Of the original 44 new applications for specialty services filed with the crtc in January, 40, an eclectic mix of business plans among them, are still standing.

At press time, gazetting was imminent, a process which will bring to light applications that run the gamut in Cancon projections from 100% to 20%, that budget seven-year Canadian content expenditures from $156.7 million to $4.1 million, and that are grounded in penetration projections for cable and direct-to-home satellite ranging from 4.3 million to 25,000 subscribers in 1997, the first year the anointed will hit the airwaves.

The uncertainties inherent in positive option marketing, lack of guarantees from the cablecos on what tiering and packaging arrangements can be expected, and the unreliable timeline of the implementation of digital video compression technology are being blamed for the berserk mix of business strategies characterizing this batch of applications.

‘Everyone called the cable companies and that led to penetration numbers that didn’t make sense for any kind of viable business plan. First they said there was no analog space but now they’re saying there could be a third tier. Trying to figure out what penetration to budget for was the biggest challenge,’ says Phyllis Yaffe, president and ceo of Showcase and key pitcher for Alliance Communications and CTV Network’s The History and Entertainment Network.

Of the 40 applications (WIC Western International Communications’ two electronic digital delivery proposals, The Military Channel and World Television Network, have been ‘deferred’), 10 are for news, five for sports, four for children’s or animation services, three for comedy, five for lifestyle channels, two history-based, two each for science fiction, music, education, and ethnic services, one talk tv, one mystery, and one infomercial service. Four of these are French-language services; two lifestyle, one music and one headline news.

Of those 40, 31 have submitted information for Playback’s report on the specialty pitches (see p. 25). From those, the highlights are as follows.

Canadian content levels start at 100% for news services including ctv’s N1, wic’s three applications for regional news services in Vancouver, Calgary and Edmonton, and Sport Scope, a barker-type channel on sports information, to 20% on ctv’s Sports/Specials ppv and CanWest Global Communications’ Mystery Channel.

Children’s services, lifestyle channels, and the comedy applications are generally running between 40% and 60% Cancon to start, with some rising to 70% and over by the end of the licence term.

Canadian content expenditures over the seven-year licence term run to the multimillions, with ctv’s regional sports pitch, S3, leading the pack projecting a cumulative $156.7 million ($22.1 million in year one), followed by teletoon at $76 million, CanWest’s Prime tv at $60 million, Radiomutuel’s La Canal Vie at $57 million, Labatt Communications’ The History Channel at $54 million and Vision’s not-for-profit Kids Net at $53 million.

At the other end of the spectrum are SportScope Plus at $4.1 million, the Baton Broadcasting Systems/Rogers Communications pitch for Outdoor Life committing to not less than $21.4 million, Baton’s Talk tv (petitioning for digital distribution only), $23 million, and CanWest’s Kids tv at a minimum of $26 million.

In terms of original production, teletoon, backed by Family Channel, ytv, Cinar Films and Nelvana, stands out with $42 million slated for licence fees for original production over seven years, including a script and concept development fund for non-affiliated companies starting at $100,000 in years one and two.

Production

Prime tv is in for $50 million on indie production, $4.3 million in year one. The Baton/Shaw Communications/Astral Broadcasting pitch for The Comedy Network boasts $44 million on Canadian programming overall with $39 million spent on original production over the seven-year term, $5.2 million in year one.

The Horse Network, owned by a consortium including the Ontario Jockey Club, Clairvest Group, and Western Co-Axial Cable, has allotted $23.9 million for production, $1.2 million in year one, and Life Network’s HGTV Canada has $30.4 million slated for original production, $2.1 million in the first year rising to $3.9 million in year two.

Other indie-centric funding streams include CanWest’s KidsTV $3 million ‘Kids Cap’ animation shorts creation fund ($500,000 per year beginning year two), available to creators at post-secondary institutions, and its Mystery Channel-triggered Television Writers Development Program, modeled on the Canadian Film Centre’s Feature Film Resident Program, also budgeted at $3 million over the term.

Drama funding mechanisms include Labatt’s History Channel offering, with two scheduled streams at $1 million and $1.5 million, beginning years two and five respectively. teletoon has allocated $100,000 annually to collaborate with cultural and educational institutions, festivals and the like. hgtv is injecting $200,000 per year in seed money for the development of home and garden programming.

While the projected expenditures are substantial, Yaffe cautions that independent producers will have a difficult time throwing their support behind the applications when there’s no guarantee target subscriber projections, and thus the business plan and Cancon commitments, can be met.

‘For the production community, this is such a morass. We’ll all be out there looking for their endorsement on the applications, but how are they going know who to support when the numbers aren’t comparable? When producers are looking at this, there has to be some way to get a handle on what your carriage will be, and who really knows?’

Gary Maavara, vp business growth and senior legal counsel at ctv and key pitcher on ctv’s applications for N1, S3 and Sports/ Specials, agrees that without knowing how fast digital boxes will roll out, the tiering and packaging arrangements, how many services will be licensed and what kind of licence they’ll get, the angst is justified. ‘The viability of the proposed services is a fundamental issue.’

‘Tougher process’

But he adds most of the players have had to pass their business plans through three levels of review; management, board and banker. ‘That was a tougher process this time out. Building a service with resources already at hand is key now. You’d better have the ability to create programming almost in spite of what the support is, at least in the short term.’

The crtc is evidently also concerned about the impact of potentially limited penetration at the outset, having sent a letter in the interim since applications have been filed asking all applicants if they’d be willing to commit to the same structure of Cancon commitments as the new specialties up and running; year one and year two commitments at a flat fee and the following five years a percentage of the previous year’s revenue.

Digital distribution

While all applicants have taken the cablecos’ no negative option directive as gospel, instructions to base business plans on a digital universe have been fudged by the vast majority who have incorporated large chunks of subscriber numbers based on carriage on analog systems into projections, with most on average projecting between two and three million subscribers in year one.

Baton’s Talk tv and ctv’s Sports/Specials ppv are the exceptions, requesting only digital distribution and building a viable business plan on dth subscriber numbers of 178,000 and 12,000 respectively in year one.

Industry execs say penetration is a moving target, although Shaw Communications at the February access hearings reportedly said there may be five or more analog channels available in 1997, which may open more doors and make analog carriage a greater possibility.

According to Yaffe, the situation is not part of a ‘nefarious plot’ on the part of the cable companies but a reflection of the ‘extremely confused’ state of the cable industries in both Canada and the u.s. as they try to deal with impending competition, disgruntled consumers, and technology that’s still theory instead of reality.

‘We don’t know whether we’ll have digital today, tomorrow, next year or when. People are at a loss. The problem is compounded here by each cable company seeing `offering choice’ a little differently. Rogers seems to feel an amazing number of start times for a movie is a better approach than a range of services. Others feel differently.’

Of those basing financial projections on the traditional subscriber fee and advertising revenue combination, first-year splits swing wildly with The History Channel in at 60%/40%, Prime tv and Mystery Channel at 83%/17% and 68%/32% respectively, and SportsScope, 66.6%/33.3%, to teletoon at 92.4%/7.6%, S3 at 92%/8%, and Baton’s Outdoor Life with advertising at about 10%.

Limited impact

Repatriation of ad revenue currently going to u.s. border stations, the migration of advertisers from other mediums, and the arrival of regional broadcasters who haven’t had the finances to access television advertising on the mass audience b’casters, are among the reasons given by the applicants that many of the new channels will have limited impact on the existing ad revenues of established broadcasters.

But with services like The History Channel projecting a 60%/40% subscriber/ad revenue split to make up revenue topping $38.5 million in year seven, it’s likely the licensing of some of these services could change the divvying up of the broadcasting ad pie and have greater impact on the ad revenues of the mainstream broadcasters than the latest group of new specialties.

John Cassaday, president of ctv, is direct. On the subject of the impact of ctv’s headline news channel, N1, and the impact on ad revenues for news on the established providers: ‘I hope we hurt CanWest and I hope we hurt City. It will probably hurt our own affiliates and it’ll be up to everyone to improve their services.’

Ad revenue will be of markedly greater importance to those 11 that are offering themselves free to cable for periods of time, including ytv’s TreeHouse application at one year free, Labatt Communications’ History Channel and TSN Plus for three months, and ctv’s applications for N1 and S3 at three months respectively (but may go longer), wic’s three regional news services, the Southam/cbc news pitch, and Opportunity tv (infomercials). The Horse Network rounds out the pack, going one step further with an offering to pay cable operators $0.06 per subscriber to offset digital decoder costs.

The ability to stack tiers with more services at no cost to consumers (and the good pr that goes with that), subscriber-free services could potentially increase the attractability factor of the services to the cablecos and be a welcome addition to analog systems with finite space.

But Kevin Shea, president of Global Television and CanWest’s eastern operations, says free-to-cable is by no means a slam-dunk.

‘Services that have started free haven’t stayed that way. Vision and ncn, both of which began free, now have subscription rates attached to them. In a competitive licensing scenario, price will be an important factor, but it has to be premised with some kind of value. Of most importance is the substance and value of the service, and historically there’s always been a price/value relationship.’

From this point, gazetting will leave the competitors with about a month to file interventions on each other’s applications. Hearings will begin May 6, and although the crtc hasn’t confirmed, rumor has it that the hearings will run two weeks, take a week’s hiatus during which the applicants will have ample time to assemble rebuttal and reply, and then conclude the next week, with a licensing decision expected in late August or early September.

Market research

While awaiting the access decision, due before the specialty hearings, and the new appointment announcement of the next crtc chair expected any day, the cable companies will be taking on extensive market research on the specialties with their own focus groups and making recommendations to the crtc. To what degree their input will affect licensing decisions is a topic for debate, especially considering Rogers, Shaw and Western Co-Axial have stakes in applications, but ccta president and ceo Richard Stursberg says the process will be objective (see Perspective, p. 1).

In a related story, while it may appear the cablecos are holding a disproportionate amount of power, this month’s goings-on between Discovery Channel and Western Co-Axial cable in Hamilton, Ont. proved the specialties are holding their own.

Western Co-Axial has long infuriated the six newest English-language specialties by taking the stand that since subscribers weren’t paying for the services, the service providers were not going to be paid for their feed in spite of the fact that trapping wasn’t complete and subscribers were receiving the programming.

‘We didn’t care about his collection processes. We just wanted to be fairly paid for our service,’ says Ken Murphy, vp production and administration for Discovery.

After 12 months without a paycheque from Western Co-Ax, Discovery received ‘a small payment’ in February. Discovery subsequently cut its signal off from the cable operator as of March 1. On March 2, the signal was restored with a completed contract in place. ‘We have full agreement and I believe both parties are pleased,’ Murphy concludes.