GATINEAU – The dangling carrot of more money for the Canadian TV system is always what’s at stake when the Regulator considers letting broadcast distribution undertakings sell the ad time that’s available on American cable channels.
U.S. channels like CNN, A&E, Speed and the Golf Channel make two or three minutes per hour available for U.S. cable, satellite and telco carriers to sell ads on. It’s a multi-billion-dollar business in the States. That time is also available to Canadian carriers but they can’t sell it. Regulations say that 75% of the time must be made available to Canadian broadcasters and 25% of the time can be used to promote other carrier products (like high speed Internet and phones).
It’s not a multi-billion-dollar business here. Far from it. Cable and satellite companies see it as a wasted resource. Canadian broadcasters like the fact that it lets them promote their channels and programming – even though they believe that MSOs may be inflating the “cost recovery” charges, which is what the regs permit them to invoice for.
“(T)he purchase of local avails from the BDUs has proven to be a very expensive proposition for our company. There is absolutely no question from our dealings with the BDUs that they have profited significantly from their sales of local avails to us, which they understand all too well is the only form of television advertising that we are permitted to access from Canadians,” said High Fidelity HDTV partner David Patterson in his company’s submission to the CRTC on the matter.
However, the CRTC is exploring allowing MSOs, DTH and telco TV companies to sell 75% the time – but is thinking it will be just for “new forms” of ads. The remaining 25% would still go to Canadian broadcasters. Comments were due in last week on this proceeding, (PN 2008-102) which grew out of 2008’s BDU/Specialty & Pay policy review. Replies are due April 2nd.
Broadcasters oppose it generally because they believe it would lead to them getting a smaller piece of the ad pie while enriching BDUs to the tune of perhaps $65 million a year – and that even the CRTC’s idea of directing 6% of any new revenue from local avails to Canadian content production doesn’t outweigh the potential for more damage to existing Canadian broadcasters.
The country’s fifth-largest cable company Bragg Communications (EastLink, Persona) sums up the cable side. While the PN hoped that distributors would be able to sell only “new forms” of advertising – such as addressable ads aimed at specific demographics or even specific households – to digital customers, so as to cause the least impact to broadcasters and specialties, “(t)he focus of this proceeding should not be limited only to ‘new forms’ of advertising. BDUs have paid for the right to use the avails and as such we should be entitled to access this inventory to the fullest extent,” reads the EastLink submission, authored by Natalie MacDonald, director, regulatory.
Besides, if the Commission mandates that avails can be sold – but only for new forms of ads, its unlikely the cablecos will invest in new addressable technology because they don’t have any revenue to back the purchases, they say.
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“(I)t is critical that BDUs be permitted to sell traditional forms of advertising in the local availabilities now in order to help generate the substantial capital needed to invest in the development of the platform for new forms of advertising, and to allow BDUs to build the necessary processes and relationships,” reads the Shaw Communications submission. “This would also provide valuable support in expanding capacity for the distribution of additional programming services in high definition.”
Many smaller cablecos don’t even have the insertion capabilities now to offer the avails to themselves and Canadian broadcasters because there hasn’t been enough potential return to make an investment there. It’s been seen as pure cost.
While it’s worth noting that the Association of Canadian Advertisers and the Canadian Media Directors Council both support having local avails opened up for new, targeted ads, whatever the Commission will finally contemplate or what the BDUs want, adding a vast swath of new ad inventory is a horrible idea, say the broadcasters. It won’t grow the ad pie anyway – and in the current economy will just make existing broadcasters suffer further than they already are.
“Pelmorex is strongly opposed to this proposal, as we believe that far from ensuring a net benefit to the Canadian broadcasting system, it will severely undermine the system,” writes the company’s SVP regulatory and strategic affairs, Paul Temple.
“Pelmorex urges the Commission to defer the concept of BDU sold ad avails indefinitely. If the decision is made to proceed, then a public hearing should be called so as to fully explore the significant and irrevocable consequences of permitting BDUs to sell local ad avails.”
Right now, this is not scheduled for a public hearing – just a paper one.
The Pelmorex submission adds that with the Commission beginning to tear down the regs so that U.S. cable channels no longer have to be sold with Canadian ones – and that packaging partnership has historically been their primary value to the Canadian specialties (where if a Canadian wanted TLC, for example, they had to buy a package that included the U.S. channel – along with several Canadian ones.
With those reg changes coming, distributors can offer all-American tiers of channels and if BDUs are also then allowed to sell ads on them, “(b)y earning revenue from the sale of advertising in the local avails on foreign satellite services, BDUs will have an economic incentive to promote the broad distribution and viewership of these foreign satellite services at the expense of Canadian programming services, thereby giving priority to the carriage of foreign satellite services,” writes Temple, whose submission also notes that Canadian specialties are bound to use their revenue to make Canadian programming and the U.S. channels do not. Their Canadian distribution is just gravy for those channels.
“The unintended consequences of this policy change will not only lead to broader distribution of foreign satellite services and enhanced viewership for these services, but will also result in increased funds leaving Canada in the form of affiliation payments,” adds Temple.
“This is contrary to the objectives of the Broadcasting Act.”
Pelmorex asked instead that 100% of the local ad avail time be made available, for free, to Canadian broadcast promotion, with Temple noting that Rogers Cable originally asked for that way back in 1993 (he should know, he wrote that 1993 submission while working for Rogers).
“The current ad avail rate cards of the four largest BDUs serving English-speaking Canadians, using the maximum rate discounts available, would generate over $45,000,000 annually if sold out,” writes Temple. “Thus, ‘cost recovery’ as applied by BDUs makes the local avails promotional time unappealing and it is little wonder it is sparsely used by arms-length licensed programming services.
“However, making local avails available at no cost on an equitable basis to promote unrelated Canadian programming services is a solution that will strengthen the Canadian broadcasting system and encourage the distribution of Canadian services and viewership of Canadian programs. Such a proposal disadvantages no one, but offers significant benefits.”
