When CBC president Hubert Lacroix announced 800 staff layoffs in February of this year, citing a $171 million short-fall, he implied that the recession and a drop in television advertising revenues were to blame. Friends believes that explanation is about 35% correct, in that the recession, combined with changes in the advertising market, have reduced CBC’s revenues in the current year by as much as $70 million.

How did that escalate to $171 million? Two decisions by the management of CBC’s English Television network, both taken well before the onset of the recession one year ago, set the stage.

Since the inception of CBC Television in 1954, Hockey Night in Canada has been a network mainstay. From 2002 to 2008, the CBC paid the NHL $60 million each year for the right to broadcast games and made an annual ‘profit’ on Hockey Night in Canada in the range of $50 million. The big audiences for the double-headers on Saturday nights followed by the non-stop broadcasts during the playoffs bring in significant ad revenues and produce almost half of the CBC English TV’s total prime-time audience. That ‘profit’ was available to subsidize other CBC programs.

Three years ago, when CBC started negotiations with the league for a new agreement, the price was significantly raised to well over $100 million a year. CTV and TSN, with access to cable revenues not available to the CBC, had already stolen away curling, the Olympics and the Grey Cup. So rather than run the risk of losing hockey, the CBC met the NHL’s terms. CBC’s managers reasoned that a strong economy would boost ad revenues so the greatly increased costs would become affordable during the six-year duration of the contract.

This decision, taken in early 2007, under former president Robert Rabinovitch, locked in a cost increase of about $50 million a year. As we now know, the advertising market almost immediately started crumbling even before the economy fell into recession.

Advertising space has been going unsold and what is being sold is at a much reduced price – about 20% less. The result: between the 2007 and 2008 NHL seasons, CBC had a reduction in its hockey ‘net revenue’ of something in the neighbourhood of $70 million. And this hit is not a one-season wonder. It promises to continue right through the six-year life of the NHL contract.

The second decision, in the early months of 2008, was to bid for two American game shows, Wheel of Fortune and Jeopardy! To win the shows, CBC had to out-bid CTV which had run both for many years.

A cruel fact of the TV world is that advertisers desire, and will pay for, younger viewers. But with three-quarters of Jeopardy!’s audience over 50, CBC has found advertisers less than interested in these shows and their audiences.

The network had also hoped that running these shows at the same time as the American broadcasts, in other words ‘simulcasting’ them, would boost the audience. While that happened, those viewers were lost to CBC when it returned to Canadian programming at 8 pm.

So, the Jeopardy! and Wheel of Fortune decision has ended up costing CBC about $20 million a year. And because the agreement is for five years, this cost, like the hockey loss, has become structural; a continuing drag on the Corporation.

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