The long-term likelihood of professional hockey staying on conventional TV stations came into question on Tuesday as the president of Rogers Media, which takes control of national NHL broadcasts in the fall, said the traditional economics of the business no longer add up.
Keith Pelley told the Canadian Radio-television and Telecommunications Commission that a sharp increase in the cost of rights for professional sports make it all but impossible for conventional broadcasters, whose only revenue is from advertising, to make money on the broadcasts. In November, Rogers Communications Inc. announced a blockbuster deal to pay $5.2-billion for all national rights to the next 12 years of NHL games.
"Sports rights have escalated at a gargantuan rate," Mr. Pelley said. "When you look at what has happened at the National Football League, MLB, the NBA, Nascar – all the rights have doubled over the last 10 years. And it's also happened in Canada."
He said that, increasingly, only specialty channels, which earn both advertising and subscriber fees could afford the higher costs for the rights. "Look at CBC. They've lost the Grey Cup, they've lost the Brier, now they've lost now the NHL – all based on the fact that they've all gone to specialty, where there is a second source of revenue."
But while the specialty business is thriving – in 2012, the last year for which full statistics are available, Canada's pay and specialty channels made a pretax profit of $924-million – conventional networks, which made a combined profit of only $22.9-million in 2012, are in the midst of what Mr. Pelley termed a "structural change."
Appearing before the CRTC for hearings into the renewal of 17 licenses owned by Rogers, including the City network and Sportsnet, Mr. Pelley noted that competition from digital media had exploded since the company's last license renewal hearing in 2011. "It is shocking, how dramatically the industry has changed," he said. "All agencies, all advertisers are going down to Silicon Valley now."
"The industry is not changing yearly, it is changing monthly, weekly, daily," he added. "For example, the financial projections we filed [with the CRTC] in December no longer reflect the current reality."
Mr. Pelley said that competition had pushed Rogers to purchase the NHL rights as a desperate move to stem the growing losses at its City network, the third-ranked private broadcaster, and to keep the rights out of the hands of its largest rival, BCE Inc.
"Without NHL hockey, our revenues on City would decrease year over year," he said. Rogers has lost $238-million on City since acquiring it in 2007, including $38-million in 2012 and $42-million last year.
Mr. Pelley added that the conventional TV business is collapsing, amid a flood of TV options for consumers and an exploding array of advertising choices for marketers, and that Canadian broadcasters' reliance on U.S. programming is an unsustainable strategy. "That's why I feel so good we've acquired hockey. It allows us to reduce our reliance on U.S. programming, because I don't believe, over the air, that's where we're going to make our money long-term," he said.
The hockey broadcasts will allow City to cut its expenditure on U.S. programming by about 20 per cent, he added.
During the hearing, Tom Pentefountas, the vice-chairman of broadcast for the CRTC, asked Rogers executives if they believed hockey content should qualify as so-called Programming of National Interest, a regulatory designation normally reserved for culturally valuable programming that would not normally find a large enough audience to pay for itself.
"First, I don't think there's anything more of national interest than the National Hockey League and Stanley Cup playoffs," Mr. Pelley replied. "But we don't assume the commission is going to allow NHL hockey to be considered as PNI. But we would ask that hockey documentaries we produce on athletes and heroes be considered as part of PNI."