J. Sturgeon | Canada.com | 03.19.10
The television business is no longer a game reserved for millionaire media moguls. Consider that a station in western Michigan is being sold right now for US$550,000. On eBay.
As the tired but accurate explanation goes, the fat advertising profits that made owning a conventional station a lucrative endeavour in decades past have slipped away.
Fuelled by an explosion of specialty channels and deployment of broadband, new competitive forces have emerged that have shaken such major networks as Global and CTV here in Canada to their core.
The giants of broadcast south of the border -- the NBCs and ABCs -- have not been immune, either. Advertising budgets once automatically allotted to them are migrating away, enervating once-infallible business models.
Networks have responded as any business would: Cuts, closures and asset sales. Payrolls have thinned and so has the programming those jobs produced.
But there are two sides to the broadcasting system. The flip-side is the cable and satellite distributors that carry network programming -- Rogers Communications Inc., Shaw Communications Inc., BCE Inc. and others.
Last year, this Canadian consortium saw combined profits rise again by another $200-million to $2.3-billion, even through the recession. Rates have climbed through deregulation as more consumers choose pricier entertainment packages.
Meanwhile, Canadian broadcasters collectively lost $116-million in the same period, posting the first loss as a group in memory. Global's owner, Canwest Global Communications Corp., was forced to seek creditor protection for its television operations in October under a mountain of debt.
But there is renewed hope for broadcasters. On Monday, regulators from the Canadian Radio-television and Telecommunications Commission in Gatineau, Que., will release what many feel will be a watershed decision aimed at stabilizing if not reversing the slide.
"Something's got to give," said Ian Morrison, president of Friends of Canadian Broadcasting, an industry watchdog.
"If the cable industry weren't in a position where they were pulling in money hand over fist, then there'd be a huge problem. But there is an argument that they should pay for the over-the-air signals they pull in, and they can afford to."
Broadcasters have pestered the CRTC since at least 2008 for the right to charge their distributor counterparts a fee for the local station signals in much the same negotiated fashion U.S. networks are allowed to.
Simply put, the networks want another revenue stream from cable subscribers to compensate for lost advertising.
The CRTC has twice rebuffed them. But last year, as both CTV and Global were declaring monstrous writedowns and plummeting revenues, the commission, bound by the Broadcasting Act to guard the system and the Canadian content it produces, held another round of hearings.
"The issue is what -- not whether -- they'll do something," said a source close to the proceedings.
The balance of opinion now is that the CRTC will implement a "fee for carriage" regimen forcing negotiations between the two sides in what one industry source called a "transmission consent regime." Many also expect the CRTC to adopt a series of measures to free up more on-air time for ads.
Fearful of an attack on their bottom lines, Rogers and Shaw have vehemently opposed carriage fees. They argued during last year's hearings that through the $100-million Local Programming Improvement Fund (LPIF) and other subsidies, the system gets enough support.
Another argument is that Canada's big networks have sown their own misfortunes by overpaying for U.S. programs such as House and Desperate Housewives.
The dilemma has created an acrimonious schism between the two sides. But the tension is not isolated to Canada.
"It identifies a key underlying issue, and that is broadcasters everywhere are looking for more revenue, more stability," said Chris Diceman, senior communications and media analyst at debt-ratings agency DBRS Inc.
In the United States, two recent and very public rows reveal similar discord. Last month, ABC briefly removed its signals from cable giant Cablevision's systems the morning of the Academy Awards after parent Walt Disney Co. and the cable operator failed to reach a deal over carriage fees.
The dispute followed a similar feud between News Corp.'s Fox network and Time Warner at the turn of the year.
"Good programming is expensive," Rupert Murdoch (pictured), the owner of News Corp. and Fox, publicly told shareholders in the fall. "It can no longer be supported solely by advertising revenues."
There is a fresh focus to create a new framework "that works for consumers and is fair for the parties involved," Julius Genachowski, Federal Communications Commission chairman, told a Senate committee recently.
U.S. broadcasters won the right to charge cable distributors a fee or bargain for some other form of compensation for their programming in 1992 with the passage of the Cable Act. The networks have the right to yank their signals if negotiations break down. In a bygone era, networks flush with ad revenues would bargain with a cableco to get one of their specialty channels picked up for free or a station moved lower down the dial. No longer.
"It's not about channel position anymore," said James March, cable and media analyst at Piper Jaffray & Co. "Now broadcasters are saying: 'We need the money.' "
In Canada, there are no such rules -- yet. But even if networks here are awarded similar rights, there are fundamental differences in what they and their U.S. counterparts bring to the table.
In large part, CTV and Global are middlemen between Canadian viewers and U.S. programs. Every year, they travel to Hollywood and pay hundreds of millions of dollars for the right to broadcast such shows as Family Guy and CSI: NY north of the border. It's where Canada's major networks spend the biggest chunk of their money.
"The majority of viewing is to American television and we're trying find ways to subsidize and build up the Canadian system -- that's all well and good but the top 20 shows are American," said Phil Lind, vice-chairman at Rogers and a longtime cable executive.
"We're hooked on American TV, we just have a Canadian distribution system."
Meanwhile, most domestic content outside of newscasts has been relegated to late-night filler or buried down the dial. This content disparity has left broadcasters with very little to negotiate with beyond their "must-carry" status, which forces Rogers and others to distribute station signals.
The U.S. networks bargain with their content -- if The Simpsons are yanked, customers in New York call and complain to their cable company, not Fox. The same powers are useless here, unless U.S. affiliate feeds are blacked out during simultaneous broadcasts.
"How will they agree to a fee?" asked Jean LaRose, the CEO of specialty channel APTN and an industry veteran. "Shaw might look at [a station signal] and say you're worth five cents to me, tops, maybe two, because everything you have on there I get from the American feed."
Blocking content is one option, but one that pushes viewers to stray from the system in general, either to online or into grey market satellite services. No industry constituent wants that.
Still, settling on a price will likely be a major area of conflict. Broadcasters have been seeking similar rates to what more lucrative specialty channels receive -- in the neighbourhood of 50¢ a subscriber. It could mean $300-million by some estimates, or more than the cablecos' entire profit growth last year.
One broadcast source said the CRTC may ask the industry to increase its overall spending on Canadian programming if new fees are introduced.
Complicating matters is the restructuring of Canwest under court protection. Shaw has made a bid for a controlling stake in Global and the Winnipeg company's specialty-TV assets, effectively roping in one of Canada's two major private networks.
Ultimately, the brunt of any new compensation measures will be borne by subscribers, much the same way the Local Programming Improvement Fund was passed on.
Like many, Mr. Morrison at Friends of Canadian Broadcasting wants to know what the added weight to his monthly bill will bring. "The CRTC has to ask that," he said. "If they give the networks enhanced rights and access to a new revenue stream, what does the public get in return?"
jasturgeon@nationalpost.com
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