Business

Is local television programming doomed?

In the age of the internet and cellphone web surfing, local television is becoming less of an economical proposition, at least according to the large broadcasters.

Local TV stations are struggling to stay afloat in the era of internet and cellphone web surfing

Growing up in Calgary as a kid in the 1960s, you might have raced home at lunch to click on CFCN, the local CTV affiliate, to catch The Buck Shot Show. The popular children's show, which ran between 1967 and 1997, featured Ron Barge wearing a battered cowboy hat and chumming with his on-screen buddies, Benny the Bear and Clyde the Owl.

In Hamilton, kids and adults alike settled down to watch Bill Lawrence's Tiny Talent Time, a half-hour show that featured local child performers. In Halifax, kids watched Firehouse Frolics with Sparky, a real-life Dalmatian, as the draw.

But with local TV facing a crisis, lovable characters like Buck Shot might be on the endangered species list.

Generations of children growing up in Calgary enjoyed tuning into The Buck Shot Show, which featured Ron Barge in his battered cowboy hat and ran from 1967 to 1997. However, shows featuring local characters, like Buck Shot, could soon be a thing of the past. ((CBC))

This spring, Ottawa held a plethora of hearings into the broadcast and broadband industries — one set about whether to renew the licences for Canada's major networks, one into whether internet companies are actually broadcasters, and a final one, undertaken by the House of Commons, examining the future of the country's cable and broadcast sectors.

So far, the Canadian Radio-television and Telecommunications Commission — the body that sets most of the country's rules for phone and TV service — has been reluctant to craft oodles of new regulations amid the ongoing recession.

In its latest non-decision, the CRTC asked the Federal Court of Canada to opine on whether internet service providers, so-called ISPs, are subject to Canada's Broadcast Act. Internet companies are resisting the designation because they do not want to be subject to Ottawa's rules regarding domestic content.

While the ISP fight is indicative of the complexities facing communications regulators, the CRTC someday will start making policy regarding the ensemble of cable companies, broadcasters and ISPs. The question is, what will it mean for local programming.

Money drain

In the age of the internet and cellphone web surfing, local television is becoming less of an economical proposition, at least according to the large broadcasters.

As the current economic slowdown crimps advertising spending and the acceleration of internet usage boosts competition for that shrinking pot of cash, more companies are thinking the unthinkable.

"Today, our economy is in tatters and advertising revenues have been impacted resulting in even less money available for the smaller market to use for the production of their news programming, some stations may even close," said Douglas Neal, senior vice-president of Newfoundland Broadcasting, in a submission to the CRTC.

Newfoundland Broadcasting, an independent television station with links to CTV, did not say anything in its submission concerning its ability to stay in business.

But others have.

What they are saying will sound like fingernails on blackboards for many politicians and people in communities with small populations.

"Who wants to be the one who blacks out local television across the country?" Ivan Fecan, president and chief executive officer of CTVglobemedia Inc., asked rhetorically in a TV interview after his April testimony before the CRTC.

Ivan Fecan, president and CEO of CTVglobemedia Inc., is among those urging the federal government to change the rules regarding broadcasting in Canada. ((Sean Kilpatrick/Canadian Press))

It might come to that unless Ottawa changes the rules regarding broadcasting in Canada, he said.

Ad attack 

The problem is an age-old one wrapped in modern technological garb.

Large television networks, such as the Canadian Broadcasting Corporation, the parent company of CBC.ca, and CTV, essentially get non-public cash through the sale of advertising spots.

How much detergent people purchase or how many cars they trade often determines how much revenue these broadcasters can rake in from sellers trying to reach different buyers.

Unfortunately, television companies now see their main nugget of cash under attack from two angles.

Firstly, there is the ongoing economic recession, a factor that has pounded advertising expenditures in most countries.

SNL Kagan, a U.S. media monitoring company, said local and national television spot ad sales across the United States were down four per cent in 2008 with a further 15.7 per cent drop expected in 2009.

A decline in retail sales has meant less television advertising.

In the San Francisco area, network TV advertising revenue fell 10.6 per cent in the last three months of 2008 compared to the fourth quarter a year earlier, according to the same firm.

Advertising Age, a marketing industry publication, said that CBS, the large U.S. television network, saw its 2008 ad sales tumble by 6.7 per cent and ABC endure a marginal decline last year in the same category, one of less than a percentage point.

European broadcasters are also expected to absorb similar-sized losses, somewhere between 5.8 per cent, the forecast reduction in Italy, and 11.2 per cent, the prediction for the Spanish TV market, according to Screen Digest, a London-based firm that tracks global media companies.

In Canada, the numbers do not appear quite as stark, compared to what is happening in the U.S. and Europe.

But, Canada's situation is still far from rosy.

ZenithOptimedia, another media services company, is forecasting a drop in total U.S. advertising spending of 8.7 per cent while directed message purchases in Canada will rise, but only by 0.2 per cent.

If correct, that gain would actually represent an improvement over the drop in 2008 in local markets, down 0.2 per cent, and national markets, off three per cent, for private television providers, according to CRTC statistics.

In a more anecdotal vein, the CBC said that declining ad sales have left the crown corporation with a $60-million revenue shortfall for 2009.

Enter more players

If over-the-air broadcasters were the only ones fighting for a stagnating pool of ad dollars, perhaps the situation might be manageable, experts said.

But, in the past few years, the number of specialty channels and the level of internet usage have exploded as has the number of corporations willing to sell their wares in cyber-space.

"The issue is that 20 or 30 years ago, there might have three or four stations in that market. Now there are hundreds," CTV's Fecan said.

Indeed, the CRTC currently has 428 separate listings under "specialty services," everything from Animal Planet Canada to iLaugh Inc. 

Not everyone of these entities actually represents a different station on the dial. But, if only a fraction did, that would be a quantum leap in the level of competition for advertisers faced by CTV and the other broadcast networks.  

Advertisers, who once were resigned to the scattergun approach to reach target audiences on networks, now can focus on those consumers most interested in their products by buying time on subject-specific channels.

That means the money spent advertising Columbia Crest wine on the website of Canada's Food Network trying to reach select oneophiles, for example, is cash not spent on time with another broadcaster or a print ad in some publication.

Internet takes off

As more companies find more effective places to spend their commercial dollars, they are finding the internet a relatively better place to sink advertising cash.

Indeed, global internet advertising totalled $23.4 billion US in 2008, according to the Interactive Advertising Bureau (IAB), an umbrella organization comprised of 375 leading media companies.

That level of expenditures shot new media up to third in terms of advertising behind newspaper and TV distribution in 2008.

Even more troublesome for broadcasters, the growth in internet advertising over the first decade and a half of its life has far outstripped conventional ad outlets.

IAB estimated that, between 1995 and 2008, internet ad sales hit $23.44 billion US, up from $147 million in 1995.

By comparison, ad sales, adjusted for inflation, on over-the-air television stood at $358 million in 1949, rising to $13.3 billion in 1962.

IAB is equating the 1995 to 2008 and 1949 to 1962 timeframes as equivalent in the lifespan of the internet and conventional TV respectively.

Despite more players scrambling for extra advertising dollars, important groups of viewers are now getting more and more of their daily news and entertainment from the internet.

Younger Canadians are using the internet more and watching TV less.

Statistics Canada said that in 2007, 96 per cent of persons aged 16 to 24 spent time online. That figure is more than three times the 29 per cent of Canadians older than 65 who surfed the internet in the same year.

Generally, more advertisers are more interested in younger consumers, who will buy for long periods.

Worse for conventional broadcasters, those online users are staring at their computers — not their televisions — for increasingly longer periods.

For example, in 2001, the average online user spent 9.4 hours a week surfing and downloading. By 2007, Internet time jumped to 15.3 hours, again according to the IAB.

Conversely, younger Canadians are spending less time in front of the traditional one-eyed-baby-sitter. According to Statistics Canada, 71 per cent kids aged 15 to 19 watched television in 2005, down four percentage points compared to 1986.

Boys in that age group watched 2.6 hours of television daily in 2005, down from 3.2 hours in 1986. 

Local crash

The government tried to help the broadcasters cover their cash needs by setting up a fund in 2008 to provide $60 million to help local programming.

Still, the drop in advertising revenue and increase in competition has led to a situation where CTV says it could lose $100 million partly because of its local programming woes.

In fact, the private network has launched an advertising and internet campaign to highlight its local funding difficulties.

Local news market (2007-08)  Revenue  Expenditures 
Toronto  $60.4M  $75.8M 
Vancouver  $36.1M  $46.7M 
Edmonton  $21.0M  $16.5M 
(Source: Nordicity Group)

A CRTC study conducted by the Nordicity Group Ltd. determined that local news revenue in five of Canada's top English-speaking markets was $162.3 million for the broadcast year 2007-08.

The study also estimated the cost of gathering and showing local news to be $176.3 for these same markets.

As a result, private broadcasters lost $14 million providing local news to these cities.

Nordicity, experts in the broadcasting sector, pointed out that television stations could turn a profit in local markets. The key, the consultancy said, was to be number one in the area.

"In any given market, where typically only the dominant broadcaster's local news is profitable, the secondary news providers — no longer seeing an opportunity to turn a profit on local news — will be driven by the motives of simply meeting their local programming requirements and reducing local news expenditures as much as possible," the report noted.

With the economy crumbling, the later motive may be becoming less important.

Cable replies

Of course, as always with Canada's cultural industries, the argument over local programming involves money.

In this case, CTV and the other conventional broadcasters want the federal regulator to impose a so-called "carriage" fee on cable companies. Then, Rogers Communications Inc. and other cable distributors would be forced to pay to carry the offerings of CTV, CBC and other television companies.

Rogers Communications Inc. is among those fighting a proposed 'carriage' fee, which would force cable companies to pay to carry the offerings of conventional television companies such as CTV and the CBC.

Needless to say, cable firms argue that broadcasters, such as Canwest Global Communications Corp., owners of the Global network, want the new charge to pay for past poor business decisions that left conventional broadcasters with mountains of debt.

"Broadcasters like CTV and Global have threatened to close local stations unless cable and satellite distributors, step in and bail them out. They say that the conventional, over-the-air television system is broken.… this is little more than a self-serving fiction," said Phil Lind, Rogers' vice-chair, when he went before the Heritage Committee of the House of Commons, which held its own hearings into the future of broadcasting in Canada.

In fact, Shaw Communications Inc. said you can make money in small local markets in Canada.  To prove that point, the western Canadian cable company purchased three local stations — in Brandon, Man., and two stations from CTV's A Channel subsidiary in Wingham and Windsor in Ontario — for $1 a piece.

CTV, which had planned to shutter the stations, was happy to dump the operations.

For is part, Shaw said it already makes approximately $200,000 annually from its Kenora station in northern Ontario, and believes it can turn a profit with the new operations.

That makes the broadcasters' moaning about its local problems just vacant whining, Shaw said.

"[Cable companies] continued in local communities where we provide service should be supported. The broadcasters' lack of commitment [closing local stations to get political attention and relying on foreign programming] should not be rewarded," Shaw said in its brief to the Heritage Committee. 

The cable companies, led by Rogers, also filed a formal complaint with the CRTC about CTV's "Save Local TV" campaign, arguing that the advertisements are unfair and violate Ottawa's rules governing the sector. 

Fade to black?

Regardless of the fight over carriage fees, the broadcasters appear to be pushing a hot issue if polling is any indication.

According to an April survey conducted for the Friends of Canadian Broadcasting, almost 80 per cent of the 1,200 cable and satellite television viewers polled said local news was of "high value" to them.

For now, the CRTC renewed the broadcast licences for another year. The federal regulator wants to see whether the economy will turn around in the interim and whether that will change the local situation.

If not, one can probably expect to see a repeat of the same arguments for and against next year. But, unfortunately, this will be one channel that the regulator will not be able to change.