Analog specialty television services in Canada continue to grow and cover the substantial operating losses of the new digital channels, says a new revenue survey of Canadian specialty, pay and pay-per-view television services published by the CRTC on March 2.

According to Pay and Specialty Statistical and Financial Summaries 1999-2003, revenues at Canadian specialty (analog and digital), pay and PPV television services have increased more than 81% over the most recent five-year period to $1.9 billion in 2003.

Pretax profits rose 55% to $196 million (pretax margins are currently about 10% industry-wide), but expenses have also increased over the study period, by 79% to $1.6 billion.

The biggest share of business (about 74% of the industry) is held by analog specialty broadcasters, which posted aggregate revenue of $1.4 billion in 2003, up 62% since 1999. Pretax margins are almost 15%.

Analog specialty revenues, driven by growth of the direct-to-home services, are up 674% over the five-year period to $190 million, and national advertising revenue is up 98% to $584 million. Another analog revenue stream, subscriber revenue, reported a 17% growth since 1999 to $621 million in 2003. Program expenditures, meanwhile, have grown 61% to $723 million and administration costs have increased 92% to $156 million.

‘The specialty channel grosses are absolutely no surprise and reflect a general dissatisfaction with [advertising] rates at conventional broadcasters,’ says media buyer David Stanger, president of Vancouver’s DSA Media Network, citing ‘ridiculous rate increases’ at conventionals over the past 12 months. ‘A number of advertisers have shifted substantial amounts to specialty,’ he says.

But as specialty ratings grow, so will ad rates, says Michael MacMillan, chair and CEO of Alliance Atlantis Communications, owner of the Showcase channels, IFC, and others. ‘Viewers are voting with their remotes,’ he says, and over the next four or five years specs will seek to close the ad gap with conventional ‘casters.

‘I believe there’s still a lot of growth in analog, but in the back half of this decade the greatest growth is going to be what we now, quaintly, call digital channels.’

Recent stats say 30% of Canadian households get digital TV. That number is expected to hit 50% by the end of 2005.

Canada’s 16 Category 1 digital channels – including IFC and The Biography Channel – reported revenue of $45 million in 2003, up 124% from 2002 when the channels launched. Operating losses improved over the year, with pretax losses of $33 million in 2003 compared to $58 million in 2002. DTH revenues jumped 171% over the year to $30 million, while subscriber revenue improved 38% to $9.1 million and national ad revenue improved just 12% to $2.7 million. Expenditures related to sales and promotion dropped 44% in 2003 to $7.5 million.

The 32 Category 2 digital channels, such as BBC Canada and Animal Planet, recorded aggregate revenue of $55 million, up 93% from 2002 when they launched with $29 million in revenue. Like the Category 1 channels, operating losses are improving, but at a slower rate. In 2003, pretax losses were $71 million compared to 2002 when losses were $90 million. Category 2 income comes mainly from DTH revenues, which were $35 million in 2003, up 96% over the year. Subscriber revenue, however, represented the biggest increase, up 141% over the year to $13.8 million. Again, sales and promotion expenses were down, this time 56% to $9.7 million.

Stanger suspects, however, that revenues at some digital channels are artificially high, in that broadcasters with multiple properties can move revenue from more successful services to show income at lesser ones. Broadcasters could offer an analog advertiser some free premiums such as spots on their digichannels and then show that as digital revenue, he says.

But MacMillan insists nothing is ‘given away’ at AAC’s digis. ‘We charge,’ he says. ‘We charge properly for all ads on our digital channels. We treat them as real, live grown-up channels and we’re getting some pretty good results.’

Pay-TV recorded revenues of $347 million, up 121% from 1999. Pretax profits were $92 million in 2003, highlighting the pay-TV segment’s relatively robust margin of 25%, and nearly triple the revenue tallies in 1999. Rights acquisition contributed to most of the cost of Canadian programming, which was $54 million in 2003, up 154% in five years. Rights cost $34 million in 2003, up 133% from 1999.

When accessing the Canadian Television Fund, specialty channels commissioned programming that won $35.4 million in 2003, up 67% since 2002. Of that, $4.8 million was French-language programming and $30.5 was English-language.

Notable commissioning services were Showcase, which triggered $1.6 million from CTF, up 627% from 2002; YTV (up 142% to $10.3 million); Discovery Channel (up 87% to $4 million); Teletoon (up 56% to $6.1 million); Historia (up 49% to $410,650); and History Television (down 42% to $2 million).

Pay-TV services saw CTF allocations for their programming drop 19% to $7.9 million in 2003.

Generally, English-language specialty services are more profitable. By language, English services had revenues of $1.5 billion and a margin of 19% compared to French services with $338 million and a margin of 8%.

Across the specialty industry, salaries have jumped 68% to $307 million, however, the number of services has grown 117% to 111 over the past five years and the number of staff has grown 42% to 4,828. The average salary has grown 18% to $63,600 per employee. *

– With files from Sean Davidson