Evolution of the television industry in Canada and its impact on local communication
May 11, 2009
Presentation to the House of Commons Standing Committee on Canadian Heritage
Friends of Canadian Broadcasting is an independent watchdog for Canadian programming in the English-language audiovisual system, supported by 100,000 Canadians. Thanks for granting us an opportunity to appear today.
The conventional over-the-air (OTA) television model – acquiring US network programs, wrapping them in Canadian ads, and subsidizing Canadian programming with the resulting profits – is failing. Canadian OTA broadcasters are competing to bid up the cost of US programming at the same time as their audience is declining. And now they also report that local news programming is no longer profitable.
As you know, advertisers follow audiences. Over the past decade, a major shift that has taken place within the advertising pie. Web advertising, has increased in Canada from $25 million in 19981 to $1.5 billion in 2008.2
CRTC data confirm that profits for private OTA television have been falling steadily to the point where by mid-2008, the entire industry delivered negligible profit. What might initially have been considered a cyclical downturn has now emerged as a major structural change, threatening the viability of OTA television. The OTA broadcasters are telling the CRTC and your Committee that audience is down, advertising is down, costs are up, the transition to digital is not affordable, and Canadian programming obligations are unsustainable.
While some have questioned the need for OTA delivery in future, Parliament and the CRTC have a responsibility to consider the needs of three million Canadians who rely on OTA reception. In a report commissioned by the Department of Canadian Heritage, Canadian Media Research Inc. concludes that "given the slowing trend in the past 4-5 years, it seems unlikely that the OTA segment will decline by much in coming years".3 In other words, OTA viewing by millions of Canadians will continue to be a feature of our audio-visual system well into the future.
Cities with OTA viewing exceeding the Canadian average include: Windsor (27%), Saskatoon (15%), Montreal (14%), Quebec and Sherbrooke (13%). Even in cities with a lower proportion of OTA viewing, the number of viewers is substantial, for example: Toronto (477,000), Vancouver (138,000), Edmonton (113,000), and Ottawa (111,000). CMRI also reports that, even in households subscribing to a cable or satellite service, not all television sets are hooked up to the cable/satellite service. OTA viewing accounted for 25% of TVO's audience in 2006, 16% for CBC-TV, 14% for CTV and 8% for Global.
With the advent of digital OTA conversion in 2011, many of these Canadians will have an incentive to become cable or satellite customers, although the CMRI study indicates that 26% of OTA viewers cannot afford the cable or satellite charges. Digital conversion may be expected to increase the profitability of the distributors at a time when the OTA providers are in crisis.
As you know, in the United States the federal government provided a coupon program to subsidize the purchase of digital converters. Why has no similar program been announced in Canada? And what about financial assistance to OTA broadcasters to help with the one-time cost of digital conversion? Even a small portion of the revenue from re-selling the vacated analog frequencies would easily pay for this.
Public policy should recognize the vital contribution that Canadian OTA stations make to the cultural fabric of Canada and create the conditions for sustainable, therefore profitable, OTA services. This can only be done by ensuring that OTA television has the financial capacity to produce local Canadian programming.
Canadians rely on their local television stations for news about their communities – the kind of local coverage that specialty channels cannot provide. In April, 2008, FRIENDS and several partners4 commissioned and submitted to the CRTC a POLLARA study on Canadians' Views on De-regulating Cable and other TV Distributors,5 which reported the results of a survey of 1,200 cable and satellite subscribers. Page 32 demonstrates that Canadians consider local news their top television priority:
At a policy hearing last year, the CRTC heard evidence from Nanos Research that "78% of respondents indicated that having local news was of high, or very high, value to them".6 The CMRI 2008 TV Trends and Quality Survey: A Report on Canadians' Attitudes toward TV, to which FRIENDS subscribes, offers corroborating data:7
And, as you know, local programming is most threatened in smaller and medium-sized communities, where there is often only one local source.
Maintaining local programming on OTA television requires a change in the economic model. The CRTC's Local Programming Improvement Fund, though a laudable initiative, is far too small to address this challenge.
POLLARA found that a majority of cable and satellite subscribers would be willing to pay $3 more per month to protect and enhance Canadian programming:
FRIENDS believes that OTA television should be resourced on a level playing field with specialty channels. OTA television networks should have access to the second revenue stream of fee-for-carriage provided they promise to use at least a portion of the money to maintain and enhance local programming.
We propose that the networks commit to a three-way split among local or drama programming, digital conversion and 'the bottom line' until 2011. Thereafter, the split should be two-thirds to drama or local programming and one-third to the bottom line.
Cable monopolies should not be permitted to generate very substantial profits from the sale of their cable products – driven by OTA stations – without being obliged to pay for the services that they then re-sell. FRIENDS recommends that cable monopolies should be permitted to pass along this charge to their subscribers only if their profit before interest and tax [PBIT] were to descend below 15%.
We also propose that the CBC should abandon ads on TV, except during professional sports coverage. Reducing the supply of advertising avails would assist the private television business. In return for vacating ads on non-sports programs, CBC Television should be re-financed, either by a levy on cable and satellite distributors to be determined by the CRTC, or through general government revenues, or by some combination of the two. This would transform CBC Television into a genuine public broadcaster.8
This new approach could be phased in over several years, and there is substantial evidence that Canadians would approve of this reform.
A number of current members of this Committee participated actively in a year-long review of the future role of the national public broadcaster during the last Parliament. Last year, your Committee recommended in the Defining Distinctiveness in the Changing Media Landscape report that per capita annual funding for public broadcasting should be increased from $33 to $40 – which would bring Canada to half the average in Western democracies.9
Last month, in a poll of 3,361 Canadians which FRIENDS commissioned, POLLARA found that 54% of Canadians support your recommendation, 26% reject it as too high and 20% consider it too low.10 In other words, three-quarters of Canadians believe annual support to the CBC should rise to at least $40 per Canadian per year:
We also want to share with you a second finding from this recent poll. POLLARA asked the following question: "Assume for a moment that your federal Member of Parliament asked for your advice on an upcoming vote in the House of Commons on what to do about CBC funding. Which of the following three options would you advise him/her to vote for?"
As you can see, Canadians overwhelmingly support strong funding for public broadcasting.
Thanks for your attention, and best wishes in your important deliberations.
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For information: Jim Thompson 613-567-9592
1 Canadian Media Directors Council, Media Digest 2008/09
2 Interactive Advertising Bureau [IAB}
3How Many Canadians Rely on Over-the-Air TV Reception and What Do They Thin About TV?A Profile of OTA Viewers and Special Survey Results, prepared for the Department of Canadian Heritage, CMRI, June 2007, page 6. This study indicates that OTA reception varies from 2.1% in Newfoundland to 12.7% in Quebec.
4 ACTRA, CEP, Stornoway Communications and the Writers' Guild of Canada
5 See PN CRTC 2008-100, paragraph 336.
6Ibid.
7 The data presented here canvassed 943 anglophones, and appear on page 23. Data from previous years' versions of this survey confirm that local news is consistently Canadians' top television priority.
FRIENDS tells a Parliamentary committee looking into CBC's access to information policies that the root cause of the public broadcaster's disclosure avoidance is patronage appointments of its Board and President.
Considering that all large broadcasters in Canada - except the CBC - are now controlled by distributors, FRIENDS recommends that the CRTC protect the interests of small independent players.
In a presentation to the CRTC, FRIENDS says that proposed changes to
station group licences would result in a reduction of approximately
$90 million annually in Canadian programming spending.
In a presentation to the House of Commons Standing Committee on Canadian Heritage, FRIENDS says that implementing the Committee's recommendation of increasing the CBC's parliamentary grant to at least $40 per capita would be a good first step in addressing the funding gap for Canada's public broadcaster.
