Canadian television executives often get more worked up about regulation than they do about the glamour, glitz and showmanship that the public sees. So the austere brownish-brick federal building in Gatineau, Quebec, across the river from Ottawa, that houses the headquarters of the Canadian Radio-television and Telecommunications Commission (CRTC) was a fitting setting for a major turning point in the industry's history.
On March 19, 2015, diminutive but sharp-tongued commission chairman Jean-Pierre Blais stood before lights, cameras, microphones and about a dozen reporters sequestered in a conference room to announce that the CRTC was "forcing the industry to finally face that the world is changing." By March 1, 2016, cable and satellite providers would be required to offer subscribers a small, cheaper basic package of channels, known as skinny basic, for no more than $25 a month—about $15 less than most existing lowest-price offerings. By the end of 2016, they will also have to allow viewers to pick-and-pay for individual channels. Blais's announcement came a week after he had unveiled other sweeping changes that would alter some Canadian content requirements and other long-standing rules.
The overhaul capped more than a year of hearings and submissions to the CRTC that it dubbed "Let's Talk TV," and which the Harper Conservative government turned into a political football in its bid to appear consumer-friendly. Anticipating blowback on the new regulations, Blais had cautioned in a speech in early March, 2015, that Ottawa "is full of lobbyists whose job it is to spin their client's private interests into something else, to wrap themselves up, as it were, in the flag, and to puff about Parliament Hill with an air of shock and dismay."
After his announcement, a few cultural advocacy groups issued predictable warnings about threats to Canadian programming, yet the biggest players in the business made only brief statements. Rogers Communications Inc. said the CRTC's decision was "sensible and flexible," although it might have the perverse effect of pushing prices higher for many viewers. BCE Inc., the nation's largest provider, said nothing, although Kevin Crull, then president of its Bell Media division, was privately irate.
In part, the reaction was muted because the CRTC put in some measures to soften the blows on each segment of the $6.6-billion-a-year industry, from giants like Bell and Rogers down to tiny independent producers. There were also so many changes that companies had to parse them all. As Toronto-based channel owner Blue Ant Media said in its submission—with a liberal mixing of metaphors to make its point—"the pulling of any one string in the tapestry of the Canadian television regulatory regime will have a ripple effect."
Yet as cable, satellite and Internet providers got ready to unveil their skinny basic packages just before last month's deadline, part of the future got a little clearer. Virtually everyone in the TV business agrees on what that future will look like: Jobs will be lost, some channels will die and some viewers will trim their spending. But almost every player is also keen to show that they have a strategy that will at least let them survive the coming shift, if not prosper.
The Big Five
If yours is one of the 80% of Canadian households that still has cable or satellite TV, chances are that you don't have just the basic package. Over the years, you've probably opted for more expensive bundles, adding dozens or even hundreds more channels, and combining your TV service with phone and Internet. According to the CRTC, the average household now spends $203 a month on communications services.
Those hefty monthly bills are the result of sheer pricing power. For all of the laudable diversity in Canada's TV industry, you can't ignore the fact that it is dominated by five vertically integrated behemoths. BCE, Rogers, Telus Corp., Quebecor Inc. and Shaw Communications Inc. account for 84% of all broadcasting and telecommunications revenue.
When the CRTC launched Let's Talk TV in October, 2013, it invited ordinary Canadians to tell it what kind of choices they'd like to see. Among those who answered, pick-and-pay was top of mind. But the giant providers worried that such a regime could blow apart the high-priced bundles they have spent decades building. In a submission to the CRTC in October, 2014, U.S. giant Viacom, which owns and licenses channels in Canada that include Comedy Central, Spike, BET and CMT, warned that pick-and-pay could set off "a consumer-welfare-destroying death spiral," and hinted that it might pull out of Canada.
Nevertheless, pick-and-pay—at least as one option for viewers—is supposed to arrive by the end of this year. The foundation is the skinny basic channel lineup. It includes traditional local and regional TV stations, the CBC, CTV and Global, plus educational and public-interest cable channels such as the Aboriginal Peoples Television Network. Distributors are allowed to add major U.S. TV networks but they cannot hike the price above $25. Every other channel must be available à la carte, although distributors can also offer theme packs and larger bundles.
Many executives at the large distributors were alarmed at the level of control the CRTC was exerting over them, even though they're now resigned to living with the new rules. "Having the government tell you how to package, price and go to market was probably eyebrow-raising," says David Purdy, Rogers's senior vice-president of content until last year, in an interview from his new perch as chief international growth officer at New York City-based Vice Media.
Even before the new rules took effect, Bell Media and Rogers began firing staff. Bell Media slashed more than 400 jobs last fall, even as its TV subscriber base grew past 2.7 million. Rogers Media cut 110 positions and another 200 early this year. "There is no doubt that some players will be hurt," says Wade Oosterman, group president of Bell and BCE. "Already, the decisions have created shifts in cost structures. People have had to downsize to get ahead of it."
But how much revenue will the cable and satellite giants actually lose? Last November, a survey conducted by Toronto-based Charlton Strategic Research Inc. found that 57% of TV subscribers said they would stay put with the packages they have, or even add more channels.
Those results were consistent with an experiment Rogers tried in 2011, when it offered 90,000 subscribers in London, Ontario, something similar to the pick-and-pay model at a price level above basic service. Only 1,000 subscribers took the option. "What we learned was some channels are much more popular than other channels," says David Watt, the senior vice-president of regulatory affairs for Rogers. The other clear lesson: "Customers generally prefer more to less."
Yet the big distributors are also nervous about cord-cutters who've ditched traditional TV, and cord-nevers who didn't subscribe in the first place. Cable and satellite providers lost more than 100,000 subscribers in 2014 and at least 150,000 in 2015. That's only a drain of about 1% a year, but it appears to be growing. Still, the Charlton survey suggests that some viewers could be won back: Nearly a third of cord-cutters and cord-nevers said they would consider taking a skinny basic package and adding channels.
Appealing to the disenchanted is a delicate dance, however. By promoting slim discounted options too aggressively, the cable and satellite giants could set off a rush to downsize by their subscriber base. The possibility "of the cure being worse than the disease exists," says Purdy.
Much will hinge on pricing, and it's already clear what the basic trade-off will be: Channels will cost more individually than they will as part of a bundle—about $2 more, according to research conducted by the CRTC in April, 2014. Subscribers who opt for pick-and-pay could end up with higher bills than they expected. Yet if a lot of viewers downsize, bills may also climb for those who stick with bundles, as the distributors try to spread fixed costs among fewer customers.
Behind the scenes, the cable and satellite giants, and the broadcasters that own channels, are still wrestling over wholesale fees the distributor pays to carry a network. A channel that gets, say, 50 cents per subscriber per month in a large theme pack might also negotiate a $2.99 retail price à la carte, and split revenue from those sales with the distributor.
Misjudging the à la carte price could be dangerous, and risks setting off a grooming of the new channel lineups. "Ultimately, it should have an impact on making content better, because if you have poor content, it's not going to survive," says Bell's Oosterman.
All of this bargaining is taking place within the CRTC's revamped Wholesale Code of Conduct, which was scheduled to come into effect in January, but which BCE challenged in court last October. Its provisions are eye-glazing to people outside the industry, but it tries to eliminate trickery that limited choices and kept cable bills high. Restrictions that prevented channels from being offered outside bundles are forbidden. The code also attempts to stop vertically integrated giants from favouring their own channels with better packaging and marketing than those owned by independent broadcasters.
Broader market forces have also given independent content creators some more clout. The cable and satellite providers used to be the only gateway to a limited TV dial. "I had an enormous amount of control in my old job about who launched [a channel] and who didn't launch," says Purdy, recalling his 15 years at Rogers. "The days of them having to come cap in hand and [beg you to carry their show] are over," he says.
The Art of the Niche
Leonard Asper's office in a renovated manufacturing warehouse in Toronto's hip Liberty Village neighbourhood is decorated with sports-themed memorabilia: a football, a race-car driver's helmet, a mini basketball hoop. Behind his desk hangs a large, framed red poster reading, "Keep Calm and Carry On." It would make a good motto for Canada's independent TV production industry as a whole. It's also fitting for a man who inherited control of a multibillion-dollar media empire at Canwest Global Communications from his father, only to see it crumble under the weight of its debts in 2009.
Now aged 51, Asper has shifted from business suits to jeans and an open-necked shirt, and has started back up from scratch. In 2010, he founded privately held Anthem Media Group, and bought a majority stake in Fight Network, a channel for mixed-martial-arts enthusiasts that is available on cable in 32 countries, and on digital platforms and set-top boxes such as Apple TV. Since then, he's launched FNTSY Sports Network, which seeks to be to fantasy sports enthusiasts what Bloomberg is to business leaders, and added a half-dozen more specialty sports channels and websites: Pursuit Channel (hunting and fishing), Edge Sport (extreme sports), MAVTV Canada (motor sports), SportsGrid (a sports news and opinion website) and RotoExperts (fantasy sports information).
Anthem has about 70 staffers in Toronto and 20 in New York City. The Liberty Village offices came wired for broadcasting. They used to belong to Moses Znaimer-owned VisionTV. It moved into the nearby ZoomerPlex, which now houses all of Znaimer's media ventures. Anthem has one main studio with interchangeable sets—all it needs to tape information and interview segments, primarily for Fight Network and FNTSY Sports—and a smaller studio with only one camera to pump out online-only content. It also has studios in New York and Las Vegas.
Asper thinks that pick-and-pay TV presents both opportunities and risks for Anthem. "We like people not having to buy $150 worth of cable [before they can] get to us," he says. But if viewers must choose among hundreds of à la carte channels, it could be very hard for one independent to stand out unless it spends a lot of money on marketing. It would still help to be part of a bundle that a big distributor sells to millions of viewers. "You can't survive just à la carte. You need to be chosen in theme packs, or 10-packs or 20-packs," says Asper.
In such a competitive system, every channel owner, big or small, is going after eye-catching shows. "They act as sort of the neon sign that helps people find programming in a noisy environment," says Tracey Pearce, Bell Media's senior vice-president of specialty and pay TV. "What people don't want is beige."
But the big distributors will still handle most of the packaging, pricing and marketing to their subscribers, and independents will still struggle to forge relationships directly with viewers. That's why independents are also pushing beyond traditional TV, and putting their content straight online through YouTube and other streaming services.
Blue Ant Media, founded by former Alliance Atlantis chairman and CEO Michael MacMillan, owns 10 multimedia brands, several of them focused on outdoor living, including Cottage Life, Love Nature and Smithsonian Channel Canada. It also owns Omnia Media, a Los Angeles-based YouTube network. MacMillan says that Blue Ant released 225,000 videos online in 2015, compared with just 1,000 in the year before, and it's one major reason why the company's revenue has "grown significantly" from about $50 million in 2014.
MacMillan says he's watched the Internet TV industry shift "from an economy of scarcity to an economy of abundance." The biggest beneficiaries will be content creators at one end of the spectrum and viewers at the other, because both will have vastly more choices. "In between, I thought and still think, there'll be some dislocation," he says.
The Other Heavyweight
For the past 16 years, Corus Entertainment Inc. has stuck out from its industry peers, but only since Let's Talk TV have investors started to see it as a sore thumb. Corus was spun off from Calgary-based cable and telecommunications giant Shaw Communications Inc. in 1999, and it owns specialty television channels, radio stations, the Nelvana animation studio and a children's publisher. It's a unique content-based business, wedged between the huge integrated providers and small independent producers. Both Shaw Communications and Corus are controlled by the Shaw family through multiple-voting shares, and regulators often view the two companies as effectively one entity.
Until late 2014, Corus was a steady stock market performer. Many investors liked its focus on kids and families, with channels that include YTV, Treehouse and W Network, and Nelvana. But as the prospect of pick-and-pay loomed, along with the expectation that some subscribers would dump channels they don't watch, the stock began to slide. Corus shares closed at $20.67 the day the final Let's Talk TV decision was released. The next day, they fell to $18.41, and kept sliding to less than $10 early this year. "The Street has us in the penalty box," says Doug Murphy, president and CEO at Corus, and an avid recreational hockey player.
Since then, Corus has made some huge bets in an attempt to reverse that slide. Last November, Corus ceded its profitable licence to telecast U.S. giant HBO's shows across Western Canada, including the blockbuster Game of Thrones and some movie networks. HBO wanted to work with one carrier in Canada, and Corus accepted $211 million in cash from Bell to give up its rights.
Then, in January, Corus dropped a much larger bombshell, agreeing to pay $2.7 billion in cash and shares to buy Shaw Media from Shaw Communications in a massive realignment of the family's holdings. Shaw Media owns the Global Television Network, 12 TV stations and 19 of Canada's most popular specialty channels, including Showcase, HGTV Canada and Food Network Canada. Assuming regulators allow the deal to proceed, the family will consolidate nearly all of its media holdings in Corus, leaving its cable and wireless businesses in Shaw Communications.
Murphy says he intends to take full advantage of Corus's greater heft to negotiate better deals with producers and distributors. He'll also be able to offer ad buyers—particularly those trying to reach kids and families—options that span conventional and specialty TV, radio and digital platforms. "We're going to be part of all the buys. We're not going to be left at the altar any more," he says, sipping a pint of beer at a restaurant in his company's modern eight-storey headquarters on Toronto's waterfront.
That kind of bargaining leverage strikes fear in the hearts of many small independent producers. The Canadian Media Producers Association (CMPA), a trade group that represents more than 350 independents, says the deal would bring about a dangerous hyper-consolidation of TV broadcasting. Corus would own six of the top 10 kids' channels, the top six women's specialty channels, and seven of the top 10 specialty networks. Bell and Corus would control 70% of English-language TV viewership.
"Corus is by far and away the most aggressive broadcaster" in negotiations with producers for rights and payments for shows, says CMPA CEO Reynolds Mastin. "In the vast majority of cases, there is no conversation at all. Corus says, these are the deal terms."
Murphy strongly disputes that view, insisting that Corus is "not the Death Star that we're characterized as." Producers will "share in the upside with us, but we're going to fund most of the show, so we believe we deserve enhanced economics," he says. Even with the merged company's scale, however, he will still have to watch expenses, given the potential for revenue losses from Let's Talk TV and continued competition from online providers like Netflix. "I've got to change my cost structure," Murphy says. "Well, you know what? So do the producers."
The independents are also furious that the CRTC blindsided them by eliminating old rules that strengthened their hand in negotiations with big broadcasters. The threat revolves around technical provisions called "terms of trade," which received little attention in Let's Talk TV.
The CRTC put the terms in place in 2011 as conditions in broadcasters' licences. Among other things, they divide up in advance which rights producers and broadcasters get to keep in order to sell a show internationally. That split can be crucial to long-term profits. But the CRTC now allows large broadcasters to have the terms removed from their licences. Losing those terms is "as fundamentally impactful for independent producers as is pick-and-pay for [large distributors]," says John Barrack, partner at Toronto-based Don Carmody Television. The company produces Between, which it licenses to Rogers in Canada and Netflix in the rest of the world, and Shadowhunters, licensed to the Disney Channel and Netflix.
Barrack's company is on more solid footing than most independents. It is tied to the large film production company that Carmody himself founded in 1980, which has more than 100 movies to its credit, including Chicago and Good Will Hunting. "Things are good, but they can turn bad really quickly," Barrack says. "You can't build a business that is sustainable unless you have those rights. Without them, you're done."
Survival of the Fittest
The old Canada Post office on Dovercourt Road in Toronto's west end, which sorted and delivered mail for 65 years, has an eye-catching new second storey clad in orange and black, but there's still no sign that says this is now the headquarters for Proper Television. Company president Guy O'Sullivan says he bought the building three years ago because he was tired of paying "horrendous rents downtown."
The Birmingham-born former BBC producer launched Proper in 2004, and built it into a successful maker of dozens of reality, lifestyle and documentary programs, among them MasterChef Canada and Canada's Worst Driver, as well as Vegas Hot Rods and Canada's Worst Handyman.
O'Sullivan's vision was to have a 37,000-square-foot "bespoke space" for producing TV, he explains in his ground-floor office which, true to the company's reality-TV roots, features a wall of (non-functioning) surveillance cameras as decor. The basement used to be the post office sorting floor, but it is now a rabbit warren of 35 editing bays—"definitely under-utilized" these days, he says. All are wired into a $500,000 master brain called EditShare, which lets the company do all of its post-production in-house. Proper's staff moved into the building in December, 2014. That was "probably not the best timing," O'Sullivan concedes.
The following March, independent producers were the first segment to get slammed by the CRTC's regulatory shakeup. Orders from broadcasters, who were already being squeezed by online competition, ground virtually to a halt. O'Sullivan says he understands why buyers froze. "They had to sit down and determine which horses they're going to back, and which horses they're going to pull out of the race. Why keep investing in a channel you're not convinced is going to last?"
Just before this past Christmas, O'Sullivan ran into a post-production supervisor he knew who was trying to earn some extra cash—not in TV, but as a driver for Uber. "He's not a junior to the industry. He's suddenly realized there's just not enough work to go around," O'Sullivan says. Proper's commissions for new shows "dropped by at least a third" from 2014, he says. Renewals of existing hit shows like MasterChef Canada, which airs on Bell-owned CTV, as well as programs that are mostly funded from the United States, kept Proper afloat. Without them, "I think it would have been an exceptionally dark year," he says.
The CRTC also eliminated some Canadian content quotas. A requirement that TV stations fill 55% of daylight hours with Cancon has been scrapped. "Television quotas are an idea that is wholly anachronistic in an age of abundance and in a world of choice," Blais declared in a speech in March, 2015. The CRTC did, however, maintain a 50% Canadian content quota during weekday prime time—from 6:00 p.m. to 11:00 p.m.
A core staff of 19 remains more or less intact, but O'Sullivan has had to let go some regular freelancers whose contracts were typically renewed show after show. Yet Proper is better off than many of its rivals. Last December, a study by Toronto-based consultant Nordicity and Peter Miller—albeit one commissioned by unions and associations for producers, actors and other industry staff—warned that Let's Talk TV policy changes could sap $400 million a year in funding for Canadian programs out of the system, and cause the loss of 6,830 jobs.
With too few projects to go around, O'Sullivan says many talented people will leave the industry. And clever shows that might have taken off with viewers will quietly go unmade. "The problem with the way [the regulation has] been handled is that it's been such a blunt instrument," O'Sullivan says. "The point of culling the herd is to kill the unhealthy animals, not the healthy ones."