Last ditch pitch

Hull, Que.: Armed with days of rehearsals and the wisdom of the 36 services that went before them, the final four specialty channel applicants, including the Labatt and Alliance history pitches, took their kick at the can May 17 and wrapped phase one of the hearings which have been boiling here for a fortnight.

Two weeks into the three-week process, any doubt that last year’s negative option debacle left the consumer king has been laid to rest by 10 days of crtc questioning that pressed for proof of subscriber demand.

Impact on existing services, advertising revenue, and programming are taking a back seat this round, with Canadian content and carriage issues stealing the show in the search for services able to entice subscribers inclined to balk at new cable offerings and new package proposals.

‘It seems like parts of the Broadcasting Act have moved to the background,’ muses one applicant. ‘If you prove demand, don’t cost a lot and come in with some kind of commitment to Canadian content, then things look damn good.’

A cauldron of issues brew as the applicants prepare for the intervention process beginning May 21 in a hearing which, in part, tests the extent to which the commission will go to stem the invasion of American services into the Canadian market.

Besides the emphasis on marketability, questions over the past two weeks have run the gamut from the anticipated self-dealing and independent production safeguards to the particulars of distribution packages and where Martha Stewart Living would land if Life Network wins the licence for HGTV Canada.

At this point, the 40 applicants, which built business plans with nary a clue of capacity or realistic penetration expectations, are riding high on the cablecos’ updated capacity report and the April access decision.

Word now is that 80% of the Canadian cable system has space for somewhere between six to 10 new services, and access guidelines stipulating that Canadian services must be given precedence over foreign services on the distribution system are being heralded by the applicants as a blueprint for guaranteed access.

No longer an issue

‘We believe that capacity, although a concern, isn’t an issue anymore. The access decision will create and reserve the space. We hope to see a lot of new channels with a licence,’ says Michael MacMillan, president of Atlantis Communications and a shareholder in the applications for hgtv and sftv, a science-fiction channel.

New-found analog space is leaving applicants originally applying for digital scrambling to justify modified dual or discretionary status. Subscribers, it seems, want and are willing to pay for every one of the 40 propositions, according to the individual nest eggs of research. Every service is a ‘package driver’ guaranteed to boost the penetration of new or existing tiers. As per chairman Fern Belisle: ‘Everybody’s a driver. Nobody is a passenger.’

Faced with the inevitability of digital distribution, the traditional means of licensing specialty services is evidently up for grabs with every applicant forced to select from three different ‘flight plans.’

Option one, the traditional route, license a number for analog distribution based on capacity; option two, license a large group and leave it up to the cable companies to decide who lives and dies; option three, license in two groups, one for analog and one for digital.

A mixed bag of analog and digital licences was clearly the front-runner, with popular opinion running that this setup increases the number of services that could be licensed, although Baton Broadcasting coo Ivan Fecan says the two-tiered flight pack should dictate that only three to five services are licensed for analog.

‘If a lot of services are licensed, any system that chooses to do a third tier would find it a very expensive proposition. You cut the legs out from under the digital box.’

Other applicants added their own quid pro quo in supporting the third option, with several advocating both the ‘a’ and ‘b’ lists find a parking space on the system before any new American services are added to the Eligible Services List, and bringing up a recurring theme: the Americans are at the door and what is the crtc prepared to do about it within the scope of this hearing.

The issue is perhaps nowhere so well caged as in CanWest Global’s application for Mystery Channel. With 25% of revenue split out between a new television writers development fund, Canadian acquisitions and the Cable Production Fund, the service proposes no new production and a 20% Cancon level and is clearly positioned as a defense against the cablecos’ desire to add u.s. superstations to the Eligible Services List.

The application is, says Global president Kevin Shea, an ‘industrial strategy from a rights management point of view to make sure we remain a separate and distinct market.’

Mystery Channel takes into account the independent producer’s need for more funding from the private sector and the need for a writers development program in Canada to keep the best and brightest from heading south, says Shea. It’s a service based on the superstation model except it would be done by Canadians and would put money back into the system.

‘Wouldn’t it be nice if a&e left 25% of its revenue here or the other u.s. programming services did? I would suggest that when the commission gets to increasing the eligible list, it might think of adding a 25% stick rate here to go to the Cable Production Fund. Producers need the economic engine we’re putting forward here to survive.’

In his hgtv pitch, Atlantis’ MacMillan points to the same issue, saying there’s a real danger in licensing few services, particularly in the genres where American services exist. ‘Licensing Canadian services would prevent this and help prevent a North American rights market from developing, something that threatens to bedevil the whole industry.’

Americans aside for a minute, producers can be confident that the commission is paying attention to the cftpa’s concerns about the role of independent producers in these proposed services, MacMillan adds.

‘I think the commission is looking to make sure that the true definition of independent producer is being applied. The cftpa has caged it very well in its intervention and I think they’re asking questions that reflect those issues.’

While Cancon levels are on the periphery this run compared to the last round, the commission shows no sign of relaxing its Canadian-content requirements, in spite of the digital factor which is motivating some levels in the 30% range.

Both Baton and chum were asked to justify their 30% Cancon commitments on their Outdoor Life and Star Entertainment pitches, with both pledging to increase expenditure levels should penetration go beyond what’s in the business plan.

Taken to task

Allarcom Pay Television, having a bit of a rougher ride on its sftv application (with Atlantis), was taken to task by chairman Belisle for budgeting for a sliding Cancon investment should penetration projections be lower than expected.

‘It was a nosebleed scenario to ensure the possibility of survival at a very low penetration tier. The safeguard was put in because we were concerned we wouldn’t have the dollars to license the inventory,’ said Ric Davies, vp programming for Allarcom.

Belisle countered that a 50% Cancon commitment would have been realistic. If penetration shook out lower than expected, then ‘shouldn’t you have been willing to incur these losses?’ he asked.

As the hearing leaps into the intervenors forum, the Canadian Cable Television Association is first on the agenda, and is expected to play off the host of distribution topics pebbling the first two weeks.

In particular, the commission’s focus on questions about the applicants’ preferred packaging arrangements, which other services they envision on a tier with them, the price point of a new package, even which services the applicants feel should get the digital nod.

‘If I said which services should be digital, I’d probably be shot before I got out of the room,’ responded ctv president John Cassaday, pitcher on the N1 Headline News application, although others tred cautiously into recommending four or five other genres.

Besides the latter, all pertinent distribution questions are essentially the territory of the cablecos’ business plans, leaving some continuing to question the degree of power the cable interests are having over the licensing process. But others say the direction shows the commission is taking the big picture into account.

‘They have to weigh the price of the services. You can’t expect the cable companies to make a go of it if they license a package that’s going to cost six dollars,’ says one applicant. ‘I think they’re trying to make it as simple as possible to make this as smooth a launch as possible for everybody.’

Other questions

Other cable-related topics that crop up consistently include the question of the impact of the six-month period, and the effectiveness of the ccta’s market research. The genres ranking high on its list are using it as leverage, but the majority are blowing holes in the research for reasons that include its small test group and the language used.

A home and garden service ranked first among women in the ccta’s survey, but ninth out of 20 genres in terms of consumer popularity. With a 5.3 rating and the highest service getting a 6.0, it’s not a wide berth, says Life president Juris Silkans, adding that the words used tend to skew the effectiveness.

‘When we test words like comedy or history, they’re sexier than home and garden,’ says Silkans. ‘Comedy assumes you’re going to get Seinfeld, Friends, when the reality is the comedy channel in the States hasn’t done well because it hasn’t been able to perform.’

With time to digest the two laborious weeks over the long Victoria Day weekend, the crtc must begin deciding how to balance the criteria suggested – at its invitation – by the applicants for separating the winners from the losers: proven market research and consumer willingness to pay, a service backed by companies with programming expertise and big pockets, those bringing new programming into the market, Canadian content, how low a subscriber rate is being offered, entertainment programs to drive subscribers, real contribution to the Canadian Broadcasting Act, its benefits to Canadian production, and its ability to meet its objectives.

In the meantime, flags are down already for the ccta convention.

Ken Stein, sitting for Shaw on the Treehouse tv application, proposed the game plan might be to balance the number of subscribers over the whole system. ‘Does that mean that we’d get Thunder Bay and a bunch of small towns to make what another would get in Toronto?’ asks one applicant. ‘We almost fell off our chairs.’