CRTC opens door for U.S. Super Bowl ads to air on Canadian TV

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On the eve of the Super Bowl, Canada's broadcast regulator has announced that soon viewers will have no reason to complain about missing out on the flashy American big game ads. In the process, the Canadian Radio-television and Telecommunications Commission has fired a shot at a decades-old system that has propped up the broadcasters' revenues – and provided for the production of Canadian programming.

Starting with the Super Bowl in early 2017, broadcasters will be banned from using "simultaneous substitution" for the big game, CRTC chairman Jean-Pierre Blais said on Thursday. Known as "simsub," this system allows networks such as CTV, City and Global to ask cable and satellite TV providers to swap in their own signals (and commercials) into American broadcasters' feeds, when the same show airs at the same time.

Because advertising prices are based on audience numbers, the guarantee that Canadian viewers won't be lost to American channels generates between $250-million and $400-million in annual revenue, broadcasters have said. Regulations require that some of that money is used to fund Canadian programming.

Losing any of that revenue puts the CRTC in an awkward position, since its mandate includes safeguarding Canadian content. The higher the revenues, the more has to be set aside.

The new ban applies to Super Bowls and specialty channels, including lucrative sports rights on TSN and Sportsnet, such as the World Series, Wimbledon, and The Masters Golf Tournament. The change on specialty channels will take effect as soon as the CRTC has drafted the regulation.

At a major hearing into the future of television last September, dubbed Let's Talk TV, the CRTC mulled scrapping signal swapping entirely. In an interview Thursday, Mr. Blais said "it's too important; it would upset the apple cart" to do so. But he believes simsub's relevance "will dwindle over time" as viewers migrate to new technologies.

While the CRTC operates at arm's length from the federal government, Prime Minister Stephen Harper and Canadian Heritage Minister Shelly Glover have put political pressure on the Let's Talk TV process by calling repeatedly for expanded choice for Canadian TV customers.

"We are encouraged to see consumers provided with greater choice in TV options, as we promised to do in our Speech from the Throne," a spokesperson for Ms. Glover said in an e-mail. "We await the decision on unbundling [of TV channels] from the CRTC with great interest because we believe – and have said all along – that Canadians should not have to subscribe to the channels they don't want, in order to get the ones they do."

Mr. Blais cast the new rules partly as an issue of choice.

"What Canadians will get out of it is that they will finally get free from an anachronism with respect to the Super Bowl," he said.

The impact of the new rules will be felt most acutely at CTV, the Bell Media-owned network that currently has Canadian rights to the Super Bowl. (Bell Media is owned by BCE Inc., which also owns 15 per cent of The Globe and Mail.)

"The government is damaging the future of local television in Canada while rewarding U.S. corporations over home-grown companies," Bell Media vice-president of communications Scott Henderson said in an e-mailed statement. "It's a troubling approach for a Canadian regulator to take."

The signal swap will remain for this year's game on Sunday. Next year, the last Super Bowl before the ban takes effect, it will be up to CTV to decide whether to waive its right to ask cable and satellite providers to swap its ads into the American feed, the CRTC said in its release. (Because signal swapping protects CTV's ad revenue, it seems unlikely the network would choose to waive it.)

During last fall's Let's Talk TV hearing, Bell Media president Kevin Crull said that simsub generated some $40-million in revenue from CTV's live events programming alone. He also said the Super Bowl – the biggest stage in North American television – is "essential to our business" because it allows Bell to promote other shows, including Canadian programs.

Mr. Crull also suggested that without simsub, CTV would have little reason to bid for Super Bowl rights in the future.

Sports programs such as the Super Bowl have become even more valuable for advertisers as people consume TV programming on an ever-widening number of channels and digital services such as Netflix. Roughly eight million people on average tuned in last year in Canada, making it the most-watched program of the year. Audiences that big almost never sit down in front of the same live programming any more.

Because of those ratings, CTV can charge a significant premium for Super Bowl ads, even compared with other big-event programming such as the Academy Awards or popular shows such as The Big Bang Theory. Advertisers paid between $170,000 and $200,000 for 30 seconds of airtime during the Super Bowl this year, according to sources. CTV is expected to air upwards of 200 advertising spots this Super Bowl Sunday, but that accounts for just one part of its revenues for the event which include a range of sponsorships – for each quarter and the half-time show, for example.

The ban will mean that in future, the price a Canadian network can charge for Super Bowl ads will drop. Consequently, the price Canadian networks will be willing to pay to the NFL for broadcast rights will be lower.

"It will impact negotiations going forward. ...This isn't about no commercials. This is about U.S. commercials versus Canadian commercials," said Shelley Smit, president of media buying and planning agency UM Canada. "If this is to appease the people that want to see the U.S. commercials, there's an open market online for people to see U.S. commercials from the Super Bowl.I don't know why to this extent we would negatively impact this audience platform we had as Canadian advertisers, Canadian businesses, and reduce it so greatly."

There is good reason to believe that, given the choice, a large number of Canadian viewers will opt for a U.S. feed of the game: there is pent-up demand here. According to Google Inc., Canadians seek out American commercials online: there have been more searches for "super bowl commercials" in Canada than in the U.S. for five years running.

"It's some attempt to position the CRTC as a protector of consumers, when what it should be is the steward of an ecosystem in distress," said Mark Sherman, founder and CEO of agency Media Experts. "It's worth noting that when people go to YouTube to watch those commercials, YouTube is not regulated in any way, shape or form by the CRTC."

The idea of wanting to watch commercials might seem laughable to some, but in the U.S., slightly more than half of Americans who plan to watch the Super Bowl "tune in as much for the commercials as for the game," according to a 2011 Harris Interactive survey.

That's because they're some of the most extravagantly produced ads all year. The $4.5-million (U.S.) advertisers reportedly paid this year for 30 seconds during the big spectacle is only part of it: much more is invested in celebrity cameos and resources devoted to standing out from the Super Bowl crowd.

Audiences have also complained about switching issues, such as when ads run long and viewers miss a play from a sporting event. As a remedy, Mr. Blais announced that a regulation "will be adopted shortly" to compel broadcasters to pay rebates to all subscribers to a channel in the event of errors.

"In this day and age when technology allows us to wear computers, put a Canadarm in space and land a satellite on a comet, I cannot believe that every broadcaster does not have the wherewithal to execute simsub flawlessly," Mr. Blais said. "There will be no more sleeping at the switch."