of April, A.D. 2019.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk
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Passed and adopted on final reading on the 16th day of April, A.D. 2019.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk