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Report On Business CBC would lose out on digital ad revenue if it goes ad free

Growth in digital advertising will be partly driven by the strong demand among advertisers for high-quality video advertising online.

Brian B. Bettencourt/The Globe and Mail

If CBC were to go ahead with an ad-free model, as the public broadcaster proposed on Nov. 28, it would not just be pulling out of the lucrative TV advertising market; it would also be giving up a major source of revenue – digital ads – as Canadians' media habits continue to shift.

Internet advertising revenue in Canada grew 21 per cent in 2015, to $4.6-billion, according to the Interactive Advertising Bureau of Canada, and has already surpassed TV ad revenue overall; mobile devices alone accounted for $1.6-billion in ad spending last year as they increasingly drew advertisers in.

"The digital landscape is growing and it is becoming a more appealing market for advertisers," Jean Mongeau, general manager and chief revenue officer for CBC/Radio-Canada, said in an interview. "We understand that the marketplace will continue to be robust."

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That will be partly driven by the strong demand among advertisers for high-quality video advertising online. While Facebook and YouTube have both invested heavily in courting that market, traditional Canadian media organizations still do not have enough online-video ad inventory to keep up with demand, Mr. Mongeau said.

Even CBC – with its video streaming and ad space on a website with top traffic numbers – draws relatively little online ad revenue. In a letter to the standing committee on Canadian Heritage last week, CBC president Hubert Lacroix noted that CBC earned $253.2-million in advertising revenue last year, but just 10 per cent of that – $25-million – was digital advertising.

Mr. Mongeau said that figure is not due to underpricing online ads; CBC's website simply sells less ad real estate than comparative for-profit media outlets – although a browse still reveals banner ads across the top and an ad to the right-hand side of many pages. He also said CBC's mobile presence is much less cluttered with ads.

Technology has also affected TV advertising. People often tune out ads and increasingly skip them on recorded programs, so the opportunity to integrate brands right into shows is attractive to marketers. A big draw to CBC is the fact that so much of its content is Canadian-made, allowing advertisers to strike "integration" deals, said Magnus Nisbeth, senior vice-president of media buying and planning firm Zenith Canada. Canada Post, a Zenith client, has had positive experiences with its brand integrations on the show Dragons' Den, for example. CBC would not be doing such deals should it go ad-free.

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"It's been a really good fit," Mr. Nisbeth said. "With other broadcasters, a lot of the content is from the U.S. or elsewhere, where you don't have the opportunity to get involved in the production."

CBC hired the research firm Nordicity to assess the market possibilities of such a shift. It forecast that roughly two-thirds of CBC's ad revenues would migrate to other media companies.

Shutting down ad sales operations would also have an impact on CBC employees. The size of the entire team is about 325 people, Mr. Mongeau said, and about 75 are sales representatives.

"All staff that are either client-facing or back-end operations are all unionized employees, so there would be the obvious exercise of what the collective agreements said" should the proposal go forward, he said. "If we go that route, we would be managing our employees and the impact of this appropriately, for sure."

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