While the decision was hailed by one major cable company as a step forward for customers, broadcasters said the very survival of local TV is at stake.
The Supreme Court ruled in a 5-4 decision that setting up such a system is not within the scope of the Canadian Radio-television and Telecommunications Commission. In doing so, the justices overturned an earlier Federal Court of Appeal decision.
The Broadcasting Act can't be interpreted to give the CRTC that power, Justice Marshall Rothstein wrote for the majority.
"First, a contextual reading of the provisions of the Broadcasting Act themselves reveals that they were not meant to authorize the CRTC to create exclusive rights for broadcasters to control the exploitation of their signals or works by retransmission," Rothstein wrote.
"Second, the proposed regime would conflict with specific provisions enacted by Parliament in the Copyright Act."
Telecom analyst Troy Crandall said at this point it's the status quo for consumers, who won't have to bear any costs of a fee-for-carriage system.
"It looks like a win for consumers right now because it's not going to have an immediate impact," said Crandall of MacDougall, MacDougall & MacTier in Montreal.
Traditional broadcasters will have to find other ways to raise revenues, supplement advertising and support local programming. If the Supreme Court would have agreed to allow traditional broadcasters to charge such fees, a basic cable subscriber would have seen his bill go up, he added.
"Now, it probably won't because the majority of your channels won't be allowed to have fee for carriage."
In their dissent, Justices Rosalie Abella and Thomas Cromwell argued that seeking a system that would be beneficial to local television stations was well within the mandate of the CRTC.
"As an expert body, the CRTC, not the courts, is in the best position to decide what measures are necessary to save local stations from going bankrupt," they wrote.
The CRTC had decided in 2010 to launch what's known as a value-for-signal system as a response to a changing broadcasting landscape that saw local broadcasters struggling for revenue.
The CRTC declined comment on the high court's decision, except to say they're reviewing it.
Currently, cable and satellite providers pluck TV signals out of the air for free and then redistribute them to their subscribers, who pay for access.
Bell Media said it's disappointed that the Supreme Court has found that the CRTC doesn't have the jurisdiction to implement such a system. TV viewers across the country would have benefited from long-term stability for their local television stations, which can no longer rely on advertising to cover their costs, said Bell.
"Local news, entertainment and other programming distinguishes Canadian broadcasting from everything else on TV," said Mirko Bibic, Bell's chief legal and regulatory officer.
Bell (TSX:BCE) said the television industry needs to find another way to help local TV survive, noting that 87 per cent of Canadians get their local news form TV stations.
"With its reliance on an uncertain advertising market, the financial model for local television is broken," it said.
"Bell Media believes the Canadian television industry as a whole must work together toward a new model for local TV, one that provides viewers with stable local TV stations well into the future."
Cable provider Rogers Communications Inc. (TSX:RCI.B) welcomed the decision, saying it's good for consumers.
"There have been dramatic changes to the industry in Canada since the CRTC first looked at the issue more than two years ago," said Phil Lind, vice-chairman of Rogers Communications.
"We believe that value for signal has no place in today's broadcasting landscape where the major players are enjoying significant profits."
Quebecor chief executive Pierre Karl Peladeau said the "issue will never be settled because the TV landscape is forever evolving for a very simple reason that nobody can control but that benefits everyone — technological advances."
Peladeau said regular TV channels will continue to be eroded, not because of insufficient investment but because there will be more and more specialty channels.
''The CRTC will have to look at the consequences of this decision and determine whether it wants to keep seeing the decline of regular TV channels," he said while attending a museum-related event in Quebec City.
The new system would have allowed the broadcasters to charge the cable companies for taking their signals and possibly withhold programming if the companies wouldn't pay up.
But first, the commission went to the Federal Court of Appeal to see if it had the jurisdiction to implement the changes.
In a 2-1 decision, the Appeal Court agreed that the Broadcasting Act gave the CRTC the broad mandate to regulate and supervise all aspects of the Canadian broadcasting system and there was no conflict with the Copyright Act.
The cable and satellite companies appealed the decision to the Supreme Court, arguing specific provisions in the Copyright Act denied the CRTC the power to force them to pay for signals.
They also argued that any costs incurred by them would just be passed on to consumers.
The television networks said the fees were essential to the survival for local programming and the new system was consistent with the CRTC's role as the national policy-maker for broadcasting.