The decision by Canada's federal broadcast regulator to bring U.S. Super Bowl commercials to all Canadian televisions in February will erase at least one-third of Bell's advertising revenue for the big game, according to sources.
This week, the Federal Court of Appeal granted Bell, a division of BCE Inc., leave to appeal the decision announced last year to end "simultaneous substitution" in the Super Bowl starting in 2017. The process, sometimes known as "simsub," allows Canadian broadcasters to ask cable, satellite and Internet protocol television (IPTV) providers to swap in their networks' signals on American channels when a program is airing in multiple places on the dial at the same time. That signal swap provides a larger audience for the Canadian broadcasters' ads, and allows them to reap more advertising revenue for shows they have paid to air. The Canadian Radio-television and Telecommunications Commission last year called the practice of blocking flashy U.S. Super Bowl ads an "anachronism," as it announced an end to "simsub" during the Super Bowl and on specialty TV channels.
People watching "over-the-air" TV signals have always been able to see Super Bowl ads on U.S. stations close enough to the border to reach Canadian sets. However, the vast majority of Super Bowl TV viewership in Canada is affected by simsub: more than 78 per cent of Canadian households still subscribe to cable, satellite, or IPTV services. These services dominate sports viewing in bars and restaurants as well.
Bell has been selling Super Bowl ads under the assumption that its leave to appeal would also include a stay, which would maintain the signal-swapping in 2017. That did not happen, and Bell will now revise its agreements with advertisers, since it is highly unlikely the appeal will move quickly enough to be resolved before February. That means Bell will see a significant drop in the money it makes off big game ads next year.
Bell specified in its court documents just how big it expects that drop to be, but those documents were redacted as the information is considered confidential. The company declined to comment for this story. However, according to sources familiar with Bell's negotiations with advertisers, the company has told them that in a worst-case scenario in which the stay was not granted, it expected that roughly 35 per cent of its audience would be on American channels and out of reach of its ads.
If correct, that means that the CRTC has essentially handed over at least one-third of the Canadian Super Bowl viewership to Fox, as essentially free bonus ratings for its U.S. advertisers. (They already pay a hefty premium: Last year, reports indicated that CBS was selling 30-second spots in the big game for roughly $5-million [U.S.], a figure that has been rising swiftly in recent years.)
"There's no incremental money to be had: Fox wouldn't go to an advertiser and say, 'You're getting Canada so give us more money,'" one ad buyer said, speaking on condition of anonymity.
According to sources, Bell has been asking roughly $150,000 to $190,000 for a 30-second spot this year. That price will now change.
"Keeping any dollars we possibly can within the Canadian market is beneficial in the long run," another buyer said. "When this announcement came out, it was a horrible day for the ad industry. They're doing the Super Bowl now; what does it mean moving forward?"
It is important for Bell to revise its contracts before the big game, because ad contracts generally protect advertisers from risk by stipulating that if a show under-performs, the broadcaster owes them "make goods." Those can come in the form of refunds, but almost always in Canada, they are in the form of ad space in other comparable programs. Because the Super Bowl is such a valuable property, Bell will want to be conservative in its promised audiences so that it does not have to tie up ad space later in some of its most lucrative prime-time shows, to make up for lost viewers.
"At a time when broadcasters are challenged with advertising revenue, it raises questions about how sustainable the model is," said Valerie McMorran, executive vice president and investment director at Starcom MediaVest Group. "We've seen an erosion of ratings over time in television, but the thing that still garners eyeballs is live events. This is not positive news."
With a report from James Bradshaw