Recent financials make case for carriage fees, broadcasters say

The CRTC's recent financial report card on the conventional television industry portrays a sector in a protracted decline and in urgent need of regulatory intervention, according to some of the broadcasters included in the report.The document, titled Television - Statistical and Financial Summaries 2002-2006, was released on March 28, and it contained some sobering figures indeed. While top-line revenue slid just $3 million from 2005 to 2006, the industry's profit before interest and taxes (PBIT) plunged an astonishing 62.4%. What more, the industry as a whole realized a negative pre-tax profit, perhaps for the first time ever, says Jon Medline, director of regulatory affairs at CanWest MediaWorks Inc.Medline says the results are worrisome, but also powerful ammunition as the commission currently weighs whether or not to grant over-the-air television broadcasters the right to charge a fee for their signals, a proposal central to last November's Notice of Public Hearing 2006-5. "That's what I think a lot of us were saying - it's time for fee-for-carriage based on fairness, first off, but also based on economics," he says.Such fiscal developments, Medline adds, impart a sense of urgency that the commission must address when it finally issues its new conventional television policy. "When CanWest and other broadcasters talked about structural decline, this is it, this is the proof of it," he says. "It's not like this is a bad economic cycle."Medline notes that the previous low-water mark for conventional television's collective revenues was $178 million in 2002. "That was, we could argue, a cyclical thing - that was 9/11," he says. "When you see a sectoral decline in a good part of the economic cycle, now you've got a problem. When the economic cycle comes around , then what are you going to be faced with?"At the time of the public hearing last year, CanWest presented research from its media sales division that pegged the broadcaster's loss to time- and station-shifting at nearly $30 million last year alone. "That was just before Shaw announced that they were going to carry distant signals," Medline says. "That would increase the damage in last year alone to $36 million." As a remedy, CanWest urged the commission to impose simulcast requirements on both cable and DTH BDUs, so that shows running simultaneously on local and distant stations can be seen on the local station only.Also in CanWest's application were requests for mandatory carriage of the broadcaster's five local stations, which are currently not available through either Bell ExpressVu or Star Choice. If mandatory carriage isn't possible, then those five stations' local programming requirements should be relaxed or abolished, the application stated.While overall revenue posted a modest 0.1% decline from 2005 to 2006, the cost of putting content on the air grew by 7.8%. "The only costs that went down were administrative and general, and I think that's a good sign," Medline says. "I think that means that people are getting more efficient."By far the biggest growth was in the cost of foreign drama programming, which exploded from $401 million in 2005 to nearly $479 million last year. Some interveners at last November's public hearing posited that, if conventional over-the-air broadcasters were granted fees for carriage of their signals, most of that additional revenue would go to acquiring US dramas and therefore offer little net benefit to the Canadian broadcast system.But with other pressing capital expenditures looming such as upgrading news rooms and master control centres to high-definition standards, Medline says that money will likely not flow to sources south of the border. "It's going to go everywhere: it's going to go to technical, it's going to go to HD rollout...there's a huge cost to HD," he says.While the picture was grim at the national level, where CanWest operates, the hardest-hit geographic area on a region-by-region basis was Quebec. The province is still the second-largest broadcast market in the country after Ontario, but its annual rate of revenue growth from 2002 to 2006 was the lowest of all five regions - the others being Atlantic Canada, the Prairies, and British Columbia and the Territories - at 4.8%."The situation is critical, and obviously if there are no changes to the system, and I mean providing conventional television fees...we will be unable to continue our operations and be competitive with specialty networks and new platforms," says Serge Bellerose, VP of new media services and corporate affairs at TQS Inc.During the hearings last year, TQS proposed a $1.00 per subscriber monthly carriage fee for each private conventional broadcaster in the province - namely, TQS and Quebecor Inc.'s Groupe TVA Inc.According to Bellerose, mandating a set dollar amount for carriage of each conventional broadcaster's signal is the best way to ensure competition on an even footing. "We would not be in the best position to deal with Videotron without clear regulation and a clear indication from the commission on the rate that should be allowed players in the market," he says.Quebecor, however, offered up a plan to carve out some of the wholesale fees currently paid to specialty programmers and redistribute them to conventional broadcasters. But with a CRTC review of the specialty channel industry coming sometime this year, Bellerose says now is the wrong time to be tinkering with the conventional-specialty balance. "All the questions regarding the fees - are they getting too much, or too little - should be addressed during this specific process that the commission will initiate very shortly," he says.The Quebec broadcast market is somewhat of an anomaly in Canada: here, home-grown Francophone productions rule the roost, and accounted for 19 of the 20 most-watched series last year. While that means the province's broadcasters may be largely immune from the competition for prime-time US programming that their English-Canadian counterparts must undergo, they must compete fiercely with each other for the best talent that Quebec has to offer.In addition, Bellerose says TQS hasn't been getting a share of Canadian Television Fund monies commensurate with its market share in Quebec. The broadcaster, which enjoys approximately a 14% market share in the province, received $4.2 million from the CTF last year, and Bellerose says that amount will fall in 2007. Radio-Canada, meanwhile, got $27 million in 2006, even though it has roughly the same viewership in Quebec as TQS.There are other competitive pressures peculiar to Quebec: in addition to owning TVA, Quebecor also owns Vidéotron ltée, the province's biggest cableco. That integrated ownership means carriage issues take on special importance in the province. "If you have to deal with Videotron, you're dealing with your competitor," Bellerose notes.There are some issues where both TQS and CanWest find common ground, despite the differences in their target markets, scopes of operation and programming priorities. For instance, both urged the commission not to raise the 12-minutes-per-hour cap on spot advertising during last year's public hearings."We saw more of an inflationary impact of additional ad minutes," says Medline, although he adds that it's inevitable that the advertising market will eventually be subject to less regulation. "We didn't say that advertising shouldn't be deregulated, we said this is not the right time to deregulate advertising, because that would destabilize, not stabilize."TQS, meanwhile, pressed for the 12-minutes-per-hour maximum to be maintained, but for the commission to allow greater latitude in product placement and other commercial tie-ins within the programming itself. While such approaches to advertising won't entirely supplant the conventional TV ad spot, Bellerose says they're of increasing importance in the era of personal video recorders."We've said we want complete deregulation of product placement and commercial integration in shows," he says. "This is key for our market. It's tougher in the English market to do so, because English-Canadian networks are mainly...airing US shows in primetime. We are airing original shows, so we be more original in product placement and commercial integration."

Recent financials make case for carriage fees, broadcasters say

News | April 2, 2007

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