Broadcasters profiting at expense of producers, CFTPA argues

Canada’s regulatory framework for broadcasting has led to increased profitability for private broadcasters, but they have not upped their financial contributions to Canadian programming on the conventional TV side, states the Canadian Film and Television Production Association (CFTPA). The release earlier this week of the CFTPA-commissioned Nordicity Group Ltd. report, upon which the organization based its conclusions, sparked a war of words with the Canadian Association of Broadcasters (CAB), which draws on the study’s figures to argue the opposite. The CFTPA uses data from the study to make the case that the 1999 TV policy "has tipped the scales in favour of Canada’s broadcasters." When the conventional and specialty TV industries are combined, large broadcasters have maintained a consistent rate of profitability – larger than overall Canadian industry averages – while the earnings before taxes (EBT) for Canadian film and TV producers fell to 1.6% in 2002 from 6.7% in 2000, according to the report. The report, called Analysis of Canadian Broadcaster Financial Performance and Programming Expenditures, further states that large broadcasters in 2003 had recorded earnings before interest, taxes, depreciation and amortization (EBITDA) of $659.6 million on total operating revenues of $3.37 billion – an EBITA margin of 19.6%. By comparison, the average across all industries in Canada was 11.2% that year, while the EBITDA of film and TV producers was $218.4 million on total operation revenues of $1.9 billion for an EBITDA margin of 11% in 2002 (the last year of available data). "Large broadcasters generate levels of profitability well above the average for the Canadian economy as a whole. The higher-than-average profitability is likely due to the regulatory environment, which offers broadcasters some measure of protection from competition in return for meeting their Canadian content requirements and conditions of licence obligations," states the report. "Canadian broadcasters also benefit from access to government-subsidized Canadian television programs in meeting their Canadian content requirements." The 1999 TV policy, which replaced Canadian content spending requirements for conventional broadcasters with a minimum required amount of Canadian content during peak viewing hours, has failed the system, according to the CFTPA. The country’s largest conventional broadcasters spent over $535 million on foreign programming and just under $124 million on Canadian programming in 2004, the report notes. Conventional broadcaster spending on foreign programming increased 29%, or an average annual growth rate of 6%, while spending on acquired Canadian programming increased 24% between 2000 and 2004, according to Nordicity’s analysis. "We have a broad-based agenda to improve the contribution of broadcasters to financing Canadian programming as production costs have gone up steadily and are being basically borne on the backs of producers," CFTPA president and CEO Guy Mayson tells Canadian Communications Reports. "This report was introduced to provide some clarity about the numbers debate about the state of the industry." However, the CAB counters that the report’s figures don’t show that conventional broadcasters, to which the 1999 TV policy applies, have increased their profitability, nor that they have decreased their contributions to Canadian programming. "The (CFTPA’s) own figures and other public figures demonstrate that neither one of those statements is true…Its study clearly indicates that there are challenges as an industry, but it shows that broadcasters are the best partners of the television production business," says CAB senior VP of policy and regulatory affairs David Keeble. "We’re increasing our contributions (to Canadian programming). We’re a bigger part of the financing structure now than we were five years ago, and moreover the profitability of conventional TV broadcasters hasn’t increased since 1999-2000. It has actually gone down." Keeble says that one problem with the Nordicity report is that it "moves back and forth" between figures that combine specialty and conventional TV and those that don’t. The profitability of conventional TV broadcasting has declined, he notes. Keeble provides the following figures: in 1999-2000, the profitability of private conventional TV broadcasters was 13.8%, and the 10-year average leading up to that point was 13.1%, but it had fallen to 11.1% by 2003-04. The EBITDA for English-language private conventional TV broadcasters, he added, was 14.2% in 1999-2000, but had declined to 10.8% in 2003-04. "These numbers don’t indicate that conventional television broadcasters have used that TV policy to increase their profitability," he says. He adds, "Our view is that the pre-1999 policy didn’t produce any huge benefit to the production sector. The demonstration since then is that broadcasters have increased their contributions to Canadian television production, and to Canadian drama in particular." Spending by conventional broadcasters on foreign drama programming amounted to $354 million in 2004, and just $68 million for independently produced Canadian drama – less than 20% of the amount spent on foreign drama, states the report. Large conventional broadcasters’ spending on foreign-produced drama increased by 9%, while spending on independently produced Canadian drama grew by 15% between 2000 and 2004, but the CFTPA points out the growth is directly attributable to benefits commitments made by broadcasters related to ownership transactions. "If one removes the incremental amounts spent by large conventional broadcasters due to ownership transfer tangible benefits, the 2000 to 2004 growth rate for spending on Canadian drama drops to 9%," states the report. The numbers show that conventional TV broadcasters have increased their spend on Canadian content as a percentage by as much as they have on foreign programming, according to Keeble. "If you pull out conventional TV on its own, looking at the Nordicity data you’ll see that large broadcaster spending on foreign programming increased with an average growth rate of 6%, and the spending on Canadian programming also increased with an average compound annual growth rate of 6%," he tells CCR. "So more money is being spent on programming generally, and Canadian programming is not being disadvantaged by that; both are increasing." Mayson counters, "We’re not saying that broadcasters don’t spend money on Canadian shows, but the relative cost of foreign programming compared to Canadian shows is quite dramatically different." The report notes that conventional TV broadcasters spent four times more on foreign programming than on programming acquired from independent Canadian producers in 2004, and five times more on foreign TV drama than on Canadian drama. In contrast, spending on Canadian content by specialty TV channels, which have spending Cancon spending requirements tied to their revenues, has risen. The specialty TV channels owned by the large broadcasters spent $315 million on Canadian programming in 2003, and just $251 million on foreign programming. Keeble, however, says that the focus has changed from spending requirements to increased viewership and incentives on the conventional side. He also notes that the numbers show that where producers have really suffered is in the export market. "The reduction in money for the share of financing coming from export and distributors is quite marked," he notes. "To me that’s an indication of where the production sector might want to be thinking about in terms of how it moves forward and restores its profitability, and its own economic health." Mayson doesn’t see things in the same light. "The export market certainly has been challenging," he states. "But there has been some stability established there last year, and there is every indication that the export market is actually picking up for Canadian programming. I think there may be some upswing in the export market in the coming year." Nordicity’s analysis is based on data from the CRTC and the Canadian Audio-Visual Certification Office (CAVCO), and focuses on large broadcasters, specifically BCE Inc., CanWest Global Communications Inc., Alliance-Atlantis Communications Inc., Quebecor Inc., CHUM Ltd., Astral Media Inc., Corus Entertainment Inc., and Cogeco Inc.

Broadcasters profiting at expense of producers, CFTPA argues

Broadcast | November 7, 2005

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