Roger That? How “Hockey Night In Canada” Ended Up Losing the CBC Money by Terry Dawes

Feb 17, 2014

Source: Cantech Letter

You’ve likely heard about the $5.23 billion, 12-year deal that Rogers Communications signed with the NHL back in November, through which TSN and the CBC have basically been shut out of the NHL’s broadcast future in Canada.

In a sublicensing agreement with Rogers, the CBC will continue to broadcast Hockey Night In Canada for four years, surrendering both its financial obligation for producing the show while also foregoing all of its ad revenues, which will flow instead to Rogers. TVA will pay Rogers $120 million per year for French-language broadcast rights.

In TSN’s case, the deal is simply devastating. To begin with, the broadcaster paid loads of money for the old Hockey Night theme song back in 2008, and now they’re stuck playing it in front of what little hockey they’ll be permitted to broadcast for the foreseeable future. The song’s composer, Dolores Claman, would not be pleased.

TSN will be shut out of NHL broadcasting entirely, except for the regional agreements it retains for a handful of Maple Leafs, Jets, Senators and Habs games through 2021. Without NHL hockey, TSN will still broadcast the CFL, the world junior hockey tournament, a few Raptors games, Major League Soccer, some Formula 1 racing and enough tennis and golf to fill the black-hole sized void that will be left by the absence of hockey. While those sports are nothing to sneeze at, let’s face it. This is Canada. Hockey is King.

For the CBC on the other hand, things are, as they say on Facebook, complicated. Although the Rogers deal appears at first glance to be a loss for the crown corporation, the surprising fact is that “Hockey Night in Canada” has lost the CBC money year over year since its most recent contract renewal with the NHL in 2008. The public broadcaster, financially at least, would be better off without it.

Before we get into the numbers, let’s set the table. In 2010, the average Canadian household spent $738 on cable and satellite fees, $1,731 on phone, cellphone and internet plans, and $88 through taxes on the CBC. And those are 2010 numbers, before the $115 million in cuts per year through to 2015 were imposed by the federal government, which knocks that $88 figure down a bit lower. So, regardless of your feelings about the CBC, it’s a cheaper option than the money you willingly fork over to the big telecoms.

One could quibble all day long about the quality of CBC TV’s programming (it’s mostly terrible, other than the news). But what they deliver with the resources they have is impressive, particularly when it comes to sports, and especially when you consider the return on investment for similar programming from the private broadcasters. Rogers Sportsnet is, let’s face it, not top-shelf sports broadcasting. TSN’s hockey coverage is really good, but remind yourself of the figures in the previous paragraph and then ask again if it’s really that much better than “Hockey Night in Canada”. On the French side, RDS’ hockey programming is excellent, but only if you’re into 23 hours per day dedicated to a passionately detailed analysis of the Montreal Canadiens.

With that said, let’s review the facts. From their perspective, the CBC has just escaped a contract with the NHL in which it has paid $100 million per year since 2008 for the privilege of broadcasting the league’s games. That $100 million is up 50% from the CBC’s previous contract with the NHL.

True, “Hockey Night in Canada” brings in a lot of money for the CBC (over 50% of its advertising revenue) as well as “eyeballs”, accounting for one-third of CBC TV’s viewers. You’d think that such a media property would provide hockey stick-shaped growth for anyone who owned it. And the legendary program has in fact had a dramatic effect on revenue. HNIC has been a money-losing proposition since the 2008 contract renewal, with that hockey stick blade pointing straight down.

“The reality is (that) years and years ago, a number of contracts ago, Hockey Night in Canada did make a nice profit,” said Neil McEneaney, a CBC executive deeply involved in negotiating the Rogers compromise. Notice that he uses the past tense. “Through the life of this contract, we’ve faced a couple of recessions (and) the advertising market has softened a great deal, so that’s why those margins have thinned out,” he continues. “I can’t give you the exact numbers or percentages, but they have really much thinned out.”

McEneaney is phrasing the issue as gently as he can. There may have been a “nice profit” for the CBC when it was paying the NHL relative peanuts before the 2008 contract. Back then, the NHL’s total broadcast revenue, paid by the CBC, TSN and RDS combined, was $92 million. But in 2008, the NHL (aka. Gary Bettman) upped the rates and those “margins” thinned straight through the floor.

What the CBC exec says about the advertising market “softening” is especially true in the case of the CBC. CBC TV’s advertising revenues have not grown since the late 1990s, whereas for the private sector they’ve grown approximately 30%, which reflects very poorly on the CBC’s Sales and Marketing department. More on them later.

In 2008, CBC English TV’s ad revenues totaled $253 million, mainly owing to the boost it received from the Beijing Olympics. After the public broadcaster lost the summer Olympics to rival CTV, its ad revenues declined dramatically, to $192 million in 2009 (although the worldwide financial crisis also accounts for something of that loss). By 2011, ad revenues had mostly recovered to $246 million before leveling out at $245 in 2012.

Advertising revenue from “Hockey Night in Canada” was approximately $130 million in 2012, 53% of CBC TV’s total ad revenue. By contrast, Rogers’ Sportsnet earned $68.7 million in advertising revenue in 2012. Obviously, that Rogers number will be ballooning next year as it pockets HNIC’s ad revenues on top of its own while monetizing every other revenue stream related to NHL broadcasts across its existing TV channels, as well as the cross-platform venues offered over its wireless service.

Rogers will own and control the online properties NHL Center Ice and NHL GameCenter Live, in Canada. Cord-cutters who’ve gotten used to watching “Hockey Night in Canada” streaming on the CBC site for free will be out of luck next season. Your only option for watching the games will be to pay Rogers. Or buy a TV and watch “Hockey Night in Canada” on the CBC. Rogers will expand pre- and post-game coverage beginning at 4 p.m. EST on Saturdays and Sundays, and will have exclusive rights to future NHL all-star games and draft coverage.

So, keeping in mind that NHL-related revenue for the CBC is going away next season (about $130 million), while also considering that the network is also now unburdened of the cost of producing HNIC, the CBC will find itself a much leaner and meaner corporation in 2015, whether it likes it or not.

The Friends of Canadian Broadcasting, a public interest watchdog for Canadian content, estimates that HNIC costs approximately $15 million per year to produce, including the salaries of on-air personalities such as Don n’ Ron et al., along with the salaries of off-air crew such as camera operators and editors, and a veritable army of technicians and behind-the-scenes workers.

Rogers has paid over $5 billion for exclusive rights to all NHL games broadcast in Canada until 2026, including the playoffs and Stanley Cup, across all of its media platforms. The new deal will see the nearly century-old company paying $500 million per year at the contract’s peak, a figure the CBC obviously could not compete with. (Photo by Tai Shar. Courtesy Flickr Commons.)

Rogers has paid over $5 billion for exclusive rights to all NHL games broadcast in Canada until 2026, including the playoffs and Stanley Cup, across all of its media platforms. The new deal will see the nearly century-old company paying $500 million per year at the contract’s peak, a figure the CBC obviously could not compete with. (Photo by Tai Shar. Courtesy Flickr Commons.)

Adding it up, that’s $100 million paid to the NHL, plus $15 million for cost of production. Subtract that from $130 advertising revenue, and you’re left with $15 million in profit. That is, until you subtract the cost of sales and marketing.

CBC TV’s Sales and Marketing division cost a little over $119 million in 2012, up from $99 million in 2009. And that’s the deal-breaker. CBC doesn’t publicize the exact cost of marketing “Hockey Night in Canada”, but Barry Kiefl, the CBC’s research director from 1983-2001, estimates it to be between $20-$30 million.

Considering that HNIC accounts for 53% of CBC TV’s total ad revenues ($130 million), $30 million seems slight. But then a marquee property like HNIC ought to be considerably easier to sell advertising for than a CBC drama or documentary series. So, even if we lowball the cost of sales and marketing for HNIC at $20 million, that’s an annual loss of at least $5 million ($100 million to the NHL + $15 million cost of production + $20 million sales and marketing = $135 million, subtracted from $130 million in ad revenues). If you edge towards the higher end of Kiefl’s estimate, at $30 million, it’s a $15 million loss.

Or you could also assume that HNIC must eat up at least some of CBC’s annual $109 million administration budget. A show that involves travel between 30-plus cities, as well as requiring hotel room bookings and air travel for HNIC staff, in addition to sundry other tasks involved in delivering the show must eat into that administration budget. Basically, just pick a number and dig the “Hockey Night in Canada” hole deeper. At best, it’s losing $5 million annually, without factoring in costs associated with administration or any other applicable line item from CBC’s overall budget. And at worst, by Barry Kiefl’s estimation, “HNIC is losing tens of millions of dollars with the current NHL contract, perhaps as much as $50 million.”

As McEneaney notes, there was a time (before 2008) when “Hockey Night in Canada” turned a nice profit for the CBC and subsidized the funding of the network’s other properties, such as drama or documentary or the Air Farce. Those days have been gone for several years now, and next year they’ll be gone entirely. At least, however, HNIC will no longer be the drag on the corporation that it has become. It’s about to become Rogers’ problem.

“Sometimes it’s almost surreal – acquiring the most coveted content in all of Canada, and there is nothing even close, which is the national rights to ‘Hockey Night in Canada,’” said Rogers President Keith Pelley at the news conference announcing the deal. “And that’s pretty exciting but it’s daunting and overwhelming at the same time.”

Rogers has paid over $5 billion for exclusive rights to all NHL games broadcast in Canada until 2026, including the playoffs and Stanley Cup, across all of its media platforms. The new deal will see the nearly century-old company paying $500 million per year at the contract’s peak, a figure the CBC obviously could not compete with.

Rogers will exercise full editorial control over “Hockey Night in Canada”, and CBC will pay Rogers nothing while also collecting no advertising revenue. As a TV show, “Hockey Night in Canada” will be a Potemkin village, or a convincingly authentic game preserve. Viewers may not even notice a difference. Perhaps we’ll still be consoled by the immortal voice of Bob Cole. His fate is in Rogers’ hands.

The NHL had already signed a similar deal with NBC relating to NHL broadcasts in the United States in 2011, for $2 billion. As NHL Commissioner Gary Bettman has said, he was looking for a similar agreement with a Canadian partner to expand its broadcast reach. “The NHL is extremely excited about the power and potential of this groundbreaking partnership,” he said in a statement referring to the Rogers deal. “Our fans always want to explore deeper and more emotional connections to NHL hockey, and that is precisely what Rogers has promised to deliver over the next 12 years,” Bettman added.

In marketing speak, what Bettman refers to as “emotional connections” means “engagement”. It means cross-platform digital entertainment, the likes of which Rogers is equipped to provide in spades. But it will take some time for Rogers to get there from here. Keith Pelley acknowledges that the CBC provides the land bridge that he and Rogers will need to conquer the new digital world, and to leave the old world behind. “We have a goal to build the largest audience, and the CBC provides the biggest avenue to create that audience,” he said.

As implausible as it seems that the CBC has been losing money on “Hockey Night in Canada”, several commentators are already wondering if it will even be possible for Rogers to recoup its $5 billion investment. The federal government just kneecapped the big telco companies in its latest budget, specifically hinting that it would act to limit the rates that Rogers, Telus and Bell could charge for wholesale rates to competitors.

But maybe ownership of “Hockey Night in Canada” is the type of prestige property that a company with deep pockets and billions of dollars in revenue from other sources doesn’t mind losing money on. People like Conrad Black and Jeff Bezos have purchased major daily newspapers, guaranteed money pits, not for their revenue, but presumably for their prestige and the bragging rights that follow. If all purchases were rational, Steve Jobs would have ended his career working out of the same garage he began in.

Many have also speculated that Rogers’ cash-free arrangement for the CBC to keep broadcasting “Hockey Night in Canada” will sunset in four years’ time, and that the deal is Bettman’s consolation prize to the CBC for decades of loyal service, the equivalent of jettisoning a long-standing but unloved employee with a handshake and a souvenir watch. In fact, if the NHL Commissioner had his way, the CBC would likely have been out of the picture entirely at the end of the current season. The sublicensing agreement is more likely a pre-emptive strategy for Rogers.

It should be remembered that Rogers has just swooped in and stolen hockey, the crown jewel in Canadian sports broadcasting, from TSN, which is now likely considering any credible option to ensure its own survival.

Under the new arrangement, hockey lovers will be forced to pay Rogers, whether they’re watching it on TV or live-streamed over the Internet. For Rogers, that exclusivity makes sense. In order to recoup its $5 billion, it will need to monetize hockey seven days a week across multiple channels and digital platforms, as well as over the CBC’s airwaves. You could even say that viewers will be spoiled for choice, in the sense of, as Henry Ford once said, “Any customer can have a car painted any colour that he wants so long as it is black.” But one man’s vertical integration is another’s monopoly.

In 2011, Telus successfully petitioned the CRTC to rule against Bell, which had announced that it would stream NHL and NFL broadcasts exclusively to its wireless customers. If Bell Media were to lodge a similar complaint against Rogers, Rogers’ defence could plausibly be, “But the games are broadcast on the CBC’s airwaves every Saturday night for free. And they’re also available on TVA. Viewers have plenty of options.” If such a complaint were brought, the kidnapper-hostage relationship that now exists between Rogers and the CBC would have to continue indefinitely beyond the current four-year arrangement, just to maintain the fiction of non-exclusivity.

Putting a brave face on the situation, CBC president Hubert Lacroix wrote in an internal memo to staff that “starting next year, Rogers will assume all editorial control (all editorial decisions with respect to the content, on-air talent and the creative direction of HNIC – we have the right to be consulted and there is a commitment to excellence) under the new agreement. This may not be the ideal scenario but, it is the right outcome for Canadian hockey fans and is an acceptable adaptation to the role of the public broadcaster in the modern world of professional sports rights. A world in which partnering with a wide array of other actors is a key to success.”

“Success” means something different for Lacroix than it does for Rogers Communications and Gary Bettman. Unlike the CBC, whose primary obligation is to Canadian citizens, Rogers (TSX:RCI.B) is a publicly traded company whose responsibility is to its shareholders. And the NHL’s stakeholders, the people to whom Gary Bettman is accountable, are the team owners. And they’re very happy with this deal, which will bring about a raise in the teams’ salary caps. The NHL Players Association gets 50% of the new revenue, so they’re happy. The deal might also hasten the rebirth of the Quebec Nordiques, to satisfy the hockey-mad francophone fan base, which would at least offset the depressing spectacle of empty seats in places like Raleigh, North Carolina and Glendale, Arizona during Saturday night broadcasts.

CBC TV has broadcast “Hockey Night in Canada” for the past 61 years. At that time, a case could be made that hockey bonded the nation more significantly than even the railway used to. It brought the Two Solitudes together in a visceral way. In the pre-television era, from 1931 onwards, CBC radio welcomed its listeners, “Hello, Canada, and hockey fans from the United States and Newfoundland,” long before the 1949 referendum brought Newfoundland into Confederation.

The only benefit for the CBC in retaining “Hockey Night in Canada” on its airwaves for the next four years will be to retain audience share and leverage those high ratings to promote its other programs, preparing for the day that it loses HNIC (and that audience) altogether. If or when that occurs, the CBC will have a 320-hour hole in its schedule, to be filled by… What? A Beachcombers remake? Dragon’s Den? Biopics for Louis Riel, John Diefenbaker or Geddy Lee of Rush fame, all portrayed by the actor Colm Fiore?

Will the public be devastated by the loss of “Hockey Night in Canada”? Once upon a time, the CBC broadcast CFL games, major league baseball, curling and even the NFL. Eventually it lost broadcasting rights for all of these events, outbid by companies with deeper pockets. It’s been years since rabbit-ear viewers have been able to watch a CFL game for free. And no one has taken to the streets. But this is hockey we’re talking about.

The loss of “Hockey Night in Canada” represents an existential gut-check moment for the CBC. Does it use this coming season as an opportunity to examine its role as Canada’s public broadcaster? Or does it double down on reality TV and subpar dramedies? Option Two probably represents the end of the CBC. Jake Doyle will not save them.

While the rest of the world experiences the Golden Age of Television, with “Breaking Bad”, “The Wire”, and U.S. shows rivalling the long, unbroken string of top-shelf U.K. programming and Norwegian crime serials, the CBC offers Canadians unapologetically terrible dramas and comedies. Sure, Canada is renowned for its past glories in documentary and animation, mainly owing to a golden age experienced by the National Film Board from the 1950s until the 1980s. But we’ve been dining out on that reputation for a long time. We haven’t been a documentary powerhouse since the late 20th century.

The CBC has always existed as an awkward hybrid, both commercial and publicly funded, unlike most arms-length, state-funded broadcasters around the world, such as the BBC or NHK. The BBC provides extensive commercial-free programming prominently featuring the U.K.’s national game, football (ahem, soccer), funded by a compulsory nationwide license fee. The BBC’s dramas, comedies and documentaries also, importantly, aren’t horrible.

Even the BBC’s pop culture TV is better than ours: Doctor Who? Sherlock? Black Mirror? Excellent stuff. We get Rick Mercer and “Heartland”. How do they do it? Are they smarter than us? No, the BBC’s license fee cost the equivalent of $124 per capita in 2004. The CBC cost us $33 per capita, behind Spain ($36) and ahead of New Zealand ($20). The Swiss pay $154 per capita for their public broadcaster. Still cheaper than the average person’s out-of-pocket cable, cell phone and/or internet bill.

If we doubled that subsidy (unthinkable under the current regime), we’d be paying just half of what the BBC costs U.K. citizens on a per capita basis and CBC TV could become an ad-free network. While getting rid of advertising on the network might seem to be financial suicide, remember that CBC’s Sales and Marketing department costs the corporation more money than it brings in. Hacking off that gangrenous $119 million limb makes perfect sense if you have no advertising to sell, and also frees that budget up for other purposes. And recouping as much as $50 million from the removal of money-losing “Hockey Night in Canada” won’t hurt either.

If the post-“Hockey Night in Canada” CBC decides that it wants to evolve, it can do no better than look to CBC Radio for a model, an ad-free broadcaster committed to quality programming with a small but utterly devoted audience. CBC Radio doesn’t even try to appeal to all demographics and interests. That’s what privately run broadcasters are for. On the other hand, if the CBC decides that its future lies in Antiques Roadshow knock-offs, we might as well begin planning its estate sale.

Let the soul-searching begin. After the Olympics, of course.

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