ROGERS COMMUNUCATIONS' BLOCKBUSTER NHL deal puts a direct focus on the sheer costs of sports programming for distributors and their customers, the Canadian consumer.
Cartt.ca interviewed several executives across the Canadian television industry (including some distributors who spoke to us on the condition they not be identified) to discuss the impact sports is having on broadcasting in Canada and whether or not the business can survive the spiralling costs of this rich content.
Alyson Townsend, president of the independent cable group Canadian Cable System Alliance, said no one should be surprised by the consistent price increases consumers have paid for cable over the years. “It starts with the players, gets passed on to the league, passed on the networks, then passed on to the distributors, and finally it ends up at the consumer level,” said Townsend. “The problem of course is that less than 50% of those consumers really want to watch sports, and in times of fiscal restraint they don’t want to pay for things they don’t want to watch.
“It is our view that this has been the catalyst for the demand for unbundling.”
A look at the subscriber revenue generated by Canada’s two biggest sports networks, TSN (Bell Media) and Sportsnet (Rogers Media) over the past two years certainly supports Townsend’s assertion that rates are climbing at an alarming rate. In 2012, according to CRTC reports, TSN generated over $241 million in subscriber revenue, a whopping increase of 63% from the 2011 total, thanks to a new wholesale rate it set after years of CRTC regulation of the sports genre was lifted. Sportsnet pulled in $151.8 million in 2012, an 8.7% increase from its 2011 total. However, distributors told Cartt.ca that their Sportsnet rate climbed by another 25% in the 2013 broadcast year, ended August 31, 2013 and for which the CRTC has not yet released data.
Now that nearly all the NHL product will be controlled by Rogers, effectively giving the Sportsnet family of channels ever more leverage, ongoing, large, rate increases are serious concerns to carriers – especially those who own no content.
“Obviously this is a major industry shift,” said Townsend. “The impact on CCSA companies (115) – and consumers (~900,000) – is that as large vertically integrated companies trade properties back and forth, our companies pay twice for hockey. Obviously the NHL was a key driver in our TSN deal. One has to wonder what we – and the customer – are now paying for (since NHL games will be few and far between on TSN next season)?
Of course, it’s not all straightforward for distributors when purchasing sports channels to deliver to their customers. For example, while TSN does cost cable companies a wholesale rate of $2.21 per subscriber per month, that’s only if carried on basic – as most choose to do. Most opt for basic because its wholesale rate rises to $3.04 per subscriber per month if a carrier decides to place the sports channel on a less penetrated tier, according to two carriers whose companies do not own any content and who spoke on condition of anonymity.
Other contract demands cause additional costs for carriers, too. For example, TSN2 can be had for$0.135 per customer per month if packaged on basic with the main network, but that jumps to $0.25 if placed on a tier. With Sportsnet, its various regional channels can be had for five cents each per subscriber per month – if bundled on basic altogether with the main regional net. If those are packaged on another tier, the cost rises to $0.55 per channel.
As well, former independent channel The Score – now owned by Rogers and called Sportsnet 360 – will command a much higher wholesale fee than it gets now (about $0.175 per sub per month) when its contracts come up for renewal.
"What I can’t justify is the other crap channels that we have to take from the big guys because that’s what really is unrealistically affecting our margins.”
“However,” said a distributor who spoke on condition of anonymity, “with the sports channels, I can justify them because they are popular… What I can’t justify is the other crap channels that we have to take from the big guys because that’s what really is unrealistically affecting our margins.”
All told, say the two independent distributors who spoke with us, when counting all the sports channels a fan might pay for (including others like NHL Network, ESPN Classics, Big Ten Network and so on), the wholesale cost to the carrier for those is in the $13/month/sub range “and those rates go up every single year,” added one carrier.
Not long ago, when the CRTC still protected the sports genre from competition, TSN’s mandated basic rate was $1.07 per subscriber per month while Rogers Sportsnet’s was $0.78.
“My margins are shrinking, shrinking, shrinking and the costs to support video are just ridiculous,” added one of the independents. “The video market for distributors… is going to die. People are going over the top. Customers know how to get what they want when they want to watch it. My wife and I do it and I own a cable company!”
However, said the CCSA’s Townsend, “we are very pleased that the NHL will include all platforms (with Rogers) – that is where we have been trying to get to with all programming.”
David Purdy, Rogers senior vice-president of content, knows exactly what he is paying for when purchasing sports programming and it’s no longer just for linear cable distribution. Purdy is determined to build the Rogers TV Anywhere inventory, knows sports is the key, and notes the company has been purchasing only multipla
tform rights for some time now. It experiments with its own premium, exclusive content, too.
The Toronto Blue Jays, who fall under the Rogers Media umbrella, were streamed on tablets and phones as part of the Rogers TV Anywhere strategy this year.
“So outside of the cableco, we offered it in our Rogers Mobile products as well or Rogers ATV mobile product,” said Purdy. “But the core strategy was about adding value into the traditional relationship… so our overall perception of the value for sports that is made up of not just the HD and SD feed, the linear feed, but the ability to take that and put it across multiple devices.”
In September Bell announced that Bell Mobile TV had “welcomed” its one millionth subscriber to Bell Mobile TV. The release said “much of the service’s growth has been led by viewing of major live sporting events such as the NHL playoffs and Stanley Cup, The Super Bowl, NBA Playoffs, NCAA March Madness, and the Olympic Games.”
So why is high-end sports programming so lucrative?
David Fuller, chief marketing officer for Telus, cites two well-known attributes. “It tends to be the content people want to watch live. Far fewer sports events are PVR-ed compared to regular shows, which is very important to advertisers,” said Fuller. “It generally has the highest penetration for content out of the specialty channels, so it continues to be a difference maker for the industry. “
Fuller says sports played a key role when Telus was trying to differentiate itself from the competition as the company offered Optik TV subscribers the “skinniest basic” package possible, so they gave their customers more choice.
“We offered them 13 theme packs of eight channels, and set up two sports theme packs, a main one and a sports-extra pack, which went deeper into sports,” he explained. “Our main sports pack has been one of our most successful theme packs, and it has one of the highest penetration for a theme pack.”
As the price for rights continue to soar, though – and along with that the retail price for cable, will the consumer then, flee? Right now the answer is no according to Jean-Pierre Caveen, vice-president of affiliate relations at Cogeco Cable. He said that customer still want sports programming but that the cost is really hidden because of its packaging with other channels.
Caveen said there will be more transparency for the customer when the system eventually goes to the pick and pay model, as is being demanded by the federal government, but consumers are in for a surprise. “If (consumers) were to buy sports (channels) separately it might be more apparent how expensive the channels are,” said Caveen. “The increases are driven by the sports franchises themselves, so I don’t think pick and pay will change their motivation.
“At the end of the day we are profitable public company – consumers always end up paying the bill and not just in the cable or TV industry, but for any consumer service – so yes the increases in cost are partially passed on to the consumer, at least partially but not directly because of the size of the packages.”
Editor's Note: We’re hopeful now that readers can see where we’re going with this series – that sports and sports television underpins the entire Canadian TV system and its costs and packaging practices – in some cases requirements – affect all viewers. Then, as more Canadians leave the system – or cut back on what they pay for in favour of a new, government-demanded a-la-carte model augmented by free or cheap over the top options which don’t contribute to the broadcasting system, what happens to the industry we’ve built?
Our next installments will look at the regulatory impacts of the rising costs of sports rights, some statistics on where viewers are going and what they want – and what all this means for the production of Canadian content and to the CBC – both bedrocks of our Broadcasting Act.
