GATINEAU – April 27, 2009 – It was low-key, seldom confrontational and sometimes as languid as the 30-degree heat outside, but CTV’s appearance to open the CRTC’s OTA licence renewal hearing sought tirelessly to redefine the assumptions that underpin much of Canada’s conventional TV business.
The Commission did not reduce the scope of the hearing, anticipated to last 11 days, with the expectation that renewal applicants would respond as CTV did. The regulator asked companies to structure applications based on the premise that it would award one-year administrative renewals in the economic turmoil of 2009 and longer terms next year when it considers all the TV assets belonging to ownership groups. Submissions were to focus on four key issues:
• the appropriate contributions to Canadian programming (local, priority and independently-produced programming), given the current economic conditions;
• the terms of administration and delivery of the Local Programming Improvement Fund (LPIF), including the method of establishing the base-level expenditures for the purpose of determining incrementality;
• whether to impose a 1:1 ratio requirement between Canadian and non-Canadian programming expenditures, both on a trial basis during a short-term licence, and on a longer-term basis; and
• consideration of the terms for the digital transition by August 2011, in light of an industry working group report being prepared for the current public process.
On the first issue, Ivan Fecan, CEO of CTV Inc, agreed with the CRTC that local programming is of paramount importance. “Local is the comfort zone for our audiences. Local is…where people live….Local broadcasting is not just the news. It’s the community messages throughout the broadcast day….Local television gives local businesses a chance to speak to local customers and compete with national and multi-national businesses.”
But in his opening statement, Fecan also argued that the second tier of priority programming should include more program types than those currently under the “priority” umbrella. He went beyond the familiar call for reality programming to be covered, saying the definition should include “those that enhance our national identity” such as the national news and “current affairs shows like W5. It also includes shows like…the JUNOs, the Giller Awards (and) national talent competitions like So You Think You Can Dance Canada as well as some professional sporting events and the upcoming Vancouver Olympics.”
Only a short time into the Q&A, CRTC chairman Konrad von Finckenstein brought the discussion back to local programming, asking Fecan why, if local stations are so important, CTV has said it will close operations in Windsor, Ont., Wingham, Ont. and Brandon, Man. Fecan repeated the importance of local stations in attracting audiences. Von Finckenstein then wondered what CTV would do with money generated through a fee-for-carriage system. Fecan said it would go “toward local programming…and sustainability”.
Which led to a discussion of the CRTC’s proposal, introduced in its regulatory frameworks decision last fall, of a Local Programming Improvement Fund (LPIF). CTV and other broadcasters have argued that because the fund is intended to help programmers increase existing levels of local programming, its designers failed to acknowledge that stations are struggling to sustain a local presence of any kind.
In response to von Finckenstein’s comment that conventional owners want “a specialty channel called conventional TV” with the same two revenue streams, Fecan noted that local conventional stations incur different costs than a specialty channel does. “Local television needs people on the ground, bricks and mortar. Journalists but also the person who pays the journalist – i.e. overhead.” He added that the CRTC’s cost appreciation doesn’t capture the local infrastructure costs specific to conventional.
Fecan noted that if the eligibility requirements for LPIF funding were changed to enable the funds to sustain rather than increase levels of local programming, CTV would provide the Commission with assurances that the money supported local programming. “These stations are on the verge of closing and if incrementality is the test, none of our stations would benefit from this fund….(T)he quantum needs to be increased to at least 3% and distributed between small market stations that originate local programming.”
Rather than posing an “if-this-then-that” discussion around the regulator’s third issue, the idea that private broadcasters should spend $1 on Canadian shows for every $1 spent on foreign, Fecan dismissed the entire discussion. “It doesn’t make sense on any basis,” he said during the Q&A.
“Generally,” he noted in his statement, “we make money on American programming, we lose money on Canadian….This is not a criticism of Canadian programming; it’s about the reality of our market size and the cost of production.” If Canadians stopped buying U.S. fare or bought less, “All of the American programs would still get into Canada through their U.S. affiliates. And Canadian advertisers will happily buy out all the ads on those border stations creating a windfall for them. And you can be sure that the studios will sell the Canadian BDUs extra video-on-demand runs of their primetime programming. You can also expect the Americans to stop geo-gating their hit shows and allow viewers in Canada to see them on the Internet,” said Fecan.
The CTV appearance also featured a long discussion, joined by several commissioners, on what the terms of digital transition should be. Here again, Fecan turned the argument that broadcasters should pay to convert all transmitters to digital, so that no Canadians will be “disenfranchised”, on its head. He said it is a “public policy issue” to ensure all Canadians are able to receive digital signals, even the nine percent or fewer who still receive signals off-air. That means that since the government signed a “bilateral deal” with the U.S. to push ahead with DTV transition — set for August, 2011 in Canada — the government should incur some of the costs.
Even though it would seem counter-intuitive for a broadcaster to willingly decrease the size of its audience, the cost to convert all of its transmitters to digital is too high. “We’re quite prepared to operate without” the homes featuring rabbit ears, said the CTV CEO.
In response to vice-chair Michel Arpin’s suggestion that various broadcasters — say, CTV, CBC, Radio-Canada and Global — could share the cost of transmitter conversion, CTV’s EVP corporate affairs, Paul Sparkes noted that this is “not a scenario the (broadcaster/government) working group has looked at….Under the hybrid model, yes, some viewers will be disenfranchised. We’re not happy with that…but there needs to be another solution for them.”
“We cannot justify,” said Fecan in his statement, “an investment of several hundred million dollars to reach 9% of the marketplace, particularly when this investment produces no additional revenue in a business that is already teetering on the edge. We endorse the hybrid solution that has been proposed.”
In short, the existing revenue model is broken, as he said in his opening remarks, and the recession has accelerated the financial implications. The market is still fragmenting and the coming costs, such as DTV, are significant. As the CTV submission notes, “Despite our success in new media the revenue generated by new forms of viewing does not come close to replacing the revenue lost. We are in a world where analog dollars are being converted to digital dimes.”
