Less

Cancon

coming

In an ideal world, a pack of new applicants for more Canadian specialty services would be spending this summer preparing to pitch their ideas to the crtc in round two of the licensing process that once had a June 31 application deadline.

Instead, in the wake of a botched launch, bad press, and a seemingly never-ending battle between the cable companies and the specialties for payment scale, potential bidders for specialties, 1997, are keeping their Cancon commitments and projected cable fee/advertising splits close to the chest, waiting to see exactly how the specialty fallout will fall out before finalizing business plans.

At the same time, the new on-air specialties are grappling with how to make Cancon commitments ranging from 30% (NCN New Country Network and a&d) to 70% (Life Network and wtn) work when fees from the cablecos, that in most cases accounted for about 90% of the anticipated revenue base, are already markedly less than originally thought.

In tandem, independent producers are looking for ways to combat what they say are significantly lower licence fees than promised in the original applications, and are increasingly frustrated to find broadcasters competing with them for sponsorship funds, traditionally the indies’ turf.

Exactly how many applications the crtc will have on its desk by the Jan. 16, 1996 deadline is anyone’s guess, but at this point two things are clear: all new services should expect to be discretionary and paid on actual number of subscribers.

‘The age of high penetration rates on a first tier is behind us,’ says Ken Stein, senior vp, corporate development and regulatory affairs for Shaw Communications.

What level of Canadian content commitments factor into the new environment has yet to be decided, but Sylvie Courtemanche, legal council for the crtc, told a Canadian Institute-sponsored seminar in June: ‘In the future, we’re obviously not going to be able to have the same levels of Cancon. We’ll have to be realistic about what’s possible.’

CTV’s three-pack

The CTV Television Network is one of the first out of the gate to confirm it will pitch for three new channels next January: an all-sports channel called S3, an all-news service, and a history channel.

The business plans will change for the sports and news services this round because there will be no guaranteed fee from the distributor, but the Canadian content levels are built-in by nature of the local programming, says Gary Maavera, vp, development and public affairs counsel for ctv. However, what’s possible for the history channel is difficult to pinpoint, he says.

‘Any category where there isn’t an existing production plant or shelf, you’d have to be realistic about the amount of Canadian you can do,’ says Maavera. ‘These channels eat content voraciously, and everybody has got to look at the discretionary environment and ask what revenues are possible and where it’s going to come from.’

Animation channel

Similarly, Michael Hirsh, president of Nelvana and pointman on the Cinar Films/Family Channel/ Nelvana application for a new animation channel, says the specifics for the service’s business plan are still in process, but they will be different, he says, from last year’s application for Fun Tv (Nelvana/ Cinar/Rogers/CUC Broadcasting/TD Capital Group), which promised 46% Cancon rising to 60% by year three and a 90%-10% cable fees to advertising split, rising to 75%-25% by year seven.

‘Things have changed and we have to incorporate those changes and work with what’s realistic, but it’s premature to talk about what that means in terms of Cancon levels, profit structure, etc.,’ says Hirsh.

At CanWest Global Communications, the current specialty environment is causing them to rethink whether The Grown Up Channel, targeting the 50-plus market, is feasible anymore, despite a firm belief there is a ready market for the service.

Rethinking 50-plus

‘We haven’t decided what to apply for,’ says Joanne McKenna, president of CanWest developments and key pitcher on The Grown Up Channel last year. The 50-plus market is fixed-income and won’t likely absorb a discretionary price, and it’s a catch-22 trying to make high Canadian content mesh with low subscriber fees, says McKenna.

‘If I build a service with high Canadian content, I’ll go broke if I’m not on basic or extended basic. If I build in a low enough Cancon level to survive, hoping to be pulled onto basic by cable operators with high demographics in my target, then maybe my Canadian content isn’t high enough to allow me on basic. It’s a chicken-and-egg scenario, and it’s really tough to decide how you’re going to go about it,’ says McKenna.

Uncertain finances

Hesitation on the part of new applicants isn’t surprising given the uncertain financial state of the specialties. To a degree, business plans are in limbo while negotiations continue with the cablecos, but some are already sure their first-year Cancon spending quotas are in jeopardy.

Life Network committed to a $16 million expenditure in year one and Cancon levels starting at 70%. If revenues from the cablecos aren’t as projected, ‘it will be difficult to reach our goals,’ says Juris Silkans, president of Life.

Until a cable fee agreement is solidified, it’s difficult to know how far short of the $16 million the expenditure will fall, says Silkans. Advertising revenues are over-target at about $2 million, but that isn’t making up for the shortfall in cable revenues. As of right now, it looks like ‘we’re not going to have anything close to that $16 million,’ he says.

The bottom line is that the cablecos need to repackage the services and bring penetration levels up from where they stand now, what Silkans is hearing is about 60% (3.5 million subscribers), or ‘we may have to go back to the crtc and ask for a reduction in our level of Canadian. That’s not our hope – we still want to get there – but we’re dependent on the majority of our revenue from cable.’

The Discovery Channel isn’t planning on petitioning to lower its 60% Cancon commitment, and fully intends to fulfill its spending obligations, $79 million on Canadian programs throughout its five-and-a-half-year licence, says Trina McQueen, president and general manager of Discovery.

Lesser payments from the cable companies have put Discovery’s business plan a year behind, despite ad revenues that exceeded the original projection of $2 million.

Being 12 months out isn’t a big problem, McQueen says, with the qualifier that until contracts with the cable companies are signed, it’s pure speculation on how much money the specialties will have to make good on their commitments.

At press time, both Discovery and Life had offers in to Rogers Communications. Sources say negotiations remain at a Mexican standoff, with the specialties’ and Rogers’ offers still 5% to 10% apart.

In the next round of licensing, the crtc will be under pressure to maintain a level playing field in terms of Canadian content levels, in spite of how the environment has changed, McQueen says.

‘I expect the commission would not want to impose undue burdens on some specialties and not on others. I don’t want my Cancon levels reduced, and I also expect the crtc not to say to other channels that they can get a better rate than I can.’

In what has become an unstable, somewhat volatile environment, both the specialties and the independent producers are looking for strength in numbers through concentrated lobbying efforts.

McQueen confirms that there is talk amongst the specialties of forming ‘an association,’ not a negotiating body, which would lobby for a myriad of issues including everything from violence codes to Telefilm Canada.

(One issue facing the specialties is a difficulty in tapping Telefilm funding. In theory, the specialty services are eligible for Telefilm’s broadcast funds, but without the financial means to meet its licence fee requirements – 25% of a drama or variety program and 20% of documentaries – the fund is inaccessible in practical terms. There are no plans to change the requirements, says Pierre Pontbriand, director of communication for Telefilm. ‘We are encouraging the specialties to get into relationships with the conventional broadcasters, providing more than one window and sharing the costs.’)

On the independent producers side, Anne Pick, executive producer at Good Soup Productions, says the funding problem is twofold: producers and the specialties are both knocking down the door for sponsorship funds, and the traditional funding agencies are non-accessible for information program production.

Creative financing

Traditionally, the broadcasters would take the commercial advertising revenue and leave producers to access sponsorship funds through marketing, promotion, or in-program placement. Now the new channels are looking to more creative ways to finance, offering sponsorship opportunities, and leaving the producers with little resources, says Pick, who is executive producer on Harrowsmith Country Living, the number one ranked show for Life Network. ‘We’re both on the same corporate doorstep.’

While funding agencies have never really been an alternative for information programming financing, the new environment necessitates a change, says Pick. There has always been a misinterpretation of the quality of this type of show. It’s been underfunded and ghettoized on weekends, ‘but it’s time to realize that quality production does not just mean drama,’ she says.

There is a lobbying effort underway to get the agencies attention, to fundamentally shift their views, especially in the wake of licence fees which are ‘significantly shorter’ than what the specialties outlined in their applications, says Pick. As it stands now, with marginal licence fees and a dirth of sponsorship support, ‘We’ve got nowhere else to go for financing.’

Bob Lang, an independent producer and founding member and former chair of the Canadian Independent Film Caucus, is heading up a study of the licence fees the specialties are now paying versus what they set out in their original applications.

He’s also looking to detail the kinds of relationships that are developing between the services and the independent production community, with an eye to improving communication between the two.

At last month’s Banff Television Festival, some of the specialty execs were surprised there were problems within the community, which is in part the responsibility of the producers themselves who understandably don’t want to alienate potential partners, he says. ‘But we’d better get this together now and let them know there are problems or it’s going to end up being negative for everybody.’

Looking past the muddle of today, CanWest’s McKenna says the pace of installation of dvc technology into the home and the new packaging arrangements that could come from that, may affect the decision whether to pitch or not to pitch.

Ideally, multiple packages will be available to the consumer, with individual services available as a part of any, some, or all groups. ‘Most of us interested in the continued success of our industry believe it will be dependent on packaging. Until then, marketing initiatives are restricted by technology,’ says McKenna.

Packaging the goods

Once contracts for payment have been signed, the packaging issue will likely jump to the forefront, and may become a new issue over which the cablecos and the specialties will lock heads.

While Silkans advocates bigger packages, similar to those the direct-to-home satellite services will offer, which are conducive to high penetration, Stein says the future looks more like smaller, carefully targeted packages such as a news/sports/comedy pack or arts/entertainment/education/science mix. Subscriber penetration in Canada needs to be put into context, he concludes.

‘The History Channel in the u.s. is up to 30% penetration and they think it’s great,’ says Stein. ‘Nobody launches a new product and expects the kinds of numbers we’ve got here.’