When the Banff World Television Festival opened Monday, CRTC chairman Konrad von Finckenstein took to the podium with his annual review of the hot issues facing the commission and Canadian broadcasters.
It was somewhat disappointing that he didn't comment on a radical idea recently proposed by Roger Martin (The CRTC's Dial Is Stuck On Failure - May 25) for reforming the Canadian system. Mr. Martin, the dean of the Rotman School of Management at the University of Toronto, accused the CRTC of focusing excessively on “inputs” (Canadian content regulations), rather than “outputs” (programs Canadians want to watch). This failure can be rectified, Mr. Martin argued, by having the CRTC drop its current approach and instead impose massive fines on Canadian broadcasters who fail to meet audience targets set by the CRTC.
In Mr. Martin's view, this form of regulation will ensure that broadcasters stop airing “mediocre Canadian content” and instead, generate hit shows.
Unfortunately, Mr. Martin's input/output analysis drives right by a couple of other business concepts that are pertinent to this discussion: research and development, and supply and demand.
R&D
Let's deal first with R&D. In the television business, R&D consists of the laborious, incredibly costly process of writing scripts for shows that never get made, producing pilots for series that never get ordered, and short-ordering episodes of series that appear as mid-season replacements and are quickly abandoned. Behind every CSI , Law & Order , Grey's Anatomy and Desperate Housewives are hundreds of shows that do not have anything like the audience response of these hits. To get a sense of the context, among the five U.S. commercial networks and the top dozen cable channels, there are about 500 hours per week of prime time programming competing for audience attention. The four titles mentioned by Mr. Martin would constitute less than 1 per cent of that programming array.
As a practical matter, the commercial success of the U.S. television industry and, indeed, the television industry everywhere in the world, sails on a sea of failure. To suggest a broadcaster has the ability to choose to air hit shows over mediocre fare is a little like saying a publisher can decide to limit its list to bestsellers, or car makers to manufacturing Mustangs.
The plain fact is that the best broadcasters in the world, including Canadian broadcasters, carry a mix of programs that range from audience grabbers to duds. The grabbers, such as The Rick Mercer Report, Corner Gas and Flashpoint, find a place in the schedule and come back year after year. The duds disappear to be replaced by new and hopeful efforts. Every broadcaster knows it's a constant game of trial and error. Every broadcaster wants to find that audience connection with each program they air. No broadcaster ever intentionally sets out to air anything mediocre. In this light, to suggest that the regulatory elixir for Canadian broadcasters is to levy fines for the failure to air hits is simply wrong-headed.
SUPPLY AND DEMAND
Let's turn now to that other business principle: supply and demand. Canadian broadcasters access a market of about 11 million homes. For U.S. broadcasters, it's 115 million, about 10 times as many. In most American markets, fewer services are competing for eyeballs than in Canadian markets. A runaway Canadian hit such as Corner Gas will draw about one million viewers per week. A comparable U.S. show, Grey's Anatomy, recently drew more than 16 million viewers on a night when the second-ranked show, CSI, drew more than 14 million and the ninth-ranked Ugly Betty drew almost seven million. Even mediocre shows, well out of the Top Ten, will regularly draw five million.
Anyone can do the math: With advertising priced according to audience demand, Canadian broadcasters are looking at a small fraction of the potential income available to U.S. broadcasters.
And yet, the cost of doing business for Canadian broadcasters is not inherently less than for U.S. broadcasters. Canadians make up for this disadvantage in part by licensing foreign programs for fees that bear no relation to their production costs. While the much publicized amounts paid by Canadian broadcasters for the rights to air U.S. shows seem astronomical to many, they are a fraction of the cost paid for the same shows by the American networks. This makes sense because the U.S. market is so much bigger.
On the other hand, for original Canadian shows, the only option is to somehow patch together the full production cost from a variety of sources, including government subsidy. In English Canada, the advertising revenues available for high end shows are almost always less than what a broadcaster must pay to ensure their production.
And so the economic model in Canada has seen broadcasters make good margins on foreign shows by paying considerably less than the advertising revenue they earn. This is balanced by CRTC regulations mandating Canadian programs that generally earn less than they cost. Even with these regulations, the business has, on balance and until recently, been very profitable for many years.
The crucial point is that the financial deficit for Canadian shows has nothing to do with their alleged mediocrity. Far from it. Canadian broadcasters and their producer partners make and air some of the best programs in the world. The proportion of these programs that are genuine audience hits does not vary significantly from that in the U.S. or, for that matter, other countries.
The real reason for the financial deficit is that the Canadian market just isn't big enough to support the production costs of the shows that Mr. Martin wants to see. A fix that has the CRTC fining broadcasters for failing to air audience winners doesn't account for the realities of the business or the market and is poor public policy.
Douglas Barrett, former chairman of the Canadian Television Fund, is the CTV Visiting Professor in Broadcast Management at the Schulich School of Business at York University.
