End of local TV fund may cause ‘huge’ losses for small market stations: CHEK

A CRTC decision to phase out the Local Programming Improvement Fund (LPIF) could lead to “huge” financial losses at small- and medium-market local television stations, said John Pollard, president of independent broadcaster CHEK Media Group. In a divided decision Wednesday, the CRTC said it will phase out the LPIF over three years. Last year, the local TV fund distributed $106 million to 80 small- and medium-market local TV stations to support local programming. The funds are collected through a 1.5 per cent levy on broadcast distributors’ revenues. “I think it’s going to be detrimental to a lot of stations,” Pollard said in a phone interview Wednesday. “If you pull the LPIF out of those stations I’ll bet you there’s a huge loss.” In the first year of the phase-out plan, which starts Sept. 1, 2012, the CRTC will reduce the amount collected from broadcast distributors to one per cent of their distribution-related revenues, and lower the amount for TV stations proportionally, the commission said. The number will fall to 0.5 per cent in the second year and zero per cent as of Sept. 1, 2014, the commission said. Pollard said the decision will be detrimental to small-market stations across the country that relied on LPIF funding to stay afloat due to shrinking advertising revenues and the continuing impacts of an uncertain economic climate. Lower advertising revenues are impacting CHEK’s single station in Victoria, B.C., he said. “It bodes poorly for independent television,” Pollard said of the decision. “It’s going to mean financial hardship for us, no question.” Pollard said CHEK was working toward self-sustainability without LPIF contributions but that the commission’s decision will cause the company to adjust its plans and “accelerate” the process. He said the company will enter a hiring freeze immediately and delay equipment upgrades. “We were planning on expanding some of our services and adding more local programming too, and at this point we’re going to have to take another look at that,” Pollard said. Pollard said many stations, including CHEK, drafted budgets for the 2012-2013 broadcast year, starting Sept. 1, with LPIF funds in mind. The funds will be reduced by one-third for the upcoming year. “I didn’t expect that six weeks from the start of the new season we’re going to get a 30 per cent cut in what our LPIF funding will be,” he said. The LPIF, created in 2008 to help small- and medium-market over-the-air TV stations offset declines in advertising revenues, was initially designed to reward stations for increasing their spending on local programming and to help with the costs of the digital conversion. The following year, the commission removed the incremental local spending requirements and increased the amount of money drawn for the fund from broadcast distributors from 1 per cent to 1.5 per cent of their distribution revenues. In the decision Wednesday, the CRTC said the fund achieved and supported its goals and that it would be inappropriate for the fund to continue over the long-term. “While the implementation of the LPIF was appropriate to address the issues facing local stations at the time at which the LPIF was introduced, the Commission is of the view that reliance on LPIF funding is not sustainable in the long term in the context of the new broadcasting environment,” the majority decision said. “The Commission considers that on a going forward basis the broadcast industry as a whole will need to evolve and innovate in order to continue to provide high-quality local programming whether through the traditional types of programming offered by local stations or by other means,” the CRTC said. In a release, the commission said the decision would lead to lower costs for cable and satellite subscribers whose providers tacked the price of their LPIF contributions onto monthly TV bills. The commission said all broadcast distributors must file a report within 60 days to outline how they will reduce their charges to television subscribers as a result of the decision, or to prove that they never passed along the LPIF cost to customers in the first place. One Rogers Communications Inc. cable bill dated June 29, viewed by The Wire Report, showed a 62 cent monthly charge on television services for LPIF contributions. The bill's TV charges totalled $42.07, excluding taxes. Under the phase out of the program, that Rogers customer's contribution will fall to 41 cents per month starting in September and to about 20 cents per month a year later. All of Canada's major broadcast distributors except BCE Inc.—Rogers, Shaw Communications Inc., Quebecor Media Inc., and MTS Allstream, as well as most independent broadcast distributors—supported scrapping the LPIF or phasing it out during a hearing in April. Rogers spokeswoman Carly Suppa-Clark said in an emailed statement that the decision is good news for TV customers. “he LPIF is being eliminated and they will no longer have to pay for it,” she said. “The LPIF was meant to be a temporary fund and there is no need for consumers to subsidize the local programming of private or public broadcasters.” Suppa-Clark added: “This is a matter of fairness … Most Canadians paying into the LPIF do not benefit from it. We don’t believe they should have to continue to support the fund.” Mirko Bibic, chief legal and regulatory officer and executive vice-president of vertically integrated broadcaster BCE Inc., which owns CTV, said in an emailed statement that Bell is analysing the decision and its financial impact on its 19 local television stations that received LPIF funding during the 2010-2011 broadcast year. Bibic told the commission during the hearing that 16 of Bell's stations would not have been profitable last year without LPIF funding, and that six of them still lost money despite the fund. There is “no doubt … that local stations in small and medium-sized markets will receive significantly less revenue,” he said Wednesday. “At a time when conventional television continues to be under tremendous financial pressure, including from a soft advertising market which continues to suffer from cyclical and structural downturns, this is obviously a major concern.” Bibic said the decision “reinforces the very real need for a secondary revenue stream” for small-market TV stations. “Whatever impact there may be will depend on a lot of things, including our assessment of the long-term impact of the decision and other considerations like value for signal, for which a Supreme Court decision is still pending, and the evolution of the advertising market,” he said in the email. CBC/Radio-Canada, which collected more than $73 million in LPIF funding over the past two broadcast years and is the program’s largest recipient, said in a release that it was “astonished” by the CRTC decision, which it called “a big blow to viewers” in small markets benefiting from the fund. "Local television is a priority under the Broadcasting Act, yet this decision suggests that it is not important to the Commission," Hubert Lacroix, the public broadcaster’s president and CEO said in the release. “This decision is sure to reverse many of the local programming improvements that the Fund achieved, because the rationale that led to the LPIF's creation still exists today: the financial model for local television continues to be challenged. Two years from now, when the Fund disappears, we'll be back to where we started when the CRTC decided to create the Fund,” Lacroix said. Lacroix said the phase out of the LPIF will affect the CBC’s “level of service,” its service delivery, and the territory its journalists cover in the future. He said the decision will “present a major challenge that could limit our local television activities and our presence in those communities.” Cal Millar, president and chief operating officer of independent broadcaster Channel Zero Inc., also an LPIF recipient, said in an emailed statement that his company may “reevaluate” some of its “aggressive growth plans,” but that the station’s survival “is not in question.” “This is not a time for sour grapes,” Millar said. “The Commission has made its decision, right or wrong.” In a release, the Canadian Media Guild said the CRTC decision will “further undermine” the CBC’s ability to meet its mandate. It said the LPIF reductions, combined with cuts to the public broadcaster’s parliamentary appropriations, will reduce CBC’s funding by 15 per cent by 2014. “The CRTC now must use the CBC's upcoming licence renewal hearing to examine what other regulatory means can be used to support programming that meets the objectives of the Broadcasting Act and serves the needs and interests of Canadians,” the guild said. Other groups, including the Communications, Energy and Paperworkers Union of Canada and the federal New Democratic Party, also released statements condemning the decision Wednesday. CRTC commissioners Elizabeth Duncan, Suzanne Lamarre and Louise Poirier disagreed with the decision, criticizing it as as premature and not based on the evidence at hand. nkyonka@thewirereport.ca

End of local TV fund may cause ‘huge’ losses for small market stations: CHEK

Broadcast | July 18, 2012

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