Gino Scapillati is the Canadian leader of the PricewaterhouseCoopers Canadian Entertainment and Media practice.

A solid upturn is being forecasted for the television network market globally. The latest PricewaterhouseCoopers Global Entertainment and Media Outlook: 2004-2008 shows that the total global television network market will increase to $174 billion in 2008 – a compound annual increase of 5.9%. The U.S. will be the fastest-growing market, with a compound annual increase of 7.5 % and Canada will follow with a 6.4% compound annual rate.

In 2003, markets benefited from improved economic conditions, which will continue to have a positive impact through the next five years. With economic conditions on the rise, television networks are among the earliest beneficiaries because advertisers value the medium with the largest reach. In particular, Canada will benefit from an increase in the number of digital households.

In the PwC Outlook, the television network market consists of advertiser spending on broadcast and cable networks and licence fees paid by cable systems and satellite providers to basic and premium cable networks.

Specialties have better chance for success

The picture looks much better now for digital channels as more and more households adopt the technology. Continued viewership gains and the rising trend in one-hour dramas on specialty channels will further enhance their appeal.

According to our research, the overall Canadian television advertising market improved in 2003, with specialty channels gaining share. The number of commercial specialty channels soared to 90 in 2002 from 44 in 2001 as new diginets entered the market.

Another advertising lift for specialty channels will come as a result of a number of new digital channels being launched in 2004, with the market stabilizing thereafter as some channels will disappear and the rate of new channel growth moderates.

Continued viewership gains, however, will propel this sector. Consumer subscriptions for specialty channels grew by 20% in 2003, and due to the projected increase in the number of digital households (from 4.4 million in 2003 to 9.2 million in the next five years), expected growth in subscriber revenue over the next five years will average 9%.

Specialty growth at the expense of broadcast networks

PwC is forecasting that specialty channel gains will be at the expense of broadcast (over-the-air channels). A stronger advertising environment will lead to strengthened but modest growth for broadcast compared to the past five years, with advertising increasing at a 3.9% compound annual rate to US$1.9 billion in 2008. Specialty channel advertising will grow at a compound annual growth rate of 10.8% to US$700 million in 2008.

Recent developments in the broadcast market such as the CRTC’s discontinuation of its ban on CBC’s showing U.S. movies in primetime should increase viewership. Also, Canadian versions of program formats developed in other countries, such as Canadian Idol, are serving broadcasters well.

Interestingly, guidelines for the Canadian Television Fund were changed in 2003, providing broadcasters with information on how much public money they will have to invest in programming. Previously, 70% of the distribution was given to producers, but now broadcasters can better direct funds to the types of programs they want and improve ratings. On a less positive note, the CTF plans to distribute approximately US$160 million in 2004 in total to broadcasters and producers, which represents a cut of about US$20 million from 2003.

Licence fee spending on the rise

Growth in the number of commercial specialty channels, increases in the number of pay-TV channels, and the forecasted growth in the Canadian digital household population are combining to drive licence fee spending. There were 19 pay-TV channels in 2002 compared with 14 in 1998, and the total number of pay and specialty channels increased to 109 from 47 during the same period.

Fueled by growth in the digital universe, we are projecting that specialty licence fees will increase to US$1 billion in 2008 – a 7.9% compound annual increase. Pay licence fees will grow at an estimated 9.1% compound annual rate to US$443 million.

It is a bright picture forecasted for the Canadian television market for the next five years. Specialty channels will fare especially well as viewership increases continue and channels command a greater share of advertising. A strengthened advertising market will boost all high-quality networks, particularly those with strong national reach.

For more information on the findings in the PwC Global Entertainment and Media Outlook: 2004-2008, visit the PwC website.

-www.pwc.com/outlook