its plans for UKTV

U.K. media analysts may be skeptical that the CanWest Global Communications consortium can make good on its multimillion dollar plans for uktv, but CanWest execs say the plan is realistic given Britain’s $3.4 billion advertising base.

A few days after the CanWest consortium topped the bids for the fifth British television network, David Asper, director, special projects, and Thomas Strike, vp finance and cfo, held court in Toronto with selected media types and the financial community to spell out the details of what looks like a staggering investment and waylay any speculation that the consortium is in over its head.

CanWest has not made a reckless bid, says Asper. ‘The fact is the focus of the company is risk management and we’ve built an application applying very conservative assumptions in every respect.’

At first glance, it’s difficult to comprehend how low-end revenue forecasts will balance out the costs involved in launching uktv: between $200 million and $1 billion for startup costs, an annual $79.5 million fee paid to the British treasury, $60-$70 million to retune four million vcrs, and a commitment to 60% high-quality original programming.

But Asper and Strike contend that even the most conservative projections of advertising revenue, audience share, and signal coverage, combined with a financially viable way of producing programming, will lead to profitability for the network between year two and year four.

In the application, the consortium budgeted 2.8%, compounded annually, of the u.k. television ad revenue base, which this year topped the $3 billion mark and is Europe’s biggest tv advertising market.

More than $95 million in ad revenue is no small potatoes, but given the way the broadcast advertising market is expanding in Europe, it’s possible even a low-end projection could become a decidedly larger number.

While the North American market is being saturated with 200-plus channels, commercial broadcasters are a relatively new animal in Europe. According to French research group idate, the number of channels in Europe nearly doubled between 1987 and 1993, with ad revenues similarly doubling over the six-year period.

‘You can’t lose sight of the revenue potential,’ says Strike. ‘You’ve got some big numbers up-front but the bid takes care of itself, and then some, just with the advertising revenue.’

u.k. media analysts are skeptical the uktv plan can work, but the consortium has the confidence of the Canadian financial community, says one Toronto media analyst covering CanWest who asked not to be identified.

‘I don’t know a lot about the u.k. market, but the way the consortium has presented its case, the numbers add up. It’s vintage CanWest. They’re targeting a small piece of the market, have a workable plan for programming, and are keeping costs under control. Their track record shows revenues have come in when they’ve used this strategy.’

Projected audience share for uktv starts at 6.5%, going up to 11% by the end of the 10-year licence period. Signal coverage is targeting 45% initially, rising to 63% of the u.k.’s 21.9 million household market by year 10.

For the majority, the British tv landscape consists of four major national broadcasters and 16 regional terrestrial channels, although a mad push to lay cable by the smaller u.s. Bell companies may be sparking consumer interest in multiple channels.

A year ago, cable and satellite penetration reached 12.2% of the market, according to research from The Centre for the Study of World Television. In April 1995, about 18% of the population had access to multiple services, mainly through Rupert Murdoch’s BSkyB. At least 35% of homes are expected to have access to cable services by 1997 when the fifth network launches.

The consortium is undeterred by the possibility that an increasing number of households with multiple services will splinter its projected advertising base.

What tends to happen in an unsaturated market is that with more services, more advertisers come on board, says Asper. Strike adds that the take-up rate for cable services is slower in the u.k. than in any other part of Europe, but that when a competitive environment matures, uktv will be better prepared than the other services to weather the changes.

‘The business plan factors in the potential impact of both cable and satellite service. The other broadcasters have built networks with a monopoly in mind. We’ve built this thing on a competitive model.’

North American model

On the programming side, the North American acquisition model is being used, as opposed to the u.k.’s m.o. in which broadcasters fund 100% of the production and own all the rights. uktv would be a licensee of original programming and would develop no fewer than 13 episodes at a time, in contrast to the British way which is to develop five or six at a time.

Using this production strategy, in tandem with an international coproduction agreement between Canada, the u.k., Scandinavia, Australia and New Zealand, the consortium will be able to amortize development costs to allow the same size budgets and the same quality programming the British are accustomed to, says Asper.

The application includes proposals for two new series, 13 episodes each, both Canada/u.k. coproductions. Pat Ferns Productions and Mentorn Films of the u.k. are in line to produce a primetime action series, and Montreal-based The Multimedia Group of Canada and Productions Prisma and Birmingham, Eng.-based Winchester Entertainment are producing a children’s series called The Big Garage, written by Multimedia’s Michael Murphy.

Ideally, a successful uktv bid will mean a link to the international market for Canadian coproductions, Asper adds.

‘It’s our intention that programs currently being commissioned in Canada, that through uktv and the rest of the international companies, we’ll be able to provide guaranteed international outlets for these programs.’

Britain’s Selecttv, a 20% owner in the CanWest consortium, has a stable of programs including Lovejoy, Birds of a Feather, Shine on Harvey Moon, and the Tracey Ullman Show, and uktv will potentially provide a second window for those programs.

The consortium and production strategy may have a multinational bend, but the network itself is being branded solely British.

Younger and upbeat

Targeting the adult 18-49 market, mid to upper income, skewed slightly towards females because that’s typically the market advertisers want, uktv will be a channel wherein ‘each region talks to the other regionsÉwith a strong sense of national identity, younger and upbeat,’ says Asper.

The spine of the network will be news and filler programming that mirrors the country back to itself. Formatted on a 24-minute half-hour with seven minutes of ad time per hour, the remaining two-plus minutes will be filled with reports from video journalists and six Reuters journalists roaming the country and filing live or as-live reports on happenings in local districts.

Two current affairs programs, one of which will invite viewers who’ve submitted their beefs to come in and host the show, will be broadcast daily. There will be few live sports broadcasts, although a weekend sports line show will be part of the programming mix. Drama will be a ‘significant’ portion of programming, Asper says.

Whether these plans will be put into action will be decided by Britain’s Independent Television Commission sometime near the end of the summer. CanWest is confident but not cocky. Asper is aware that the highest bidder isn’t always awarded the licence. In the bidding for regional stations of the u.k.’s Channel 3, the highest bidder wasn’t picked for five of the 13 franchises.

‘But this bid isn’t an ego play. We run a business and we have a history of ventures that bring a big return. Our view is that this plan will drive more than enough revenue to sustain the amount that we pay yearly, support our investment in programming, and deliver an acceptable return to our shareholders,’ says Asper.

There are indications the u.k. mega-project may not be the end of CanWest’s international ventures. Asper doesn’t deny keeping a close eye on the Asian market. Dividing the world into three principal linguistic groups, English, Hispanic and Mandarin, CanWest is already in the first two, after buying a piece of La Red in Chile last year.

‘A lot of people are running to Asia. We’re going slowly,’ says Asper.