Specialty channels pondering policy framework in advance of 2008 hearing

The release of the CRTC's report on profitability of Canadian pay and specialty television providers earlier this month heartened some in the industry. But, with a policy review looming sometime in the next 12 to 18 months, others worry whether those rosy figures might lead the commission to believe all is well at such services across the board.The regulator delivered its report, Pay, PPV, VOD and Specialty Services - Statistical and financial summaries 2002-2006, at the beginning of May. According to that document, the discretionary TV services industry brought in $2.5 billion in revenue in 2006, a gain of 12.4% on the previous year.The bulk of revenue in 2006 - $2 billion - was attributable to specialty channels, with pay, pay-per-view (PPV) and video on demand (VOD) services accounting for the rest. And of that $2 billion, $1.8 billion was generated by the 49 analog specialty services, a fraction of the total 136 specialty services that had been launched as of year-end 2006."The analog specialties now have certainly come of age," says Cal Millar, VP and GM of Toronto's Channel Zero Inc., which operates the Movieola and Silver Screen Classics Category 2 digital specialty services.But, he adds, the pattern of asymmetric performance among the various types of discretionary services is clear. "You've got this sort of sliding scale," he says. "Over-the-airs had 50 years to get established and create audiences and find programming. Then, the older specialties tend to be the most profitable, and the newer analog specialties are a little less profitable, and then you get into the digital specialties, which as a group don't tend to be nearly as profitable simply because they're newer, with smaller audiences."One specialty service that outperformed its peers by a considerable margin was Teletoon, with revenue growth of 13.8% and subscriber growth of 10.5% in 2006. Shortly after the CRTC's statistical and financial summaries were released, Desjardins Securities Inc. analyst Carl Bayard noted the results helped boost the specialty TV fortunes of the channel's co-owners, Astral Media Inc. and Corus Entertainment Inc.However, Trent Locke, VP finance and planning at Teletoon, says future growth at the animation-centric specialty channel will come from new sources. "That growth can't be maintained," he says. "It's impossible to keep growing your advertising at double-digit growth, the BDU revenue is going to plateau eventually as well."Instead, Teletoon's plans include the launch of Teletoon Retro, a Category 2 digital service that was first licenced in 2000, then again in 2005. The first licence was never used, says Locke, because a business case wasn't apparent for the channel, which targets an older demographic than the main Teletoon service.Seven years later, however, "we're looking at Retro to be our main driver," Locke says. "It's not as niche as a lot of the other diginets that are out there - we're aiming at the 25-to-49 adult, but with cartoons like this we know the kids are going to come."In announcing its review of the policy for conventional TV services in June last year, the commission cited figures showing that pay and specialty viewership was drawing even with that of conventional TV undertakings across Canada, with the exception of Quebec.However, Millar notes that the vast majority of conventional TV stations are controlled by just nine companies, and those same companies have sizable pay and specialty investments as well, as is the case with Astral's and Corus' involvement with Teletoon."The large conglomerates are able to draw audiences, partly because of the ease with which they're able to cross-promote, and tell viewers at no additional cost what they're doing on other stations," he says.Independent specialties such as VisionTV, Fairchild Media Group, Asian Television Network, Aboriginal Peoples Television Network, Stornoway Communications LP, and Ethnic Channels Group have sought to counter the influence afforded by that integration in the past, at times through applications for mandatory carriage via dual-status designations or 9(1)(h) distribution orders.And since 2001, when policy changes allowed BDUs to own analog pay and specialty channels, those independent services have also had to contend with distributors - the very people they rely on as a conduit to get their programming to audiences - getting into the pay and specialty game.Add to that the loosening of restrictions on BDUs' local avails, and Millar says you've got a situation where cablecos and DTH providers are bordering on having undue influence over the discretionary services they carry."The BDUs have all of these incredible gatekeeper rights," he says. "You don't get your licence from the CRTC anymore - you get it from the BDU, when they agree to launch your service," a reference to the fact that new services must have distribution agreements in place before the regulator will grant a licence.In short, where those pay and specialty services owned by conventional broadcasters or BDUs have considerable leverage and cozy relationships to draw on when negotiating fees and other terms of carriage, other competitors such as Channel One are at a disadvantage. Says Millar: "That's the power imbalance that I think the commission needs to turn its sights on, rather than differences in the pay and specialty and the profitability among them."Those issues of ownership and what it means for carriage should be central at the next review of the policy framework governing pay, specialty, PPV and VOD services, Millar says. The commission's three-year work plan for 2007-2010, released last month, sets a window for a hearing sometime in 2007-2008 - widely believed to be the spring of 2008 - with the results of the review to be implemented in 2008-2009.In advance of that hearing, Teletoon's Locke says the channel has been assessing the potential scope of the review and what effect changes to Canadian production expenditures (CPE), foreign ownership restrictions, the one-channel-per-genre policy or the carriage regime might have."There's no real risk of us getting an increase to our CPE - we're at the highest possible contribution limit that we're already at," says Locke. "I guess the risk would be if there's any relaxation on foreign access or less regulations on carriage, while still maintaining the higher content regulations."

Specialty channels pondering policy framework in advance of 2008 hearing

Broadcast | May 30, 2007

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