Broadcasters have about a year and a half before the CRTCs new rules come into effect. As James Bradshaw writes, data shows some channels will enjoy stability and growth while others will disappear altogether
For years, television networks have cashed in on popular reality shows depicting elimination-style contests in singing, cooking, and desert-island challenges. Now, those same channels will compete for their survival on the TV dial as new rules from the federal broadcast regulator take effect.
A series of consumer-focused decisions announced by the Canadian Radio-television and Telecommunications Commission (CRTC) will substantially shake up the way channels are bought and sold. Most notably for viewers, the new dictates will shrink some basic cable and satellite packages from an average size of 50 or more channels to perhaps a dozen by May, 2016, and let subscribers choose the individual channels they want to add by the end of that year.
Until now, Canadian TV has been built on a model that has bundled most networks together in groups, spreading costs and drawing revenue from millions of customers. But as viewers gain unprecedented control in picking what they pay for, many stations will have to adapt to stay afloat. Local and national networks aside, Canada has close to 300 specialty channels, and some that have masked low ratings by riding the coattails of their more popular neighbours could soon be exposed. To stand out in a more competitive field, they will have to invest in better content and sophisticated marketing.
Cable TV: A new era of consumer choice is on the horizon
“There may, indeed, be services that will not survive, and there will be job losses,” said Jean-Pierre Blais, the CRTC’s chairman, after promising to unbundle channels last month.
No one knows how many households will avail themselves of the new choices. David Purdy, senior vice-president of content at Rogers Communications Inc., predicted that “more than 50 per cent” of the company’s TV customers will stick with current packages.
“A huge percentage of the population are actually reasonably well-served by what we call value packages,” Mr. Purdy said. “So they have a diverse household with multiple people living in it, with multiple ages, and they’re looking for a general package that will work for grandparents, parents and children. And the traditional value construct that we have actually does an okay job for them.”
But even the experts are guessing on how widespread the takeup will be.
“How many people are working on their TV bill actively to go and renegotiate it?” said Mark Sherman, CEO of Media Experts, a media planning and buying agency. “Not everybody… examines their bill and is looking to cut it.”
Those who choose their own channels could also be in for some sticker shock. Packaging channels together makes them less expensive and can offer value, especially in larger households. Cable and satellite distributors will still offer theme packs, and have every incentive to keep viewers buying larger bundles of channels because they generate more revenue and spread out fixed costs.
It is especially difficult to predict how individual channels will be priced. Less popular networks might cost a dollar or two. Higher-rated brands could be several dollars each, and the price tags for HBO or Sportnset could be even higher. Yet because broadcasters control the company that measures Canadian TV ratings, Numeris, and only share piecemeal data with the public, it is unclear how much many stations are actually watched.
And with pick-and-pay soon to be an option, the bigger the gap between a station’s subscriber levels and its actual viewership, the more vulnerable it will be as some viewers will choose to unload stations they watch rarely, if ever.
It wasn’t so long ago that a channel that spent the bulk of its time re-running episodes of older TV shows could be reasonably stable and profitable – think of the blocks of episodes of Murder She Wrote or Seinfeld at all hours of the day. But the rise of online streaming services such as Netflix, or the Canadian-owned CraveTV and Shomi, have given viewers cheap access to entire libraries of nostalgic favourites, pushing channels to evolve.
The popular American channel AMC`s name originally stood for “American Movie Classics,” when airing old movies made good business sense. But in the last decade, it has reinvented itself as a purveyor of hit original TV shows such as Mad Men, Breaking Bad, The Walking Dead and Better Call Saul.
“You can’t mail it in any more as a network,” Mr. Purdy said. “If you are not prepared to invest in your brand and produce original, must-watch television, I think you’ve got a real tough squeeze coming. It’s going to be the perfect storm of badness for you.”
SPORTS: HITTING IT OUT OF THE PARK
The main sports networks are at the top of the heap. TSN has been the king of specialty channels with total revenue of more than $400-million and a tidy pre-tax profit of $102-million in 2013 – figures most networks can only dream of. And rival Sportsnet has been gaining ground. Live sports programming still drives subscriptions, tapping into the emotional connection fans have to their favourite teams. There is competition from online alternatives, as most major sports leagues now offer streaming services with every game available. But for the all-around fan, TV is still widely considered a must-have. TSN and Sportsnet are as safe as any network, drawing big ratings for live games and solid audiences for highlight shows.
Yet sports networks face a challenge to attract a younger generation of viewers who have never paid for TV and spend much of their time on smartphones, in part by putting live games on mobile TV applications. And with the price tags rising for sports broadcasting rights on all platforms, the networks will need deep pockets.
SQUEEZED OUT OF BASIC: GOING IT ALONE
Having a spot on basic cable or satellite packages has been good for many networks. The multi-faith, religious VisionTV counted 9.3 million subscribers in 2013, while the entertainment and celebrity channel E! had more than 7.1 million paying customers. Both have benefited from being included in the base cost of getting on cable or satellite TV from large distributors like Bell and Rogers. Viewers cab easily channel-surf to their programs, and they posted profit margins of between 29 and 38 per cent.
But that will change next year. These networks and several others – including all-news networks such as CBC News Network and CTV News Channel – will be left to fend for themselves in attracting any viewers who choose the new slimmer basic bundle all providers will have to offer. As à la carte channels, they will have to prove to some households that they are worth buying, one viewer at a time. And if their programming niche isn’t popular enough to sustain a healthy viewership, they may have to broaden their programming to find wider appeal.
KID'S CHANNELS: ARRESTED DEVELOPMENT?
There has been particular concern across the TV industry about the impact pick and pay might have on children’s programs. Family Channel, Treehouse TV and YTV, for example, are staples for many households with kids. But some of these channels are on current basic packages, meaning many adult-only households pay for them as well. Because it is ad-free, Family Channel gets 92 per cent of its revenue from subscriber fees. It pulled in $67-million in 2013, reaching about 60 per cent of TV households. And while many viewers may keep larger bundles that include these kids networks, a single consumer with no children picking their channel lineup à la carte might be quick to jettison them. As its subscriber numbers fall, the channel would likely have to raise prices and hope its viewers stay loyal.
The CRTC is aware these stations could suffer, and has promised to launch a process later this year to help monitor how much children’s programming is created and aired.
While the CRTC’s new rules made some Canadian broadcasters and producers unhappy, their American counterparts are hopping mad. Viacom Inc. has called pick-and-pay TV a “consumer welfare destroying death spiral.” Attempts to introduce pick-and-pay to U.S. cable providers have failed, and an executive at Rogers Communications Inc. said at last fall’s CRTC hearing that U.S. providers see unbundling channels as akin to “touching the third rail.”
So what will happen to the U.S. channels Canadians love most? The CRTC doesn’t publish American networks’ financial and subscriber data, so their business in Canada is opaque. Walt Disney Co. and Viacom, which owns MTV, Nickelodeon and Comedy Central, have hinted, or even threatened, that they could pull their channels off Canadian TV. But while Americans may not like the precedent Canada is setting, their decisions to stay or go will come down to dollars and cents. AMC does “healthy, robust business in Canada,” Mr. Purdy said, so it has little incentive to leave. A&E is expected to stay put. But Spike TV, Fox News or Speed Channel? It remains to be seen. The verdict’s out.
The most obvious and extreme examples of channels whose futures are in doubt are Book Television and Cottage Life, which derive 99 per cent of their revenue from subscriber fees. The most recent public figures show Book TV has just 885,000 subscribers, and its ratings are widely known to be low. At present, it makes nearly $2.8-million in pre-tax profit, but that could unravel quickly if it loses many subscribers through unbundling. Where many other networks can rely on advertising to steady the bottom line, subscribers are everything to these channels.
Just because a channel doesn’t draw huge ratings or generate big dollars doesn’t mean viewers wouldn’t be sad to lose it. OutTV is one example. Since 2001, the network has aired programming specifically geared to the LGBT community, and is narrowly profitable with more than a million subscribers. But it is bundled in larger tiers with lifestyle and variety channels such as Deja View, the DIY Network and Slice through some major TV providers. With 95 per cent of revenue coming from subscriber fees, and a razor-thin 3.6-per-cent profit margin, OutTV can’t afford to lose many customers. Documentary finds itself in a similar bind.
Reruns aren’t what they used to be. Past seasons of TV shows are cheap to buy and can fill large chunks of a channel’s daily schedule. But the empty calories of Fresh Prince of Bel Air marathons are less lucrative to networks as TV shifts online, with the aging libraries of popular shows increasingly available on demand through online streaming services.
“Some channels are just grazed and some channels are watched heavily,” said Mark Sherman, the CEO of Media Experts, a media buying and planning agency. And as advertisers become more discerning with their dollars, they are less interested in programs that viewers skim in and out of. They want must-see TV that keeps viewers transfixed, week after week, meaning channels need newer shows that stand out.
With files and research from Shane Dingman and Christine Dobby
All figures from 2013, the CRTC’s latest results published channel by channel.