Montreal: The Canadian Association of Broadcasters says government should open up the system so the private sector has maximum flexibility in its crusade to make Canadian programming profitable.

In a four-and-a-half-hour March 21 presentation to the Standing Committee on Canadian Heritage, CAB proposed the departments of Finance and Heritage, along with private-sector broadcasters and producers, undertake a review of the entire Canadian programming finance-support mechanism.

‘It’s a complex web of measures and initiatives, and, frankly, flexibility that broadcasters need access to so they can try and test their resources and ingenuity against the marketplace and see how to make things work,’ says CAB president and CEO Glenn O’Farrell. ‘Who would have thought reality programs would be the hit that they’ve become? It’s something that has grown out of the marketplace and sometimes government-led directives are too rigid and don’t allow for the flexibility and accommodation that’s required to adapt.’

CAB flew in 17 broadcast executives from across the country for the committee hearing, decidedly downplaying the hot-button CBC issue.

Instead, CAB told the Heritage committee:

* restrictive regulation in direct-to-consumer pharmaceutical advertising is costing the broadcasting system $240 million annually;

* conventional broadcasters should receive some of the $850 million in annual subscriber fees paid exclusively to specialty and pay-TV services; and

* broadcasters need a capital expenditure credit to help finance the transition to digital television.

O’Farrell, who started with CAB on Jan. 7, replacing long-serving president Michael McCabe, says private broadcasters intend ‘to take the high road’ in their push to make Canadian programming (other than sports and news) profitable. CAB says the industry has evolved and broadcasters should have a right of access to all public funding sources through the creation of a ‘one-stop shop.’

(At this point, broadcast affiliates can access up to one-third of each LFP program genre envelope. Real access levels on the part of broadcasters remains significantly lower, under 10%.)

‘If we really want to have a strong Canadian broadcasting system, five years out, eight years out and 10 years out, we are going to have to have a Canadian programming strategy that allows for maximum flexibility,’ says O’Farrell, adding the coproduction treaties could also bear review and possible modernization.

‘Most broadcasters, particularly the publicly traded broadcasters, have multiple platforms for content and we think having an equity stake in programs will give them an incentive to make better use and better derivative use of those programs,’ he says.

O’Farrell told the Heritage committee government should review – with the aim of better harmonizing – the patchwork of Canadian tax incentives ‘where oftentimes the tax credits across the provinces are at odds with each other.’

And while CAB did not ask for more money, it says the Canadian Television Fund needs reliable, multiyear funding.

Support for the ’91 Broadcast Act

If the regulatory and policy framework needs modernization, CAB told the Heritage committee the 1991 Broadcasting Act’s legislative framework has served Canada very well. Broadcasters want similar affirmative actions in the era of digital television.

The country’s broadcasters are keeping a wary eye on the state of the domestic program rights market. There’s already pressure, in policy circles and in the marketplace, to distribute directly into Canada on the part of consolidated American services and from the huge black market – the so-called satellite problem – which CAB now estimates to be over one million households.

‘We need to work very hard to develop a Canadian programming financing model that will sustain and support better Canadian programming,’ says O’Farrell. ‘Because if that [increased slippage in the rights market] were to occur we would have to rely more and more on our distinctive Canadian programming to carry the day.’

O’Farrell, former senior VP specialty services with CanWest Global Communications and president of Global Quebec, says CAB fully expects the U.S. to push for the inclusion of audiovisual industries in WTO negotiations.

The line on ownership

On the issue of foreign ownership, CAB told the Heritage committee there is a consensus among its members ‘that Canadian programming undertakings require majority and effective Canadian control.’ Within the association, however, CAB says, ‘There are varying views on when and what defines majority and effective Canadian control of a programming undertaking – these views range from maintaining the status quo foreign ownership restrictions to a maximum of 49% direct and indirect voting interests in programming undertaking but not until foreign models that mirror the Canadian foreign ownership model are adopted.’

CRTC regulation states foreigners may hold 20% interest in broadcast licensees (direct) and a 33.3% interest in a holding company (indirect) concurrently, for a theoretical maximum of 46.7 %.

CAB also told the Heritage committee that broadcasters, along with the DBUs, are overpaying the CRTC between $80 million and $90 million a year, money they say is paid in excess of what the commission actually spends to regulate the broadcast sector. CAB estimates its share of the overpayment to be about $35 million a year.

And, not unlike the regulated Cap-Ex measure given to cable in the early ’90s, CAB says its members should receive a credit against capital expenditures in the transition to digital broadcasting.

New advertising revenues

As for new revenue sources, CAB says broadcasters should benefit from direct-to-consumer advertising, specifically pharmaceutical advertising.

O’Farrell says this type of advertising exists in Canada, but only in U.S. media. ‘It’s essentially a system where American advertisers are given access to Canadian consumers, but Canadian advertisers are not.’ (A recent CAB in-house survey indicates there were 102 pages of direct-to-consumer pharmaceutical drug ads in the top 10 U.S. publications distributed in Canada in January.)

O’Farrell says if the restrictive Canadian regulation were scrapped, the industry would gain $240 million a year. ‘People want more information, so why don’t we give it to them in a made-in-Canada way?’

Fee for carriage

‘Conventional broadcasting as a sector of the system needs repair. We need a compensation model with the BDUs so that there is a fee for carriage paid to conventional services in the same way BDUs pay fees to pay and specialty,’ says O’Farrell.

CAB isn’t saying what level of subscriber revenues might go to conventional broadcasters, but O’Farrell says the number of non-wired Canadian households is shrinking, especially with the advent of DTH and competition.

Subscription revenues, paid exclusively to pay and specialty channels, now make up slightly more than half of all revenue sources in the Canadian broadcasting system, a share that is increasing each year. (Total subscription revenues for Canadian pay and specialty channels in 2000 was $858.7 million, $731.2 million sourced from cable and $127.5 million from DTH.)

Advertising revenue represents only one-third of all revenues, while the government’s share has dropped to 8.5% of total revenues.

Advertising revenue for specialty TV services has grown fivefold in the past decade, from $70 million in 1991 to over $380 million in 2000, or 15.5% of all TV advertising revenue in Canada.

Profits and spending

Private conventional TV services had a PBIT margin of 13.9% in 2000, an improvement over the low profit levels of the 1990s but well below the historic highs of the 1980s. In 2000, specialty and pay-TV had PBIT margins of 18.5% and 12.3%, respectively, for an overall private TV margin rate of 15.4 %, well below the rate in the U.S. (23%) and Australia (35.7%), says CAB.

In 2000, conventional broadcasters spent $518.2 million on Canadian programming. Specialty and pay services spent $392.7 million for a combined total of over $910 million. CAB says private broadcasters provided direct employment to over 11,000 Canadians, and in addition, contributed more than $500 million in the form of on-screen benefits through CRTC benefit decisions governing ownership transfers.

-www.cab-acr.ca