Source : National Post

Specialty channels have advantage, TV networks say

Hundreds of millions of dollars are at stake as hearings get under way today in Ottawa to debate a number of issues that could reshape the country's television regulations.

Among the items broadcasters are hoping will result from the Canadian Radio-television and Telecommunications Commission hearings: fees from the cable and satellite companies that deliver their channels to people's homes and more flexibility to get around a 12-minute-per-hour cap on advertising.

Broadcasters such as Global, CTV, CHUM Ltd., and the CBC say they need the fees because their growth prospects are dim compared to specialty TV channels that have the benefit of two streams of revenue: from advertising and from subscription fees paid by cable and satellite-TV services based on the number of subscribers.

A study commissioned by Global parent CanWest MediaWorks Inc. and CHUM in advance of the hearings suggests new subscription fees would boost revenue at conventional broadcasters by $250-million to $370-million a year.

Global, Canada's second-largest conventional TV network, has asked for a fee of 50 cents per channel, which would translate to "an annual windfall of at least $50-million," says Adam Shine, an analyst at National Bank Financial.

But there is fierce opposition from cable and phone companies, whose executives say they would have to pass on the additional costs to their customers for the conventional TV channels they already get -- with bills rising an estimated $5 a month.

Studies commissioned by the cable and phone company distributors suggest many customers would revolt by dropping their TV service or cutting back on program packages to save money. One study suggested the cost to cable and satellite distributors could reach $757-million if the CRTC endorses the new fees for broadcasters.

Observers say it is unlikely broadcasters will receive the full financial lift they are seeking, or that cable and satellite services will be sunk. But there is a view that some changes are on the horizon as conventional TV faces growing competition from specialty channels and the Internet for viewers and advertisers.

"Odds favour some regulatory relief," National Bank's Mr. Shine said in a recent research report. "While there tends to be winners and losers in most regulatory decisions, conventional broadcasters can't be expected to get everything they're proposing, but should walk away generally pleased."

Any regulatory changes that put more money in the coffers of broadcasters could come with costs however, and those costs could prompt the CRTC to mandate the creation and promotion of more Canadian programs, observers say.

Another tempering factor is likely to be the looming transition to high-definition TV signals from analogue to keep pace with developments in the U.S.

The process, which could cost hundreds of millions of dollars, has divided the industry on how it should be done and who will pay for it.

"We don't see how the commission will simply institute subscriber fees without tying their introduction to added costs to supposedly improve the Canadian broadcasting system," said Mr. Shine, suggesting carriage fees could be linked to paying for conversion to high-definition signals or increased production of Canadian content.

Richard Stursberg, executive vice-president of CBC Television, says the public broadcaster is willing to promise benefits to the system in order to justify subscriber fees.

Among those with ideas for a quid pro quo is The Canadian Film and Television Production Association. The CFTPA has asked the CRTC to boost the mandatory creation of "priority" Canadian programming by conventional broadcasters to 15 hours a week from 10, and to return to a system when broadcasters had to spend a set portion of their revenue to produce and broadcast Canadian shows.

Mr. Stursberg said the CBC wants to make more Canadian shows but, like the private conventional broadcasters, the public network is facing a "deteriorating" financial situation.

Advertising revenue at conventional broadcasters is expected to grow by less than 2% a year. And, with costs expected to escalate at a faster pace, the broadcasters "will be under water financially," he said.

By contrast, revenue at specialty channels is expected to increase by about 8.5%, and Internet revenue is anticipated to grow by 19%, Mr. Stursberg said.

Conventional broadcasters are also looking for compensation from cable and satellite services that broadcast a show across several time zones in the same market. This allows viewers to watch the show when they want, not necessarily when advertisers in their local market will benefit, which reduces the number of viewers a broadcaster can count when selling advertising spots.

The broadcasters also argue they should not have to bear the cost of putting in a high-definition infrastructure. But there is an incentive to have HD capabilities in place when U.S. broadcasters convert to HD in a few years. The Canadian broadcasters don't want to lose a lucrative arrangement called simultaneous substitution.

The decades-old practice of simultaneous substitution allows the broadcasters to sell advertising based on the number of viewers who watch a show on both a U.S. and Canadian channel, as long as the Canadian broadcaster is airing the exact same show at the same time as the U.S. network. Without an HD broadcast, there can be no substitution.

Cable players and the CBC estimate simultaneous substitution to be worth between $200-million and $300-million a year to the private conventional broadcasters.

© National Post