By Greg O’Brien
AS A YOUNG CANADIAN growing up in Timmins (hometown of NHL legends Frank and Peter Mahovlich, among several others) Saturday night hockey on TV was as regular, or normal, or expected, as church on Sunday. As reliable and loved as our family’s dog.
Hockey Night in Canada wasn’t just a staple. It was as much a part of life as eggs and cereal for breakfast or snow on the ground in the winter. We had a single-dial television in the mid-1970s that caught the few stations we had off-air. I was my dad’s remote control, standing by the warm set flipping the dial when he wanted to see what else was on. But on Saturday nights during hockey season, there was nothing else on. We would stand for, and sing, the national anthem in our living room (Roger Doucet sure could belt out O Canada, couldn’t he?). We’d drink Pepsi and eat the buttered popcorn my mom would make for us and I’d beg to be allowed to stay up to watch the rest of the game after the Peter Puck cartoon at intermission.
The highest paid player in the NHL in 1977 was another Northern Ontarian – the Soo’s Phil Esposito, reportedly at about $325,000. Most NHLers made less than $100,000.
Looking at this Ken Danby-esque portrait of my little slice of remembered Canadiana – along with the former player salaries – through the lens of today’s complex multimedia realities, stratospheric player paycheques and broadcast rights contracts, it blows the mind. If my father were still alive, he’d likely say he should have pushed me harder in hockey – or towards business school…
Sports and broadcasting have been inseparable from its beginning. As CRTC chairman Jean-Pierre Blais said in an interview with Cartt.ca last month: “If you look back at the history of broadcasting in the 20th century, it’s always been driven by sports. The first radio sets were sold because there were these heavyweight fights coming out,” he said, “In the ’50s, same things. The launch of over the air television in Australia was dictated by the 1956 Melbourne Olympic Games. They had to get it up and going because the games were starting and that’s a sports crazy city. In Canada, too, with the CFL games in the ’50s and hockey games. Look at one of the leading copyright cases, Canadian Admiral… it was all about sports.
Sports is presumed to be the one genre of TV programming that everyone watches, at least some of the time. While a 25-year-old Edmonton man might never watch W Network, his similar-aged female counterpart who’s a Property Brothers fan has probably watched the Oilers on television – or so the theory goes.
That ubiquity of fandom, coupled with the fact that live games are thought to be DVR-proof because they must be consumed as they happen (and therefore, so are all the televised advertisements) means sports holds a singular place of value for most broadcasters and BDUs. For the broadcasters, they have to have the games and for the carriers, they have to have the channels that have the games. However, as the costs to the broadcasters to purchase the rights to the games climb to ever-dizzying heights – costs which are passed on to the consumer more quickly nowadays – there may be a tipping point coming in which people will say “enough is enough. I mean, I like football and all, but my cable bill is getting too big.”
(Ed note: When we say “cable bill” or “cable bundle” we also mean satellite and telco TV bills and bundles. It’s simpler to use one word is all.)
“All content is getting more expensive." – Kevin Crull
Add this to the myriad new video options available to entertain people which competes with sports viewing time, the federal government’s stated goal to bust up bundled TV channel packaging, the CRTC TV Policy Review – and some evidence which says not as many people are as in love with sports as broadcasters believe – and one wonders if we aren’t standing on the precipice here at the end of 2013, where rising content rights costs and the siren call of choice combine to cause the traditional cable bundle and our regulated TV system to go the way of my father’s old single-dial TV set.
“All content is getting more expensive,” Bell Media president Kevin Crull said in a recent interview. “Sports leads the way, but if you look at… the last decade of specialty and pay (costs), which includes sports but it has all other content as well, there is a three year CAGR (compound annual growth rate) of 10%, a five-year CAGR of 8%, and a ten-year CAGR of 6%. This is the cost of procuring and producing content and even 6% is well above the inflation rate that consumers are paying on cable. But look how it’s accelerated in recent years.
“That gets put into a channel that then has a wholesale cost to the BDU, but the wholesale cost is going up far less than the raw material cost and the consumer’s cost has been going up less than the raw material cost, too,” Crull added.
However, there are ways in which vertically integrated companies still make their numbers even if fees on the big brands don’t rise as quickly as costs – ways which contribute to the dissatisfaction Canadians feel with their TV system. Take Book Television as a small example, said Canadian Media Production Association president and CEO Michael Hennessy. According to CRTC returns, Book Television earns $2.7 million in profit before interest and taxes for Bell Media on $4.5 million in revenue, 98% of which comes from subscription fees. Its prime time programming this week? Back to back episodes of The Waltons from 9-11 – a show circa when my dad and I would stand to hear Mr. Doucet sing. Book Television’s daytime sitcom? One Day at a Time. The channel employs two people.
According to Hennessy, when you combine the rising costs of the cable bundle, driven partially by sports rights, with the fact that most consumers say they want more flexibility in packaging – and then add something like the relatively value-less brand that is Book Television (which appears to have none of its own original content) it’s not surprising consumers who have become used to choosing what they want on the Internet and finding much value there, are upset and that government is taking up the cause.
"There’s a legitimate anger that says why do I have to pay for all this crap?” – Michael Hennessy
“There are a lot of channels out there like Book TV, that fundamentally have a zero audience rating. There’s three or four people out there that really, really can’t get enough of Valerie Bertinelli when she was young and continue to watch One Day at a Time, but that’s about it,” Hennessy says. “So really, to the level that those channels disappear, we should not only say ‘who cares?’ but maybe that is a good thing because… there’s a legitimate anger that says why do I have to pay for all this crap?”
Backing up Hennessy’s contention, one independent distributor told us on condition of anonymity how his company performed an experiment recently and shut down a single digi-net from one of the vertically integrated companies (one with some major branding recognition attached to its title) for a week. Number of calls to the call centre? Zero. “We turned that channel off for five days to see what happened. We heard nothing. Nobody watches it,” he said. “There are too many channels that we all have to pay for that have only one or two hours of quality programming that people might watch. The rest is all garbage or repeats.”
As the TV business grew and grew over the past few decades though, most people were happy to pay a little more cash to get many more channels, insists Crull. “If you look back over the last 20 years and we went from 50 channels for 45 bucks to 700 channels for 65 bucks, when you’re going up that curve, everybody thinks: ‘What great value. I only added 50¢ to my bill, and I got another 50 channels’,” he explains.
“That’s the way all businesses that have high fixed cost structures and low distribution costs operate – on volume based pricing.”
The Bell Media chief believes the threats to the cable package from rising sports costs in Canada is overblown. With most of the rights split between two brands and their sub channels (TSN and Sportsnet), we’re not likely to see the costly battles between broadcasters and carriers. In some major American markets, viewers have to buy multiple regional sports channels – as well as pay increasing retransmission fees through their cable carriers to local broadcasters, in order to see all their favourite teams.
The costs there are so onerous, some cablecos have begun listing a “sports surcharge” on their customers’ bills. Cogeco’s American division, Atlantic Broadband, is a member of the National Cable Television Co-operative (akin to the Canadian Cable Systems Alliance here), whose members all do that. The costs for sports “Is growing so fast that we don’t want our customers to think that we are the ones nickel and diming them all the time – so we have that special surcharge line,” Cogeco CEO Louis Audet said recently.
For Canadian TV makers, however, any flight from the regulated system to over-the-top services is scary. Canadian content funding comes from consumer cable, satellite and telco TV bills (5% goes to Canadian production, such as the Canada Media Fund), and not their internet service provider payment – and certainly not from the likes of Netflix or Crackle or other OTT providers. A willy-nilly, politicized approach to more pick and pay and any reduction in revenue is also frightening for those who make their living by producing television in Canada.
“If people are paying a lot more for sports, they may pay a lot less for other things, like the kind of programming we produce,” explains the CMPA’s Hennessy. “The other thing is that if you take sports out of basic, then it no longer has that protected revenue stream and whether or not it can recoup the whole revenue stream is another question. If it can’t, then what you see is potentially a decline in total broadcaster revenues. That can have an impact on any sort of Canadian content obligations that are based on a percentage of revenues.”
And new packaging plans are definitely on the drawing boards of the carriers and broadcasters. “With over the top options, with technology being what it is, and with the younger generation just not adopting pay TV the way that those of us here have adopted it, we do need some more flexibility. We need some more lower end options… what if (consumers) wanted just sports for $25? Would they be willing to pay that? Is there a market for that?” asks Crull
“We think there are a bunch of people who are saying, ‘I just want a few channels or I’m going to turn my TV off and get my stuff over the Internet’,” added Rogers Communications SVP regulatory Ken Engelhart in a recent interview. “So we think it’s important to have that ability. It’s not easy. (SVP content) David (Purdy) will tell you when he deals with programming providers, some say you can’t sell a-la-carte. Some make it financially difficult to sell their services a-la-carte. So we think the CRTC needs to clean that up and make pick and pay a real option. We’re not looking at pick and pay as a punishment from the government, that we want something else. We see it as a way to help our customers, particularly those who are trying to downsize their TV viewing.”
Rogers is currently working on retail pricing models in case it decides to sell Sportsnet and its brothers a-la-carte.
But can that be done for sports channels who are paying billions for the rights to live games? And anyway, could it be that sports’ impact is overstated? Telus is one of the few Canadian carriers which doesn’t offer TSN or Sportsnet on its “basic” package and while no one would speak for the record, its $9 sports package add on (with the various TSNs and Sportsnets and a few other sports brands) has settled in at a penetration rate between 55% and 60% said multiple people with knowledge of the numbers. That runs contrary to the rest of the country where TSN for example, is available on basic or in a highly penetrated tier to about 85% of homes, nationally.
As well, the CRTC’s 2013 Communications Monitoring Report says Canadians only spent 14.6% of their average weekly viewing hours watching sports, as compared to 41% for drama and comedy.
"I don’t believe for a second that sports is going to be the demise of the package.” – Crull
While many suspect the rising costs of sports – and really all rights – is bringing about more pick and pay, the prevailing wisdom says that live games (and to a lesser extent, serialized dramas and reality shows) is going to hold the current system intact even while those demanding a-la-carte cause some bruising.
Will sports and its rising rights fees cause the death of our TV system? No, says Crull. “I’m not sure there’s a black and white definitive answer, but I don’t believe for a second that sports is going to be the demise of the package.”
But what if even larger shifts happen? “I do think sports and programming costs – and what that means, longer term – is very interesting,” chairman Blais told us, “and I’m sure the sports franchises are even asking questions themselves about ‘why wouldn’t we produce our own content? Do we have a trusted enough brand and distribution expertise? Could we be our own aggregator, in a sense?’”
And for that matter, what if Silicon Valley megacorps Apple, Amazon or Google bought the North American rights to a major league? That certainly could help kill the cable bundle.
Maybe those reasons are the impetus behind not just the big money, but the lengthy recent rights deals that tie up billions for many years. Such deals render the likes of the CBC incapable now of playing in the major sports sandbox – which is something my old man and my eight-year-old self might lament. But neither one of us could have ever imagined watching old clips of Mr. Doucet on a phone smaller than a deck of cards while having NFL replays going on a tablet screen in my lap and a live game on the main TV on the wall. Times haven’t changed. They’re utterly unrecognizable by comparison.
But I think I just might get my kids to stand up and sing the national anthem this Saturday night.
