THERE WAS TOO MUCH symbolism to ignore with the choice of London, Ont., as the place where CRTC chairman Jean-Pierre Blais chose to begin dismantling simultaneous substitution and to shift the ground under Canadian TV companies, forcing the vertically integrated behemoths to ask themselves this question: “Why do we need to own media companies?”
Blais spoke in London a week ago to make three announcements, two of which were decisions from the Commission’s Let’s Talk TV hearing held in September 2014.
London is generally acknowledged as the first city in Canada to get cable over 60 years ago and as many know or remember, the industry gained its early success by pulling in U.S. over-the-air signals and distributing them over copper wire, for a fee, to Canadians. London was perfect for that since it was situated close enough to U.S. border stations for a large antenna to pick up TV signals from Detroit and Cleveland, but far enough so that regular back-of-the-set bunny ears didn’t work.
Ed Jarmain founded Canadian Cablesystems Ltd. there and the company grew into the largest cable business in Canada before it was taken over by Rogers in 1979. In the early 1970s, however, regulators were taking an increasingly dim view of “cable pirates” making money this way, giving nothing back to creators, and by then they were selling U.S. TV channels which aired the same shows bought by Canadian broadcasters. The still-young CRTC was close to forcing the cablers to black out the U.S. OTA signals altogether.
Instead of that, Ted Jarmain, son of the CCL founder, came up with the idea to simultaneously substitute the signals of the Canadian broadcasters over top of the American ones, when the programming was the same. Canadian broadcasters paid for the rights to certain shows in Canada and by law, are supposed to be the only ones able to monetize those rights in our territory. While the broadcasters wanted American TV signals gone completely, simsub was a way to protect their rights and keep customers happy because no one like blackouts.
While not perfect, it’s a compromise that still works today. Canadian broadcasters are beholden to the scheduling of ABC, NBC, CBS and FOX if they want to take advantage of simsub. That has historically meant Canadian shows in the CTV, Global and Citytv schedules faced poor time slots and soft ratings. The trade-off has always been that the millions of dollars earned from airing popular U.S. fare went to help fund the creation of more Canadian TV.
But no more. Four Canadian broadcasters we talked to, none of whom wanted to go on the record against the CRTC chairman, believe the decision to ban simsub for the Super Bowl is a horrible one and is nothing less than the beginning of the end of simsub altogether – and has now thrown the entire Canadian rights market into panicky flux. “I don’t know how to do deals anymore,” said one broadcaster who spoke frankly about the decision on condition of anonymity.
It should not be okay for the Commission to interfere in Bell Media’s NFL contract by denying it Super Bowl simsub rights for the final four seasons (2016-2019) of its rights deal (and the $20 million in revenue per year our sources at CTV say the Super Bowl earns). It’s an $80 million hit, or as Canadian TV writer Dennis McGrath pointed out on Twitter, that type of financial hit means Bell Media will produce one or two fewer TV series because of the decision.
“That means less original content, job cuts or station closures.” – Michael Hennessy, CMPA
Or, as Canadian Media Production Association president and CEO Michael Hennessy wrote in his blog: “When Bell makes a dollar on its broadcast business $0.30 goes to Canadian programming, including things like local news. 
Take out $20 million and the incentive is to reduce spending by the full $20 million, including at least $6 million on Canadian programming, probably more. And that means less original content, job cuts or station closures. And we believe the cuts will begin to happen long before it impacts the Super Bowl in 2017. The reason is because ad revenues are already well down, and no one knows if this is a cyclical phenomenon or not. What is clear is that the recent decision has just made the business a lot more uncertain.”
Our sources inside of Bell Media tell us the company has not yet decided what it will do (but suing the CRTC outright is not off the table) because the NFL contract is “iron clad,” according to one executive who asked not to be named. The league is not about to cut Bell Media a break because the Commission changed the rules and with no simsub revenue come February 2017, the game will end up on TSN. What that will mean is the one or two percent of Canadians who watch just OTA TV and are not close enough to the border will not be able to see the Super Bowl at all (assuming the league does not start streaming it by then).
“Canadian advertisers will go to local border stations to advertise during the game, Canadian shows won’t get promoted like they are now, money is diverted away from the system so less Cancon gets made, and millions of dollars will flee the Canadian economy,” said another broadcaster.
“Canadians are nothing but losers here, unless you consider there’s social value to seeing a Go Daddy ad,” said another. “I don’t feel there’s a real social ill in the fact we watched the ads on YouTube the next day.”
“Canadians are nothing but losers here, unless you consider there’s social value to seeing a Go Daddy ad.”
“It’s a different sort of event,” chairman Blais told Cartt.ca about the Super Bowl in an interview after his speech. “The ads form part of the spectacle. They are – particularly in North America, and we’re part of that broader North American culture – part of the spectacle. Yes, there are screw ups on all kinds of live events, whether it’s sports or with the Grammys or whatever, but the Super Bowl is special. They don’t do secret ads leading up to the Oscars, for instance. This is unique.”
But that’s exactly the point, exactly the reason simsub must stay, says Bell. There is no other broadcast like the Super Bowl. More than 8 million Canadians watched the game on CTV on Sunday. It’s an opportunity like no other for the broadcaster to promote new shows and for Canadian advertisers to sell their wares. The game was a strong lead-in to the new season of Master Chef Canada this time. That now goes away and the whole rights regime is being re-thought.
“Obligations to serve are always linked by regulators to the ‘opportunity’ to earn a reasonable return on investment as a quid pro quo,” added Hennessy in his blog. “Cut that link and the social contract is broken. Broadcasters may now believe that the ‘opportunity’ to earn continued ‘reasonable’ returns is unlikely given the direction the CRTC is taking. If that is what they believe, even if that is not the Regulator’s intent, then broadcasters are going to respond according to what they ‘perceive’ the damage to be.”
After talking to many in the industry, we can tell you broadcasters do perceive that social contract is broken.
“So the gloves are off, and we predict that the creative sector and related will be collateral damage in the interim, And while the CRTC and broadcasters fight over how to measure ‘reasonable’ profitability, producers, talent and crews will feel the first cuts,” added Hennessy.
The symbolism of having the speech in London doesn’t stop with simsub. London has but one local conventional TV station, Bell’s CTV London (CFPL-TV). It is often cited as a struggling station which could be shuttered if the CRTC doesn’t change the regulatory model surrounding OTA TV in Canada. London doesn’t even have a CBC station.
In the Let’s Talk TV hearing, Bell asked to shut off their OTA transmitters and ask to become local specialties, keeping the must-carry and simsub rights that come with it, in order to save money on its local stations, get a subscriber fee and keep pumping out much-needed news. Chairman Blais’ announcements Thursday kiboshed that, as he told broadcasters they must keep their free-TV transmitters running if they want to keep the rights carried with the privilege of owning an OTA license.
A passage near the end of his speech, however, astonished many listeners because it appeared the chairman compared laying off journalists for economic reasons to the terrorist attacks at French magazine Charlie Hebdo.
“Broadcasting can’t only be a purely commercial undertaking whose sole focus is to increase profits.” – Jean-Pierre Blais
Blais urged the large companies who own most of the broadcast TV in Canada to look beyond the bottom line, saying “broadcasting can’t only be a purely commercial undertaking whose sole focus is to increase profits,” and tied it to the subjects of freedom of expression and democracy.
“Earlier this year, we saw insidious attacks on freedom of expression in Paris. Sadly, such incidents are far from isolated. In 2014 alone, 61 journalists were killed while practicing their profession around the world. Others are imprisoned or tortured,” he said in the speech.
“Although it grabs fewer headlines, the reduction in funding of local television stations by major broadcasters also gives me cause for concern. Media moguls are indeed allowed to be worried about profits, but both the public and private shareholders of broadcasting assets have a duty to ensure that news reporting and analysis continues to be properly funded. This is to ensure that Canadians, as citizens, understand events occurring around them every day. An informed citizenry cannot be the sacrificial offering on the altar of corporate profits or deficit reduction.”
We didn’t pay close attention to the parallel Blais drew when we heard and read the speech the first time, but the folks in charge of Canadian TV news operations have good reason to fume. Grouping a terrorist attack on journalists with corporate layoffs while making a point on freedom of expression seems unnecessarily inflammatory. Some executives we talked to are spitting mad at the characterization..
Blais added to his thinking on the matter in our interview. “These are billion dollar companies. I’m actually more sympathetic for smaller, over the air companies that operate in Victoria and Hamilton,” he said. “But, when you have billion dollar companies that every day are making choices about where they spend their dollar and come to our hearing and argue for more consolidation based on synergies, then the moment one of the branches in that multi-aspect group, this conglomerate, loses money, suddenly, it’s no longer about the group and synergies. It’s about just that. So, there are choices being made.”
The final announcement chairman Blais made last week was to tell both Bell and Videotron they can no longer give their mobile TV customers bandwidth breaks on their own video content, while not when viewing anything else such as YouTube. All video viewing should count against bandwidth caps, says the decision. The companies can’t favour their own stuff.
These types of customer perqs were something Bell Canada CEO George Cope referenced as synergistic reasons the company bought CTVglobemedia in 2010, but they were struck down by the CRTC last Thursday in the name of an open internet.
“I have no problem with giving perqs as a matter of principle to your customers,” said Blais in our interview. “But when you do it to the disadvantage of others and to your own advantage… you’re not doing it content-neutral.
“I don’t think Darren (Entwistle, executive chairman of Telus) knew how right he was four years ago when he said ‘I don’t need to own content’.”
“I speak more of ‘open internet’ because people have different terms when they talk about net neutrality, a term I try to avoid because when you use it, people have unarticulated assumptions about it. But… this is about an open internet. It’s about making sure that there aren’t fast lanes and slow lanes. From a regulatory perspective, it’s a more important decision,” added Blais
So, to review. Bell is taking an $80 million hit on the Super Bowl games. Broadcasters have to keep transmitters running and journalists employed lest they be labelled as enemies of democracy and freedom of expression, and they can’t give their customers perqs they thought they could when they originally invested so heavily in media.
So why do the big VI companies need content? It was a question asked on Twitter last Thursday by former Canwest Global CMO (and current Comedy Central EVP and CMO) Walter Levitt.
This is something all three English Canadian VI companies (Bell, Rogers and Shaw) are seriously analyzing now, according to sources.
Added one VI company broadcaster: “I don’t think Darren (Entwistle, executive chairman of Telus) knew how right he was four years ago when he said ‘I don’t need to own content’.”
There will be much more to come on this in the coming weeks. The rest of the CRTC TV Policy Review decision will be announced in March.
