Wednesday, 5 September 2012

CBC TV: Domino Effect Snowballing into a Chain Reaction

Nordicity undertook a study for CBC in 2011 which concluded that advertising on CBC TV did not detract from its mandate and that eliminating advertising would be "devastating."  The study claimed that if CBC were to eliminate ads it would result in a complex chain reaction which would snowball and weaken CBC, the entire TV industry and even the Canadian economy.   Oddly enough, the study made no reference to the most obvious effect of eliminating ads, i.e., the effect on CBC radio services, which have already seen budgets cut to support CBC TV.   Just how much faith can we have in this Nordicity analysis?

Nordicity devotes about 12-pages of the 27 page report describing the BBC, PBS and to a lesser extent other public broadcasters from around the world to demonstrate that some public broadcasters have ads on their main channels, even if the two most notable ones do not. 

Most of the international analysis had appeared in another Nordicity study commissioned by CBC, the purpose of which was to demonstrate that Canada spends less per capita on public broadcasting than many other countries.  One study eagerly compares international broadcasters, while the other seems to say that models from other countries don't apply to Canada.  Besides seemingly contradicting each other, neither of the studies addressed the audience performance of CBC compared to other countries. 

Nordicity did in fact compare the audience performance of Canada (CBC) to other countries, the results of which are contained in a third study that can be found on the Nordicity web site. The latter was prepared for a U.K. audience and contains the following chart, which reveals why CBC TV, dead last among equals, is not as loved as the BBC or PBS:

CBC, according to Nordicity, generated the smallest audience for public monies spent of all the public broadcasters they examined.  When ad revenues were included, CBC did no better, as shown in this chart from the same report:

Why then does CBC have ads, if advertising revenue does not improve and may be detrimental to audience performance?

Nordicity offers a number of reasons, most of which are based on very simplistic arguments.  For example, Nordicity assumes that CBC would need to spend $349.1 million to replace the time occupied by ads (and sports programming which wouldn't  fit in a non-commercial schedule).  Wait a sec... CBC programmers would surely find ways of filling commercial spots, either with PSAs, promos or top-of-hour newscasts produced by CBC News at very little cost.  Movies or other inexpensive programming could replace sports at a fraction of the cost of the $100 million CBC spends on the NHL and the $50 million it spends on other sports. The rest of the Nordicity analysis was dependent on this obviously flawed assumption.  If the first domino doesn't fall, there will be no domino effect. 

The domino theory is a time-tested technique that CBC uses whenever anyone suggests change: claim that replacing anything (transmitters, the NHL, commercials, etc.) will be so expensive, the fall-out will snowball and completely disrupt everything and the only way forward is the status quo. The CBC trick is to choose the most expensive replacement possible, such as saying that hockey must be replaced with hundreds of hours of costly Canadian drama, making change impossible.  In the current environment with CBC facing a CRTC licence renewal, CBC is using a version of the theory, saying that without new sources of revenue, everything will collapse.

Let's examine some of the other claims and assumptions in the Nordicity study of CBC advertising. 

First, Nordicity dismisses PBS as a model for CBC to emulate because of its puny 1.3% audience. The Nordicity report refers numerous times to audience share and then slips in the reference to PBS's 1.3%.  Well, the 1.3% is PBS's prime time household rating, which can be found on its web site.  What is a rating point vs. a share point?   A rating point is the percentage of the population watching a station in the average minute. A share point equals the ratings for a station divided by the sum of rating points for all stations.  Since only about 35% of people are watching TV in the average minute of prime time, a 1.3% rating translates into a share of almost 4% (i.e., 1.3%/35%).  That is not much different than CBC TV's current share.  So the Nordicity report misleads readers about PBS and the applicability of the PBS model to CBC. 

A further check of the PBS web site reveals that 123 million Americans, or just under 40%, watch PBS monthly.  According to CMRI's 2011 annual Media Trends Survey PBS's monthly reach in Canada was almost 60%, meaning that Canadians see something of real value in what PBS has to offer, which isn't being offered by CBC.  PBS is so valuable to Canadians that about 1 in 5 donate to PBS-style funding drives, a phenomenon that we have tracked for the past ten years in the Media Trends Survey.

Second, Nordicity claims that the cost of  CBC sales is a paltry $24.4 million, which means there are modest savings to be had by eliminating ads.  Pardon me... $24.4 million wouldn't pay the salaries of the hundreds of people employed across CBC/Radio-Canada sales departments.  The actual cost of CBC sales and promotion was reported by the CRTC to be in excess of $136 million in 2011, data overlooked in Nordicity's report.  After making allowances for a small promotion budget, let's say proportionate to CBC radio's promotion budget, the real cost of CBC TV sales is likely over $100 million, enough to fund  replacements for sports programs and many other things.

Third, Nordicity projects that without the money from advertising CBC's audience share might fall to the level of TVO's share, 1-2%, and Radio-Canada's share to the level of Tele-Quebec's, 2-3%. Whoa... TVO had a budget of $64 million in 2011, while Tele-Quebec had a  budget of $83 million the same year.  CBC TV had public funding amounting to $464 million and Radio-Canada $375 million in 2011.  How could audience levels possibly fall to the level of services that had as little as one-seventh of CBC's funding?  This is another example of simplistic analysis by Nordicity, which robs it of credibility.

Fourth, Nordicity asserts that Canadians are accepting of ads on TV.  And that CBC provides a service to advertisers; were it to eliminate ads, some of the dollars would go to private stations but some would even leave the country!  No doubt the unnamed media buyers Nordicity says it interviewed for its study welcome CBC's presence in the ad market because, as Nordicity documents, CBC undercuts the rates of private TV stations.

We know that Canadians are actually not so accepting of ads on TV.  The Media Trends Survey has tracked attitudes toward advertising for the past decade and the great majority of us feel there are too many ads on TV, as shown in this chart:

Thus, it would seem that if CBC were to eliminate ads, it would meet with the approval of most Canadians, if not advertisers or media buyers who would pay higher rates to advertise on CTV, TVA, etc.  However, this issue has been around longer than Peter Mansbridge and won't go away easily.

Nordicity states that the ad rates of CTV and other stations would increase by 5-15% were CBC to be out of advertising. CMRI has been analyzing the advertising market for several decades and in our opinion rates would increase even more, especially among specialty channels such as TSN and Sportsnet, whose ad rates for NHL and other sports have been suppressed for years by several factors, including CBC's presence in the marketplace.  As mentioned, Nordicity confirmed that CBC rates are lower than those of private stations and this has long been a drag on the advertising market and on the revenues and profits of private stations. Increases in ad rates would not be the only thing that would happen.  Many private stations, especially cable specialty channels, have unsold inventory and this would more likely be sold if CBC spots were eliminated.

Nordicity claims that if CBC left the marketplace, only $275 million of the $367 million CBC currently grosses in ad revenue would revert to other TV outlets. In CMRI's view the private stations would see revenues increase by at least double this amount, making them far more profitable.  Being more profitable would allow the CRTC to demand more Canadian programming from the privates.  Nordicity asserts that the privates would only spend an additional $96 million on Canadian programming. The rights to CBC's NHL hockey, which presumably CTV or Rogers would pick up, represent more than this amount, once again demonstrating that Nordicity's analysis is incomplete and lacks credibility.  

The Nordicity study mixed up basic audience metrics, used seriously flawed assumptions, questionable data and made ill-formed projections based on that data; the study adds little to our understanding of advertising and the CBC.  CMRI is not advocating here that CBC TV should eliminate ads.  (There are several CBC channels that derive so little advertising that it makes little financial sense for them to chase after ad dollars.)  The main CBC channels, like the main channels of BBC and PBS, might provide a better service to the public if they were ad free (or if sales were better managed and advertising more controlled).  But this is something that CBC, the CRTC and the federal government should examine based on solid research and analysis.

The 2011 survey results are from CMRI's Media Trends Survey conducted November-December 2011 among a representative national sample of approximately 900 Anglophone respondents aged 18-plus.  Margin of error +/-3.3%.  The Media Trends Survey has been conducted for ten consecutive years and has surveyed over 15,000 Canadians in total in this period. It is the only survey to have measured media use and attitudes continuously over this decade. The Media Trends Survey is not sponsored by any one industry or affiliated with a media company.  Therefore, the surveys are scrupulously designed not to bias respondents into favouring one medium or media outlet over another. 

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