Charge premium prices for U.S. networks

Barry Kiefl is the president of Canadian Media Research, based in Ottawa

For 50 years, Canadian cable TV systems have imported distant U.S. TV network stations (ABC, CBS, NBC and Fox) into Canadian TV markets. The notion of importing U.S. networks was brought about by a set of policy considerations that did not foresee how the Canadian TV system would evolve.

In the late ’50s and early ’60s, there seemed to be nothing wrong with doing it, since most Canadians had access to only CBC and CTV. Most households got cable to get the American networks – they were never considered ‘free’, like local Canadian stations.

In our household, circa 1965, it was a real bonus to have access to ABC’s Monday Night Football, which back then CBC or CTV wouldn’t think of carrying. Today, Canadian broadcasters or sports networks carry most of the NFL games or, if you choose, you can pay about $150 annually to your cable or satellite company to get every game.

In the U.S., a cable subscriber or DTH subscriber is not allowed access to distant network signals. But in Canada, one can have up to three out-of-market CBS, NBC, ABC or Fox stations, all of which duplicate much of the programming of local Canadian stations, a practice that the FCC and Congress made unlawful in the U.S. Approximately 11% of all English TV viewing in Canada went to U.S. broadcast network stations in 2006 (after taking simultaneous substitution into account).

Following is a proposal regarding the importation of U.S. network stations via cable/DTH that could fix a major problem in the broadcasting system.

What matters most to private broadcasters is money, and there is not enough of it at present in the system, largely because we import U.S. network stations by the dozens, which drain away audiences and revenue and encourage Canadian networks to simulcast with the U.S. networks.

The surest way to increase system revenue would be for cable and satellite companies to charge premium prices for access to U.S. network stations. If a cable/satellite subscriber wants unfettered access to CBS, NBC, ABC and/or Fox, let them have it, but they should pay a substantial fee for each U.S. channel, the revenues from which would help fund Canadian programming and improve the earnings of Canadian BDUs and broadcasters.

At present, BDUs charge subscribers $1 per month to have access to the second set of U.S. network stations. My proposal would be to charge a special fee for accessing all over-the-air U.S. network stations. BDUs would charge up to $5 each per month for CBS, NBC, ABC and Fox, and would retain a percentage of the fee. At the price level of, say, $5 per channel, it is likely that about one in three English cable/DTH households would opt to buy the full slate of all four U.S. network stations, at a total of $20 per month.

However, even this modest take-up rate would generate approximately $700 million annually in fees. (Market research to determine take-up rates needs to be done.)

If subscribers chose not to pay premium prices for access to U.S. networks, their subscription fees would be the same as today, but they would have access only to Canadian channels, plus U.S. specialty channels (perhaps in this scenario more U.S. specialty channels should be authorized for carriage, also at premium prices). This would significantly reduce the competition Canadian broadcasters face from imported stations that, were it not for an accident of history and a lack of policy foresight, have no right to be distributed in Canada.

If fees for U.S. network stations were substantial enough, it would serve to reduce competition for audiences from U.S. networks and make program substitution, a burden for both broadcasters and BDUs, unnecessary. Canadian channels would face much less competition, have larger audiences and more ad revenue.

There would be some audience lost to the remaining U.S. stations, which would no longer be substituted by cable/DTH companies, but this audience would be more than offset by increases in the audience to all other programming on Canadian stations.

I estimate that removing U.S. network stations from the channel lineup in two out of three cable/DTH homes would result in a 5% to 6% net increase in audiences to Canadian stations, which would translate into increased ad revenues of approximately $150 million annually for Canadian broadcasters and specialty channels.

In effect, market forces would create a so-called greener space for Canadian channels. The ideal time to introduce the new fee structure is 2009, when U.S. stations are scheduled to switch off their analog transmitters and go digital.

One result would be that Canadian channels would have more incentive to air a higher percentage of Cancon than at present, and to schedule it at better times.

Some of the money generated by charging for U.S. network stations would go into a program fund to cover the costs of Canadian programs, thus Canadian networks would be able to air higher-quality Canadian drama series, with larger promotion and marketing budgets. Some money would flow directly to Canadian broadcasters to offset any losses from lost simulcasting.

Over-the-air U.S. broadcasters probably wouldn’t put up too much resistance, since most of them derive only small benefits from their Canadian audience.

Consumers wouldn’t react nearly as negatively as they would have in the 1960s, ’70s or ’80s, since today they have access to many more channels and virtually all the programming on the imported U.S. stations is now available on local and distant Canadian stations. One BDU recently introduced a new $5 monthly fee ‘to offset increasing operational and programming costs,’ and yet I can’t recall a single news item mentioning it, or a consumer backlash.

This proposal has the potential to both simplify the television and BDU regulations and fix a problem that has existed for decades.