$1 billion shortfall spells long future for Canadian program subsidies

Advertising, BDU fees and export sales are not enough to cover the over $1 billion in losses Canadian companies continue to absorb for producing home-grown television shows. As such, expect subsidies to be a permanent fixture on the Canadian broadcasting scene, concludes a recent study from Nordicity Group Ltd. CBC included the study, Canadian Television: Why the Subsidy?, with its submission to the CRTC's upcoming BDU and specialty services review, but its data may have been better suited for last week's hearings on the Canadian Television Fund. While there was much talk last week about focusing on producing successful, market-driven shows, the Nordicity results show how far Canadian programming is from turning a profit. The study weighed the cost of producing Canadian programming in all genres versus the revenue to be gained from advertising, subsequent cable and DTH subscription fees, pre-sale export value and aftermarket export sales. It found an overall economic shortfall of $689.9 million in English-language television production and $403.9 million for the French-language market. English-language dramas in particular displayed an economic shortfall of $352.2 million. Only the variety genre turned a modest, industry-wide profit of $7.1 million. "To be successful, firms in this industry must be willing to finance the development and testing of potentially a large number of unsuccessful productions before arriving on a hit," reads the report. "For example, over the last ten years, the top four TV networks in America (NBC, CBS, ABC and FOX) have on average cancelled 62% of their new shows within the first 11 episodes. The same risky business model applies to other countries, including Canada." But that model is even riskier considering Canadian programming has to compete with the 38% of those US shows that survive, as well as established hits from previous seasons. Nordicity reports that although the cost of these foreign programs has increased as Canadian broadcasters bid for the top product, the licence fees are still as low as 10% of the original US production costs. So while it costs about $1.4 million to finance an hour of Canadian drama, a broadcaster only spends about $300,000 per hour for a US show with a $3 million hourly budget with the subsequent increased star power and production values. "As well, the US publicity machine strongly promotes the US shows, through print and other media available in Canada," reads the report. "This combination leads to higher profitability and lower production risks - relative to the profitability and production risks of creating a new untested Canadian program." American programming captures approximately three-quarters of all primetime viewing in English Canada, and one-third of all primetime viewing in French Canada. Although French-language programming captures a larger percentage of its Canadian audience than English-language, French production from Canada has an international revenue potential of only $3.3 million. This pales in comparison to English-language programming's international revenue potential of $267.4 million. While the study identifies the presence of American programming as the most significant source of Canada's subsidy approach, it doesn't offer solutions. Simultaneous substitution of American programs generates more than $300 million annually for Canada's private broadcasters, so pushing US programming out of Canada seems highly unlikely. The remaining alternative is to increase the export value of Canadian productions, particularly with the US market. But trying to compete in the most robust entertainment market in the world where more than twice as much money is invested in each one-hour drama program may take some serious financial risks from producers. Shaw Communications Inc.'s VP of corporate and regulatory affairs Ken Stein lamented last week that "we're in a subsidy approach." We may have to remain in one.

$1 billion shortfall spells long future for Canadian program subsidies

Broadcast | February 14, 2008

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