Private television broadcasters are warning that local stations can't continue to exist on advertising revenues alone, after the Supreme Court of Canada ruled the stations shouldn't be paid for their signals when they are rebroadcast by cable and satellite companies.
Local television stations in Canada – including those operated by corporately owned CTV and CanWest Global as well as a handful of smaller independent players – send their signals out into the world in a way that they can be intercepted and rebroadcast. Cable and satellite providers capture those signals, and then offer them to their subscribers.
The local stations were poised to get paid for those signals after years of lobbying the federal regulator, but the Supreme Court on Thursday said the CRTC does not have the authority to force the companies to pay for the signals.
The decision leaves stations around the country scrambling to find a new way to pay for local news and programming. Canada's largest private broadcaster said the future of many of its smaller stations is in doubt unless it can find a way to wring money out of the companies that repackage its signals for their own profit.
"TV viewers across the country would have benefited from long-term stability for their local television stations, which currently rely on an advertising market that has seen permanent structural change, and is no longer able to fund such a model on its own," said Bell Media, a BCE Inc. unit that bought CTV in 2010.
"With its reliance on an uncertain advertising market, the financial model for local television is broken," Bell said.
While Bell and other conventional broadcasters insist the model is broken, it has worked well for decades. The local stations were able to charge more for advertising because their signals were making it into more homes than they could reach on their own and the television providers such as Rogers Communications Inc. and Telus Corp. have access to a wide range of channels to include in packages.
The local channels differ from profitable specialty channels such as TSN or HBO Canada because they don't receive any subscription revenues – they subsist entirely on the local and national advertising they are able to sell and broadcast. But the recession drove advertisers out of the market in droves – in 2008, conventional broadcasters posted almost $300-million in losses.
"While Canadians get 87 per cent of their local news from television stations that rely only on advertising to cover their costs, the ad market for local television is in permanent decline," Bell said. "In the most recent broadcast year, despite the boost in advertising sales from London 2012, Bell Media's conventional stations saw a decline in their total revenues, and operating income is down significantly. Small-market stations remain particularly challenged financially."
The industry rebounded in 2011 to post its first profitable year since 2006, but //the $149-million pretax profit cost the industry// the industry has lost thousands of jobs and suffered deep across-the-board cuts.
"Things certainly aren't getting any easier," said John Pollard, the president of Victoria's independently owned CHEK. "We're striving to break even this year, but technically our business model is to actually turn a profit."
If the Canadian Radio-television and Telecommunication Commission's original plan had been allowed to stand, the cable and satellite companies said they would have increased their prices by as much as $1 a month per subscriber to help the stations produce content. But the court ruled 5 to 4 the CRTC's plan would create a new type of copyright, as the local stations manage their signals, and new copyright is something only Parliament is allowed to create.
"Reading the Broadcasting Act in its entire context reveals that the creation of such rights is too far removed from the core purposes intended by Parliament and from the powers granted to the CRTC under that Act," the decision reads.
The Supreme Court decision is the second blow for broadcasters this year, after the CRTC said it would phase out the Local Programming Improvement Fund created during the recession that skims approximately $100-million a year from cable and satellite companies and redirects it to the stations to help fund local programming. That money disappears in 2014, posing a challenge for stations such as CHEK that came to rely on it to produce the local programming it needs to differentiate itself from national competitors.
"If people want to keep watching local news, then I think the CRTC is going to have to come up with something to help out," Mr. Pollard said.
Karen Wirsig of the Canadian Media Guild said the Supreme Court decision should send the CRTC back to the drawing board to come up with a new system to fund local programming, even as it phases out the other program that cost subscribers as much as $3 a month on top of their usual cable and satellite fees.