Soaring cost of sports rights squeezing CBC on to sidelines

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It is not often that an organization takes pains to publicize its failures. But as Canada's public broadcaster lost its grip on the TV rights to yet another major sports event, the frustration was palpable.

In October, the Canadian Broadcasting Corp. put out a statement emphasizing how "disappointed" it was when FIFA, the international governing body for soccer, decided to award the rights to World Cup and other events to BCE Inc.'s Bell Media unit, starting in 2015. The communications powerhouse simply put more money on the table.

It has become a familiar tale for the CBC, which is struggling to remain a contender for televised sports events at a time when those rights are commanding stratospheric fees. Competitors have been chipping away at CBC's sports franchise for years – TSN took the Canadian Football League and Canadian Curling Association events in 2006 and two years later snatched the nostalgic pride of the CBC, the Hockey Night in Canada theme song.

But since then, there has been a sea change in the Canadian media industry as the main private broadcasters were bought up by cable, telco, and satellite giants. TSN is now in the Bell fold, and Rogers Communications Inc. has been swiftly ramping up its investment in its Sportsnet channels to compete. This month, the two rivals teamed up to buy Maple Leaf Sports and Entertainment Ltd., owner of the Toronto Maple Leafs and Toronto Raptors, for $1.3-billion, to gain control over its lucrative TV rights.

All of which raises the question: is CBC doomed as a sports broadcaster?

"It is a challenge. It's a challenge for the sports media landscape in general, to sustain these types of levels, what rights are currently commanding," says the CBC's executive director of sports properties, Jeffrey Orridge, who took the job last year after CBC executive Scott Moore jumped to Rogers.

"We don't have the luxury, clearly, of vertically-integrated media scenarios, where you can offset expenses into other divisions, or be capitalized by more profitable divisions [in the company]"

Mr. Orridge contends that there is a growing bubble in broadcast rights fees for sports events that could be unsustainable for all players, not just the CBC. There is no question that rights have been commanding ever-higher bids. Shaw Communications Inc. holds the rights to a sports specialty channel, but abandoned its plans to launch because it judged the market to be too crowded.

The rising cost puts at risk the CBC's control of its marquee sports property, Hockey Night in Canada. When the broadcaster renewed its deal with the NHL in 2007, the price tag was reported at $90- to $100-million, an increase of at least $20-million from its previous deal. Most observers feel that when those rights are up for grabs again in 2013, Bell Media will take a hard run at them. Rogers Media may also come to the table.

That's bad news for the CBC, which still relies on sports events for a large chunk of its advertising revenue. The public broadcaster does not disclose what portion of its TV advertising comes from hockey alone, though reports around the industry say it could be as much as half

Former CBC president and chief executive officer Robert Rabinovitch believes the current industry trends mean that the public broadcaster may not be able to compete any longer in sports.

"It's going to be very hard for the CBC to continue [to be relevant] if it continues to lose all sports that are of interest to the public," he said. "To lose hockey, and to only have the amateur sports, would be devastating to their image."

CBC was heavily outbid for the 2010 and 2012 Olympic Games by CTV and Rogers. Bell Media, which now owns CTV, has formed a partnership with CBC for the next Olympic bid. These kinds of alliances may be the only way CBC can do business in televised sports from now on.

"CBC is charged with putting together deals that make financial sense for our stakeholders. Does that usher in an era of more collaboration? Absolutely. Absolutely," Mr. Orridge says. "The idea is maximizing the sport experience, with acceptable margins. And mitigating risk."

But that won't help it to win back some of the events it has already lost. Take the CFL, for example. TSN snatched it away for a reported $75-million for five years, a hefty hike from the previous contract's $45-million. The rights are up for grabs again in 2013, but CBC will likely have a difficult time outbidding TSN. (A potential partner, Rogers, is preoccupied with baseball in the warmer months.)

The companies that CBC is competing with are fighting to maximize content and making competitors pay for the privilege of sharing it, whether on TV screens, online, or on their mobile phone networks.

"Sports viewers are passionate, the advertisers are loyal, and it's the perfect genre for TV Everywhere, on all platforms. Our goal is premium, world-class content. And sports is just that," says Rogers Media president Keith Pelley. "There are tremendous benefits for us being involved in sports. We want to be the sports leader."

Sports is particularly attractive because viewers are continuing to migrate away from live TV, moving to online shows, programming they're recorded with PVRs or ordered through digital cable on-demand systems. That means advertisers will pay a premium for shows that command a captive audience, and one willing to sit through commercial breaks.

This trend should accelerate in the next three to five years, broadcasting executives speculate, meaning the future deals now being struck for live sports are particularly crucial.

"There'll always remain little to no people interested in watching a sports event after the fact," says Bell Media's president of programming and sports for CTV, Phil King. "[Sports]is a safer bet."

Sports is also useful for companies to promote other programming on their channels, in the way that News Corp.'s Fox network built its popularity in the 1990s on the back of NFL football.

One factor complicating things for CBC's competitors, however, is the federal broadcast regulator. In its "vertical integration" decision released this fall, the Canadian Radio-television and Telecommunications Commission ruled that if two companies cannot agree on the per-subscriber fee every cable and satellite provider pays to carry a specialty channel, the owner cannot pull that channel, using a blackout for that company's subscribers as a bargaining chip. That's good news for viewers, but cuts down on the negotiating power of those who own media assets. If the premium sports channels can't spike the price they charge to be carried, that theoretically means less money to take to the leagues. But with such large companies in the game, the budgetary difference is still very large.

And there is growing tension in the industry over CBC's role. With so much airtime devoted to sports, a quiet complaint is rising among executives as to why CBC needs to be competing for these assets at all – an argument some may be hoping the government takes notice of as well.

"There's this argument, why is a public corporation driving up the price for private sector programming, by competing with them," says Brian Cooper, the president of Toronto sports media marketing firm S&E Sponsorship Group. "This is tax dollars driving up the price … For the Bells and others, they're saying, 'You want to cover the Canada Games, great … [but for popular events] they're driving up the price.'"

In response to a request for an interview on the subject, the Department of Heritage responded in an e-mailed statement that the federal government gives annual funding to CBC/Radio-Canada "and expects the corporation to be accountable in the way it spends taxpayer dollars … As an independent Crown corporation, the CBC is responsible for the management of its day-to-day operations."

CBC's five-year plan indicates that it will continue to make sports part of its programming. But it will be hard to do so against corporate giants that are willing to pay so much – too much, Mr. Orridge suggests – for events like the World Cup.

"Trust me, we crunched the numbers. We knew what the [profit]margins were. And we went to the max," Mr. Orridge says of the CBC's bid for soccer's premier event.

"Have we reached the point of irrational exuberance? … Clearly, sports is a sweet spot. You can make a case why sports rights command such a premium. But at what point is that beachfront real estate overpriced? I don't think anybody has an answer yet."