The addition of 10 new specialty services to the broadcasting spectrum injected $55.2 million into Canadian programming and production in fiscal 1995, fast-tracking the cumulative Cancon expenditure of Canada’s 29 specialty and ppv services up 53% to $237.6 million from $155.3 million in 1994.

Revenue overall for Canada’s 21 specialty and eight ppv services is up 22% to the tune of $576.4 million for the year ending Aug. 31, 1995, compared to 1994 cumulative revenue of $471.8 million, according to crtc financial summaries. The 1995-launched specialties are reporting revenue for eight months of the year.

Increased investments in Cancon are evident across the spectrum, with expenditures on program production up 41% to $107.7 million from $76.2 million in 1994. The acquisition of rights for Canadian programming ran to $104.3 million, almost double the 1994 expenditure of $62.2 million. Script and concept development accounted for $3.2 million of the total, up 28% over 1994’s $2.5 million.

The current carriage situation fits nobody’s best business case, but the new specialties themselves – Discovery Channel, wtn, Life Network, Showcase, Bravo!, NCN New Country Network, Canal D, rdi, and ppv services Movie Max and moviepix – registered a cumulative revenue of $84 million for the first eight months of operation.

Of the $55.2 million that went into Canadian programming from these 10, $34.3 million went to rights acquisition, $18.7 million into program production and $512,411 into script and concept development. A total of 477 staff are being employed by the services.

The six English-language services, excluding ppv, rang up cumulative revenue of $51.9 million, expenses totaling $51.2 million, and accounted for a $7.6 million piece of the national advertising pie.

Just the other side of their one-year anniversary, the good news for Canada’s 10 baby b’casters is that penetration and audience share are on the upswing, however turtle-like the momentum.

In the ratings, Discovery, long in first place, is staying strong at number one with a 1.3 average audience share of viewers 18+, followed by Showcase at 1.0, ncn at 0.8, and Life Network, Bravo! and wtn all at 0.6, according to the latest A.C. Nielsen statistics available, a 52-week average ending Feb. 19.

But the balance sheets for fiscal ’95 fall in the not-so-good-news category. Bravo! station manager Paul Gratton lays it out: ‘We’re surviving. Nobody’s handed back their licence and no one’s pleading bankruptcy.’

While the big picture for the specialty sector is profitable – revenue running $451.8 million with expenses a cumulative $366.4 million, yielding a pre-tax profit of $57.6 million – only two of the six new English-language services, Life and wtn, are operating at a profit, with Discovery, Showcase, NCN and Bravo! in the red (see chart, p. 19)

The difference a few years and 80% to 90% penetration can make is evident in profit margins of the older services. Leading the pack is tsn, recording a profit of $36.4 million on $129.2 million in revenue. ytv, potentially wholly owned by Shaw Communications in the coming months, records an $8.9 million profit on revenues of $45.9 million. MuchMusic follows in third place at a $5.5 million profit.

Evidently the new services have ably bolstered the Canadian programming and production expenditure for the sector their first year out, despite penetration projections 20% to 30% lower than expected in English-speaking Canada and carriage on a second tier instead of on the established first tier. But the next fiscal year may yield a different story.

As per licence conditions, first-year Cancon expenditure for the specialties is a flat fee. In year two, beginning Sept. 1, 1996, and for the remainder of the licence terms, the services are committed to spending varying percentages of revenue on Canadian content and the next two years will likely not look so golden, say industry executives.

Over seven years, projected expenditure on Canadian programming and production was $518 million in July 1994. But given the carriage situation, ‘any projections into the future are writing on sand,’ says Bravo!’s Gratton.

According to Gratton, fee-per-subscriber in contracts with Canada’s two biggest cablecos, Rogers and Shaw, are running 50% to 75% of what the specialties originally asked for. With subscriber fees accounting for from 70% to 90% of the revenue base in the specialties’ original business plans, the fallout will be evident in Cancon expenditures next year when revenue is markedly less than anticipated, he says.

‘Of course Cancon expenditure will change. Less revenue has to have an effect. Ad revenue projections are revised almost monthly and a year from now we don’t know how we’ll be packaged.

‘Our commitment in year two is 33% of the previous year’s gross, a percentage of x when I can’t tell you how much x is going to be. There’s more questions now than when we launched,’ says Gratton.

Other players are more optimistic. Life president Juris Silkans remains confident that Life’s forecasted $128 million expenditure on Cancon remains reachable by year seven. ‘I’m absolutely sure we’re going to get to that. We’re doing better than the first crop of specialties a year into their licence. Penetration is up, pushing 70%, and we’ve had great success with our Canadian shows.’

But admittedly the carriage situation to date has impacted Life’s original production plans, with the Atlantis-owned service able to produce only 12 original series to date, about half of what was planned for year one.

The majority of its licence fees, projected to average $26,000, are running 75% between $8,000 and $20,000 per half-hour with the remaining 25% at under $8,000. No programs have yet received the projected $75,000 high-end fee. ‘We just couldn’t because of the cable situation,’ says Janice Platt, vp programming.

The crtc’s access decision, expected in April, should cough up some answers to the carriage questions plaguing the new specialties, establishing how they and the next round of licensees anointed by the end of the summer will be carried. Until that’s established, there’s no telling whether the 1997-launched services will impact the latest batch, say specialty execs.

According to Showcase president Phyllis Yaffe, the ‘distribution riddle’ is key. Digital distribution only will have limited impact, distribution on tier two will have some impact, and on a third tier, Yaffe says it’s hard to tell if that packaging arrangement will affect the specialties’ viewership or penetration. But she makes the point that it’s important new services licensed are not ‘cannibalized’ subsets of existing services.

While much of the industry awaits a new packaging game plan, Discovery president Trina McQueen thinks it unlikely that there will be a whole lot of shuffling going on with the tiers in place. ‘Juggling the services is what started this whole cable fuss. I’d be very surprised if they did it again.’

In terms of ad revenue, with the veteran specialties – tsn, Newsworld, ytv, MuchMusic and Vision – cornering an $82.7 million piece of the national ad revenue pie in fiscal ’95 compared to tier-two services’ paltry $7.6 million, concern exists that new services will chip into what are already scarce resources.

Few amongst the latest batch of 40 applications admits to dipping into the ad revenues of already licensed services, but unquestionably, the number of services is growing faster than the national ad pie and some specialty execs say a fallout of ad revenue is a given, particularly in limited markets.

There’s no question the licensing of Le Canal Nouvelles, Tele-Metropole’s proposed 24-hour headline news channel, will eat into rdi’s revenues, says Renaud Gilbert, executive director for rdi.

‘A large portion of our audience is in Quebec, and in terms of ad revenues, even if we have higher ratings, we don’t have more revenues. That means lcn will cut into our (overall) advertising revenues.’

In Quebec, the eight French-language specialties are drawing a cumulative 8.3 audience share, with Canal Famille on top at 2.6, SuperEcran (ppv) at 1.5 in second place, followed by rds, 1.3; Canal d, 1.0; rdi, 0.9; TV5, 0.6; MusiquePlus, 0.3; and finally Meteomedia, 0.1, according to bbm fall sweeps.

But Shaun Purdue, president of ncn, isn’t so sure more specialties won’t attract more interest from advertisers and may benefit the group overall.

‘More services may create more awareness of the specialty advantages and the nature of the audience they deliver,’ he says. ‘As they get more and more into relationships and specific targeting, they’ll see that’s where specialties play a major role.’

For the independent producers, the next batch of services may impact already dwindling sponsorship dollars. Discovery appears to be alone amongst the new English specialties in corralling sponsorship dividends to the producers. wtn, Life and Bravo! have all expressed the desire to maximize sponsorship in the years ahead, with wtn president Elaine Ali calling sponsorship a ‘growth market’ for the specialties (see special report, p. 15) and hoping to see sponsorship account for 3% to 4% of next year’s ad revenue.

According to Gratton, the specialty environment dictates a shift in the traditional means of funding production.

‘If a producer wants to bring a sponsor to a show, what do I do to make money on it? It doesn’t work on specialty channels the way it does on the traditional broadcasters where it’s a barter model more appropriate for free television. If I can’t sell the sponsorship then the licence fees go down. Ideally, there’s a joint approach to the sponsors so there’s money that goes to both of us.’

Besides sponsorship, some of the new specialties are seeking other revenue streams, including the selling programming for which they hold the non-broadcast rights to in Canada to educational institutions. Ideas are being tossed around, among them, buying international rights for originally produced programs and splitting the profits with the producers on a scale directly proportional to the investment levels in the production. Direct-to-home satellite distribution isn’t thought by any to be a short-term revenue source.