Global consolidation will gobble up Canadian broadcasters, says author

An influential media analyst has harsh words for Canada’s broadcasters, which have recently cried poor over their inability to replace government funding with private resources to create domestic drama - despite spending billions on convergence gambles. Gordon Pitts, author of Kings of Convergence: The Fight for Control of Canada’s Media, argued in his keynote speech at the Banff Television Festival that it was time for Canada’s media moguls "to invest in and create new and imaginative content." (CCR, Nov. 7/02). He also warned that changing media ownership rules in the United States could result in Canadian broadcasters becoming an endangered species in the face of global consolidation and deregulation. Pitts, also a Globe and Mail business reporter, questioned how broadcasters collectively could spend billions on their convergence strategies on one hand and on the other claim they can’t afford to invest in Canadian programming. "So you’re talking about $12 to $15 billion dollars (spent on convergence) versus the pittance that we’re talking about in the debate of the Canadian Television Fund (CTF) - about restoring $25 million - and the $30 million proposed by Trina McQueen for a seed fund for Canadian drama. It’s nothing," Pitts told Canadian Communications Reports. "It just shows the tremendous assets (of broadcasters) and a lot of those assets were written down because they were bought at such hyper-inflated prices. So if you look at the matter in terms of proportion, the economics are absurd." The billions spent on convergence include Quebecor Inc.’s takeover of Vidéotron ltée., BCE Inc.’s acquisition of CTV Inc., CanWest Global Communications Corp.’s purchase of some Southam newspapers, Corus Entertainment Inc.’s takeover of animation production house Nelvana Ltd., and even Rogers Communications Inc. buying the Toronto Blue Jays. Asked in an interview after his speech if he believes that broadcasters can financially afford to produce more Canadian programming, Pitts said, "You’re talking about a society and how it uses its resources. But yes, the broadcasters have got that money. There have been tremendous margins in the industry, and I think it’s a reasonable thing…that they should start plowing some of that stuff back (into homegrown programming). You know billions were spent by the broadcasters, and ‘piddling’ amounts (for production funds) are being debated by policy makers. I mean there’s something wrong with that." Brian Topp, executive director of the Alliance of Canadian Cinema, Television and Radio Artists’ (ACTRA) Toronto Performers branch, in a conversation with CCR referred to Pitts’ speech as "a devastating indictment of English-Canadian broadcasters and food for thought for all of us." "This is an industry that is capable of generating billions - that deserves being underlined - for mergers and acquisitions, but can’t find tens of millions for the product for the business that they’re in," he added. "The case that broadcasters have no financial capacity was devastatingly undermined by that speech. The fact of the matter is that they have access to capital." But former veteran broadcaster turned consultant Trina McQueen pointed out that the margins on airing U.S. programming are falling, and that in an age of fragmenting audiences with the proliferation of specialty channels, it’s becoming increasingly difficult for over-the-air broadcasters to make money. In separate interviews with CCR, Glenn O’Farrell, president and CEO of the Canadian Association of Broadcasters, and Jay Switzer, CHUM Ltd. president and CEO, concurred. "I’m more concerned that as an industry, broadcasters are not that profitable these days. If you just look at the snapshot today - and forget about what was paid and how we all got here and what was written off - now my numbers may be a little off, but if you add up all the profits for English-language broadcasters of all types in Canada in the past year, it’s under $100 million," Switzer said. "Conventional television in Canada is a very hard business these days. I think its average margins are under 10%. And I know at CHUM, our conventional margins have been in the 7% to 9% range, and that’s just not long-term sustainable or acceptable." Figures released June 16 by Statistics Canada on television broadcasting confirm Switzer’s comments. StatsCan notes in its report that "the profit margin of private conventional broadcasters fell below 10% in 2002 for the first time since 1991. This was the third consecutive year-over-year decline for this segment of the industry." Said O’Farrell: "How much Canadian programming is actually funded through mechanisms like the CTF? It’s a fraction of the total programming that is bought by Canadian broadcasters. But programming that comes from the CTF is particularly important because it is designed to serve the purposes of the regulator." In his speech, Pitts also noted that another wave of media consolidation was around the corner. In the United States, he said, consolidation was taking a great leap forward with the looming deregulation of local markets (CCR Update, June 11/03). "But what is interesting is that the FCC (Federal Communications Commission) is simply allowing the kind of consolidation that Canadian media barons already enjoy - and have acquired with just a minor whimper of protest from a compliant public," he said. "The media barons in the U.S. say they will not embark on an orgy of takeovers - but that’s a political statement and don’t believe it. The media map in the United States is about to be redrawn again, meaning fewer larger distributions of content, fewer buyers of television production, and probably a move towards more uniform and banal television fare." He said the U.S. situation would have an impact on Canada because trends here generally follow those of the United States. He pointed out that changes in the U.S. will appear to validate the concept of owning cross-media properties, and that Canadian media owners will argue that they need additional clout and consolidation to be strong enough to take on the expanding U.S. players. But eventually, they will sell out to the Americans, he predicted. "Once the Americans pass through their next bout of local market consolidation, their only option will be to continue on the route of global consolidation," he stated. The barriers between nations are already beginning to fall, he added, with Ottawa deliberating whether to allow more foreign ownership of the telecommunications and cable industries. "As the barriers fall, most of the major Canadian media families will cash in," he predicted. "There may be some short-term advantage to being a low-cost source of U.S. TV fare, but in the end, it looks dangerously like an all-American private television industry and the CBC as the only domestically owned force. And much as I adore the CBC, I don’t think that’s good for Canada."

Global consolidation will gobble up Canadian broadcasters, says author

News | 06/20/2003 4:00 am EDT

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