Discovery Health wins CPE, airtime concessions

Last week, the CRTC approved the Discovery Health Channel’s request to scale back its airtime and Canadian production spending (Broadcasting Decision 2006-384). On the face of it, it’s not good news for producers, but some lent their qualified support to the request. Both Calgary-based Joe Media Group and PTV Productions Inc. of Toronto told the commission that Discovery Health should be granted relief from earmarking 65% of its broadcast day and evening timeslots for Canadian productions. However, the two production houses differed on the matter of the specialty channel’s Canadian production expenditures (CPE), set at 51% of the previous year’s gross revenue under its original conditions of licence. PTV urged the CRTC to hold the line at 51%, while Joe Media had expressed support for a reduction in CPE, to as much as 25% of the preceding year’s revenue. In the end, the regulator cut Discovery Health’s daily quota of Cancon to 35% of the daytime and evening periods, and lowered its CPE level to 20% of gross revenue from the previous broadcast year. In arriving at its decision, the commission noted that the Category 1 specialty channel’s profit before interest and tax margin was -98%, the second-lowest of all Category 1 offerings, and that it had netted only half of the subscription revenue and one-quarter of the advertising revenue originally projected. But while majority-owner Alliance Atlantis Communications Inc. is profitable, the Discovery Channel "can’t just suck off the profits, it can’t be running at a huge loss," PTV Productions president and CEO Andrea Nemtin admits. Despite that, she says that the commission shouldn’t have opted to lower both the channel’s CPE levels and the amount of Canadian-produced programming it airs. "If their problem…was that they could not produce the number of hours with the amount of money they had, well then it doesn’t make sense to reduce the amount of money," she says. "Reduce the number of hours." Joe Media president and CEO Joe Novak says the channel can’t be faulted for its pedigree, and should garner more of an audience than it does. "I think they approached it right – I mean, they have the Discovery brand, people are interested in health," he says. Discovery Health is 80% owned by Alliance Atlantis, with the remainder held by Discovery Communications Inc. of Silver Spring MD. In its application, Discovery Health told the CRTC that it had scoured the domestic market for health-themed programming and bought all that was available, but still came up short of its 65% Canadian production airtime requirements. The commission also noted that the channel had exceeded its CPE spending minimums for the 2003, 2004 and 2005 broadcast years, and was on track to do the same in 2006. The channel’s misfortunes largely lie in its focus on specialized – but important – subject matter. "Health programming is expensive, more so than doing a local lifestyle or talk show," Novak notes. "I think it doesn’t have a shelf life often because of the advances , and there are not a lot of ways to recoup your investment." With the differences between Canada’s health care system and those of other markets that normally buy Canadian-produced TV programming, health productions may not have the requisite relevance and "portability" to sell abroad. "There is a problem with shelf life, absolutely, in that the science changes and everyone wants cutting-edge science," PTV’s Nemtin agrees. "The biggest problem with doing health programming is there’s very few windows for it and very little money." And while specialty and pay programming on the whole is one of the most profitable sectors of the Canadian broadcast industry, the highly specialized and time-sensitive nature of Discovery Health’s programming means its niche audience undoubtedly has different demands from health shows and information than other such channels. "You can’t just go off and say ‘Well, the W Network does it or the Food Network does it’ – that’s totally different kinds of programming programmed differently in a different broadcast environment," Novak says. "Yes, it’s all TV, but it’s apples and oranges and bananas and strawberries. It’s not the same thing." Novak and Nemtin say that Discovery Health’s Category 1 status is also likely a factor in its woes: it’s a must-carry only for digital cable and DTH BDUs who have the capacity to do so, whereas 30 other English-language specialty broadcasters – including the Discovery Channel Canada – benefit from more universal carriage thanks to their modified dual-status designation. "The variables in raising subscriptions have to do with which package you’re in, and the price point at the BDUs, and that kind of thing," Nemtin observes. But the commission’s decision raises a broader issue, namely: if conditions of licence aren’t ultimately binding, what’s to stop a "land grab" mentality creeping in where hopeful licensees virtually anything to secure the CRTC’s blessing? The Canadian Film and Television Production Association raised those concerns in response to Discovery Health’s request, noting that the franchise for a health specialty channel was awarded after a competitive process. "There is an argument that says, ‘You received this licence because you put forward a proposal – would you have received this licence if you’d ,’" Nemtin notes. "If it’s not a binding condition, then it makes you wonder about the integrity of the system." However, both she and Novak stress that the relationship between programmers and producers is symbiotic, and any weakness on the part of one partner in that mutual dependency can cause a feedback loop. "I think there’s a downward spiral: as you reduce and reduce the amount of original programming, you also reduce the relationships that you form with independent producers, and then producers aren’t sort of thinking and coming up with innovative health shows," meaning less compelling content and lower audiences, Novak says. Now that the commission has consented to the relaxed conditions of licence, however, Novak has some additional suggestions that might help Discovery Health get back on track. "Number one, you need to expand the viewing audience, and you expand the viewing audience with a different placement on the digital tier," he says. "The second thing is to have more innovative, relevant programming to serve the needs of the new distribution platform audiences….If you can’t stretch the shelf life, can you stretch the platforms?" He notes that many American specialty channels have adroitly used sales of DVDs, online Webisodes, mobisodes, and other supplementary content to extend the lives – and the revenue contributions – of many broadcast properties. Novak says that despite the fact that the commission granted Discovery Health a bigger break on CPE than he would have liked, he hopes the measures are enough to help the specialty channel pull through. "Maybe now that they can be more selective with only doing 20%, maybe they can take their budget allocation and get less programming but better programming and then maximize that programming," he says, adding that enhancing the quality – in the absence of increased quantity – will be key. "At the end of the day, it’s all about audience," he says. "If nobody’s watching, what’s the point? It can be good for you all you want." For her part, Nemtin says the channel plays a vital – albeit diminished – role as a commissioning body and broadcast partner, and while she says she recognizes the need to help it through its current rough spot, she’s not thrilled with the commission’s decision. "It’s important that Discovery Health stay strong and continue to do programming," she says. "I’m very supportive of Discovery Health – I work with them, I like them, I like Alliance Atlantis, and I support them corporately, and I consider them a production partner. But, it would be impossible for an independent producer to be in favour of less money and less hours."

Discovery Health wins CPE, airtime concessions

Broadcast | August 29, 2006

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