Saturday 8 December 2012

CBC 'Factortions' at CRTC Licence Renewal (Part Three)

At the recent CRTC licence renewal hearing CBC management distorted and contorted basic facts about staffing, salaries, schedule content and revenue models.  To be fair, CBC senior management is facing unprecedented financial challenges but  misconstruing basic facts will not yield a good result for the public broadcaster.  The licence renewal hearing brings into question the efficacy of the strategic planning process at the Corporation.  Below is the third and final factortion presented by the CBC:

Factortion:  Ad revenue for Radio 2/Espace Musique
CBC has requested approval to run commercials on two of its radio services.  The Commission’s decision may be viewed by future historians as a pivotal moment in Canadian public broadcasting. 

CBC engaged Strategic Inc. to forecast the potential revenue of commercials on Radio 2 and Espace Musique.  CAB in turn commissioned two research organizations to prepare estimates of the potential commercial revenue of the two radio services.  Friends of Canadian Broadcasting also asked CMRI to forecast revenues. During the last day of the hearing CBC’s research consultant was asked about the three competing forecasts and discounted them. The other forecasts all strongly suggested that CBC had under-estimated the revenue that would be realized from commercials on CBC radio. This was perhaps the key issue discussed at the hearing. 

The revenue model used by CBC’s research consultant is in all likelihood low-balling the potential revenue, although it is difficult to determine this because Strategic Inc. does not appear to have put its actual calculations on the public record.  The three competing approaches all showed exactly how they made their forecasts.  The limited information that has been filed by CBC contains serious errors, which are discussed below.  While it is tempting to dismiss this as simply “dueling researchers,” the Commission should study the various forecasts and determine which is more credible.

CMRI estimated potential commercial revenue using a well-recognized “top down” approach that employed revenue per tuning hour.  This model was criticized by the consultant because it was “theoretical.” The CBC’s research consultant also dismissed the other two analyses, which used a variation of the Strategic Inc. “bottom-up” approach.  Essentially, the research consultant claimed that all the competing forecasts were theoretical versus the bottom-up “practical” approach used by the CBC’s consultant. 

The consultant explained why she thought the practical approach was superior to the theoretical approach.  She explained the differences in the competing forecasts by virtue of the fact she had “customized” her forecast market by market. In its filing of April 20, 2012 the CBC said “Current audience shares would remain essentially the same” and the revenue projection “assumed…(s)ell out rates…by market” and “calculate(d) rates by station and by hour in the schedule.”  As mentioned, details of how this was done do not appear to be on the public record.  Strategic Inc. did not file a report of its analysis.  However, customization simply means the forecast is based on a greater number of assumptions.  The consultant had to make assumptions for several factors in a series of markets and therefore the CBC forecast has more risk than the market averages used by the CAB in its two forecasts.

CAB’s forecasts and that of Strategic Inc. all used a bottom-up, market by market approach. However, Strategic Inc. in a 2004 report[1], which was submitted to the Commission in a proceeding on local avails, explained the problems of the bottom-up approach: it “relies on several subjective factors” and “The challenges in this approach lie in the accuracy of its component parts and the fact that much of needed information is not publicly available or in an audited form.”

After reading the transcript it is unclear exactly what the consultant said was lacking in the CMRI approach, which used the average revenue/listening hour in private radio to forecast CBC’s potential revenue.  It is not surprising that the CBC’s research consultant had difficulty clearly enunciating weaknesses in the revenue per listening hour approach used by CMRI.  It is because she argued that it was a superior method when Strategic Inc. filed the above research with the CRTC on behalf of CTV in 2004.

Here is what Strategic Inc. said to the Commission in 2004 about the approach used by CMRI: it is “a better approach” than the bottom-up approach and “Using a “revenue per hour of viewing” model recognizes the critical role audience achievement plays and is based on the actual tuning…. In this approach to valuation, factors that affect the ability to generate revenues are built into the model, such as varying demands across markets and sell out rates.”

The last sentence in the quote summarizes the strengths of the approach used by CMRI and explains why the CMRI forecast differs from the bottom-up, practical approach used by Strategic Inc.  The revenue per hour of tuning method requires fewer assumptions, i.e., factors that affect tuning levels, sell out rates, market-by-market demand and seasonal variation are “built into the model” and can be empirically verified.   

After reading the transcript of what the CBC’s consultant said on the final day of the hearing, CMRI examined the data she referred to in more detail. On August 13, 2012 (Appendix C) CBC put limited information about its revenue forecast on the public record, at the Commission’s request.  That document and the one CBC filed on April 20th contained the projected revenues by station and in total for the two radio services.  The August 13th document showed sell out rates by market and projected audience shares, which on the first day of the hearing CBC’s consultant said were used to make the forecast.  In year one sell out rates ranged from about 9% to over 40%, without explanation.  Many markets showed substantially higher sell out rates in the later years but projected revenue did not follow suit.

Most importantly, in that August 13th filing the CBC’s projected audience shares, which determine revenue, for each CBC station were significantly at odds with the published BBM data sourced by CBC in cities such as Montreal, Ottawa, Windsor and Quebec City. In other words, there were errors in the CBC forecast.  For example, Radio 2’s share in Anglo Montreal was shown in the CBC forecast at 1%, when it has been about 2.5% for the past few years. In Windsor the CBC forecast put Radio 2’s share at 0.004%, when it has been about 1% (250 times higher than the number used in the forecast).  In all cases where there were errors, the audience shares were lower than published BBM data sourced by CBC and this would have had a very substantial negative effect on the revenue forecast.  BBM only publishes select markets, so there may be other discrepancies. In addition, on April 20, 2012, not only did CBC say that “current audience shares would remain essentially the same (as today)” but CBC said about its forecast that “projection of audience growth has been minimal as both services are approaching maturity.”  Yet, the CBC August 13th filing (Appendix C) showed 5 of 14 of Radio 2 stations more than doubling audience share a few years later, presumably also errors in the forecast.   These errors should invalidate the CBC/Strategic Inc. revenue forecast.

The bottom line: this is not a case of “he said, she said” but a case of “she said, and then she said.”  Strategic Inc. has previously strongly endorsed the top-down revenue/tuning hour approach in a very similar if not identical situation.  Strategic Inc. used it in the 2004-05 CRTC proceeding and referred to it as the best of three different approaches.

Both the facts and history have been contorted. The top-down revenue per listening hour approach has previously been accepted by the Commission and by Strategic Inc.  In this proceeding CBC has used a “subjective” approach, to use the words of Strategic Inc.’s 2004 report, and it should be considered potentially flawed and capable of manipulation.  In fact, a detailed examination of the information CBC filed about the forecast reveals that it is seriously flawed and rife with errors.  Three competing forecasts that fully explained their calculations strongly suggest that CBC has low-balled the potential revenue from radio advertising.

Understanding and incorporating basic and complete facts about the broadcasting environment is critical in strategic planning. The CRTC has an important role to play in helping the CBC understand this environment.  If such serious factual errors and misunderstandings, which have shaped CBC's current strategy, are not challenged by the CRTC, the errors, repeated often enough, will become conventional wisdom and Canadians will be left with a CBC that will not serve their needs.

[1] “Impact Analysis
Addition of Commercial Inventory on US Services carried on Cable,” Strategic Inc., October 4, 2004


Friday 7 December 2012

CBC 'Factortions' at CRTC Licence Renewal (Part Two)

CBC’s current management is facing enormous challenges, greater than at any time in the Corporation’s history; the temptation to distort and contort the facts to suit a chosen, seemingly compelling, strategic direction is understandable.  However, the CBC's appearance at its recent CRTC licence renewal hearing brings into question the efficacy of the strategic planning process at the Corporation.  Understanding and incorporating basic and complete facts about the broadcasting environment is critical in strategic planning and CBC's disdain for the facts will not serve it well.  Here is the second of three serious factortions CBC made at the hearing: 

Factortion:  CBC TV Sports Programs

During the Friends of Canadian Broadcasting November 23, 2012, appearance before the Commission at the CBC's licence renewal hearing Ian Morrison made the interesting point that in the 8 months of the year when CBC TV carries NHL hockey (i.e., October to May) there are about 1,000 hours of prime time available (4 hours/night X 30 days X 8 months).  Mr. Morrison made the observation that professional sports or related programming accounts for about 400 prime time hours during those eight months.  He said 400 hours represents 40% of CBC’s prime time in those eight months, something that Friends’ tens of thousands of supporters are concerned about.  Even if the number of hours is only 300, this is still 30% of the primetime schedule in the highest viewing months.

The last day of the hearing CBC contorted this information by wrongly claiming that the Friends had said there were 1,000 hours of prime time sports programming on CBC TV, adding that since there are about 1,500 hours of prime time per year (in 12 months),  this would mean CBC’s schedule would be two-thirds sports (1,000/1,500 hours per year).  If CBC management didn’t care enough to attend or monitor the hearing, they could have read the transcript to learn precisely what Mr. Morrison had said.   Instead, CBC dismissed this useful observation by Friends by contorting and distorting basic facts presented to the Commission. 

Moreover, CBC stated that only 10% of its 2012 schedule was amateur or professional sports programming.  CBC didn’t make it clear that this number was for the whole day, not prime time.  An examination of CBC’s program logs would reveal that the amount of professional sports alone exceeded 20% in prime time in 2012, over 90% of which was hockey-related and all broadcast in the eight months Mr. Morrison referenced.  CMRI urges the Commission to review the program logs of CBC and the CRTC public data on CBC expenditures in sports programming to help it determine if CBC is too reliant on sports.

Thursday 6 December 2012

CBC 'Factortions' at CRTC Licence Renewal (Part One)

The CRTC has completed an arduous two week hearing process to renew CBC licences, having heard from CBC senior management and many Canadians.  CBC is Canada’s most important cultural organization and its management, facing the most challenging period in CBC’s history, must ensure that it has properly weighed all the facts about its own organization and the role it plays in the broadcasting system as a whole.  These final comments are in response to the information that CBC management provided on the final afternoon of the hearing and serve to underscore some deficiencies in strategic planning at CBC. 

The term “factortion,” or the contortion and distortion of facts, was used in the Toronto Star earlier this year to describe an ailment that has afflicted CBC management in the past.  In the final day of the hearing CBC presented three serious factortions, each of which related to central issues at the hearing and demonstrate that current management have failed to incorporate some basic facts about the current broadcasting environment in their strategy.  There were other questionable statements made by CBC during this process, the most flagrant being that it was once the only radio operator in Canada.  Here is the first of three factortions CBC made at it final appearnce before CRTC:  

Factortion:  CBC’s efficiency compared to the private sector

Several interveners from private radio urged the Commission to consider that private radio is more efficient than CBC radio, providing evidence in the form of staff numbers per station and average salaries.  Their point was that rather than commercialize its radio services CBC should become more efficient.  CBC’s response was to dismiss this by first pointing out that the CRTC salary data contained overtime, benefits, etc.  CBC implied that overtime or benefits explain the high CBC salaries.

More importantly, CBC said on the last day that it was a large company and a fairer comparison would be to examine CRTC salary data for large private radio companies.  This is a valid point. It is true that CBC radio, according to CRTC data, only pays about $10,000 more per annum per employee when compared to Astral, BCE, Rogers, Corus and Cogeco, the largest private radio companies.  In fact, the CRTC data show CBC radio in total had far fewer staff than private radio stations in 2011, which had four times as many employees.  CBC radio had approximately 2,500 employees, about two-thirds of them in English radio.  Yet, in TV, CRTC data reveal that CBC/Radio Canada had as many staff, about 6,000, as all private conventional TV combined in 2011.  More importantly, the data reveal that the Radio Canada television service had more employees than CBC English TV.  CBC referred the Commission to the CRTC staff data and so we examined it and confirmed this important discrepancy in CBC radio and TV staff levels, which indicates that CBC can find more efficiencies, having done so in radio.

There are many good reasons why CBC radio and TV have a large number of staff: you can’t create quality programs without people. However, when the above-mentioned analysis of CRTC staff and salary data was published in the Star earlier this year one recently retired CBC staffer added some perspective: “I hate to disabuse you but what you say was the average salary last year was about one-third of what I was paid….Actually, as you know, averages are just that. The average would include all the low paid copy clerks and junior technicians, of whom there are many, and all of the high paid talent and producers, of whom there are few. Fortunately for public consumption that helps to bring the average down.” 

Those low-paid CBC clerks and technicians work very hard for their money and are worth every cent, providing an invaluable service to many, if not most Canadians.  However, the CRTC staff and salary data also reveal that CBC total salary expenditures showed a large annual increase in 2011, despite budget cuts.  The increase paid by CBC in salaries last year was just under $50 million, according to the CRTC data the CBC referred to in its final appearance. This is more than twice the amount CBC says it would generate from commercials on radio.

Some areas of CBC, especially management, may be over-staffed and paid more than the rest of the industry.  More than 600 managers, according to CBC, are in a category that makes them eligible for bonuses; this number has grown exponentially in the last decade.  Salaries of on-air staff and those of senior producers may be overly generous compared to the rest of the industry and CBC could find efficiencies. The Commission should carefully examine the staffing data CBC referenced in its final appearance to determine if efficiencies are preferable to further commercialization of CBC services, namely Radio 2 and Espace Musique.

Thursday 29 November 2012

How to Fund the CBC: A Modest Proposal

Canadians spend an exceptional amount of their discretionary income on communications and media. Canadian households spent just over $3,000 in 2010 on communications and media, which includes phone service, cell phones, internet, cable/satellite TV, purchase of new TV sets, DVDs, iPods, tablet and personal computers, etc. This is summarized in the table below:

Also shown in the table is that Canadian households spent (through their taxes) $88 on CBC/Radio Canada TV and radio, which represented just under 3% of total communication and media expenditures.

The federal government recently cut the budget of CBC by about 10% and CRTC cancelled a local programming fund that cable and satellite subscribers pay.  These cuts will come into full effect over the next two years.  To offset these cuts and to provide a source of future funding for CBC/Radio Canada, the government through an Order in Council should implement a voluntary levy on all communication and media services.  All cable, satellite, phone, cell phone and internet companies, as well as retailers of audio and video equipment, would be required to ask customers in each billing period if they would like to make a voluntary contribution to maintain and improve national and local programs on CBC TV and radio. Smaller purchases at Best Buy, etc. would not be included.

CMRI's Media Trends Survey reveals that a percentage of Canadians willingly donate to PBS and other public broadcasters, as shown in the chart below:   

CBC TV and radio attract substantial audiences and our surveys over the past decade have shown that Canadians of all political stripes are very supportive of CBC. A voluntary communications levy would function much like requests for charitable donations at liquor stores or other retailers, which appear to be very successful.  Because this program would be ongoing and apply to all major purchases, retailers and service providers would be paid a commission for collecting the levy.

CBC’s loyal listeners and viewers would likely be willing to make voluntary contributions to maintain CBC services and it is possible that the recent cuts in CBC funding would be made up with a communications levy.  Who knows, maybe such a levy could raise all the funding that CBC requires in future years and the government would no longer have to fund it through general tax revenues?

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 our analysis we usually only report Anglophone results.   Both Anglophones and Francophones have been surveyed in this period, using questionnaires in each respective language.  Francophones have been surveyed in 5 of the 10 years.  To compensate for poorer response rates among younger adults results are statistically weighted in keeping with industry standards.  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.

Monday 26 November 2012

Is CBC a Sports Channel?

How much do CBC and the other networks spend on sports programming?  How much advertising revenue do these networks generate?  Does CBC lead all networks in sports expenditures and advertising revenues?

The table below summarizes Canadian sports program expenditures of CBC, CTV and the sports specialty channels in the years 2008 to 2011:

CBC in 2008, a year it held Olympic rights, spent $180 million on sports programming.  This declined to $139 million the following year, the first year of the CBC’s current NHL contract, and increased to about $150 million by 2011.  CTV, as expected, spends very little on sports; it spent virtually nothing in the 2011 broadcast year.  Only in 2010, the year CTV and Rogers shared rights for the Vancouver Olympics, did CTV spend heavily on sports.  That year CTV identified spending $137 million dollars on sports programming, meaning it paid dearly for the Vancouver games. 

The three sports specialty channels, despite having to fill 24 hours a day with sports, each spend less on Canadian sports programming than the CBC.  In 2008 and 2009 TSN and Sportsnet had total program expenditures of between $92 million and $122 million.  In 2010 expenditures of TSN/Sportsnet, who also aired the Vancouver Olympics, increased noticeably and in 2011 both were at $140 million.  RDS spends roughly half what its English counterparts spend, some $66 million in 2011.  So in terms of expenditures on Canadian sports, CBC leads all networks, including the three all sports channels.

The table below shows the total ad revenues of CBC TV, CTV and the sports networks in the past four years:

In 2008, with the help of the Beijing Olympics, CBC had ad revenues of $253 million.  Revenues declined precipitously in 2009, as did the revenues of most companies during the 2008-09 financial crisis; they rebounded in 2010.  Last year total ad revenues of CBC were $246 million.  Sports probably accounts for something like $150 million in ad revenues on CBC TV, or presumably at least as much as CBC spends on sports.  CTV, one of CBC TV’s main competitors, generates much higher ad revenues, $784 million in 2011.  (Global TV, the other main competitor in the marketplace generated just under $500 million in ad revenue last year or about double that of CBC TV.)  But neither CTV nor Global normally derive much revenue from sports.  

Interestingly, even with the hundreds of NHL games carried on TSN/Sportsnet/RDS and the thousands of hours of other professional sports, the total ad revenues of the sports specialty channels are relatively modest, accounting for between $63 million and $129 million in 2011.  So in terms of advertising revenue derived from sports CBC TV generates more ad revenue than its main competitors and the all sports channels.  Of course, the sports channels make additional money from subscription revenues, which come in even when the NHL locks out its players. 

Monday 19 November 2012

CMRI Responds to Nordicity

CMRI’s critique of Nordicity’s study dealing with the role of advertising on CBC has generated a reply from Nordicity.  Nordicity’s reply was picked up by at least one news outlet.    In its reply Nordicity was very selective about the facts and made false statements about CMRI’s analysis. 

Nordicity’s reply to the CMRI critique did not deal with most of the major issues raised by CMRI:  the assumptions made about the cost of replacing ads, the claim that with as much as seven times the budget, CBC/Radio Canada’s audience share would possibly shrink to the levels of TVO/Tele-Quebec, etc. Instead Nordicity chose to deal with the following less important items.

Nordicity’s reply claimed that its report was not primarily about audiences: “Quite to the contrary, audience is a secondary concern of our analysis.  The primary concern is clearly stated in conclusion #4 on page 13:”  Here is that conclusion: “Conclusion #4: The PBS operating structure, revenue model, and program production financing could not be readily replicated in Canada.  If CBC/Radio Canada managed to do so, it would likely decline in audience terms to PBS’s niche presence in the market.” In its reply to CMRI Nordicity omitted to reproduce the second part of this conclusion, which seems ultimately to be all about audiences. The fact is that the word “audience” is mentioned over 30 times in the 27-page Nordicity report.

Nordicity’s reply claimed it did not confuse the term “rating” with audience “share:” “Your article implies we misled readers about PBS’s viewing level…In fact, we clearly state on page 13 of the report that PBS has a 1.3% rating:” This is a false statement: the word rating does not appear in the Nordicity report.  The word ratings does but is used in the generic sense. Putting aside the fact that the number 1.3% was two lines away from the word “ratings” in the actual report, Nordicity doesn’t mention that the sentence just prior to 1.3% read: “As a result, PBS now has a very limited audience share and impact on the U.S. market.”      

And, just what did Nordicity mean when it claimed PBS had a limited impact on the U.S. market?  If tonight the PBS news hour, a science program, an arts program and a drama were watched by different people and each program had a 1.3% rating, then the audience reach of PBS would be 5.2% (1.3%X4).  If this was repeated for the next week, the audience reach would be over 35%, which, assuming the programs were of high quality, would likely result in a very substantial impact on the market.     

Nordicity went on to compare PBS and CBC audiences: “In fact, CBC TV’s prime time audience share is double, which in audience terms is a very significant difference.”  CMRI originally pointed out that PBS has a very substantial following in Canada and it does so with no local stations, staff or infrastructure.  Hopefully CBC English TV with numerous stations and a large infrastructure, as well as about three quarters of a billion dollars in annual operating revenue, will draw a larger audience than PBS. 

Nordicity also took issue with our questioning Nordicity’s “estimate” of the cost of selling ads on CBC.  Nordicity put the cost of sales at about $25 million annually. CMRI pointed out that CRTC data showed that it was likely many times higher.  Nordicity in its reply said:  “In fact, we cited the CRTC as a source for our estimate in our report on page 16, Table 1.”  CRTC was mentioned along with four other sources for the table in question but Nordicity did not discuss the CRTC sales data at all. Moreover, why was Nordicity “estimating” the cost of CBC sales?  Why didn’t it just ask the CBC, its client?

Finally, Nordicity makes a blanket statement about CMRI’s competence: “In addition to these factual misrepresentations of our work, you make basic audience research errors and misrepresent your own survey data.” 

In its critique CMRI clearly referred to 10 years of data from its annual survey regarding attitudes toward TV advertising. Nordicity made the following false statement in its reply about CMRI’s annual survey: “Your survey cannot purport to state any facts about Canadians, since your survey is of “900 Anglophone respondents” and by definition excludes all francophone Canadians.”  In our analysis we usually only report Anglophone results and CMRI clearly stated: “The Media Trends Survey has been conducted for ten consecutive years and has surveyed over 15,000 Canadians in total in this period.”  Approximately 2,600 of those surveyed were Francophones, who responded to a separate French-language questionnaire in five of the last ten years.  Francophones have had almost identical feelings toward advertising but Nordicity falsely claimed we had no such data.

Nordicity’s reply to CMRI’s critique appears to be an attempt to deflect attention away from the major issues about advertising on CBC.  In our view Nordicity’s reply only casts further doubt on the validity of the original study about CBC and advertising. 

Thursday 15 November 2012

Are Pro Sports More Important Than Libraries, Books or Newspapers?

Last winter we asked a representative sample of Canadians what Canadian arts and cultural activities, including professional and amateur sports, they personally considered important.  We also asked whether people would be willing to pay for such activities.

Not surprisingly, pro sports were considered the most important activity when ranked by the percentage who said they were “very” important.  Libraries basically tied with pro sports.  On the other hand, amateur sports were considered no more important than theatre.  Such things as newspapers, movies and TV documentaries also scored highly with Canadians.  Newspapers are obviously not dead yet, even if readers have turned to the internet for classified ads and some other content that the paper used to feature.  Fiction and non-fiction books as well as museums formed a second group of activities next in level of importance.  Many of the more classical arts activities such as art galleries, theatre, painting, classical music and sculpture fared much poorer with the public and the least important activity was professional dance.  Interestingly, internet video and publications (including blogs I assume), also did not rate highly compared to other arts/culture choices.   Contemporary Canadian music fared only slightly better than classical music. The details are shown in the following chart:

Of course, results vary substantially within various demographic groups and readers are encouraged to request more details.  Two groups of Canadians who differ from the national averages are CBC Radio 1 and Radio 2 listeners.  Both Radio 1 and 2 listeners considered pro sports less important than libraries and newspapers, another positive sign for the newspaper industry and reading in general.  Radio 2 listeners also ranked museums and art galleries far ahead of many other activities. Radio 1 listeners ranked classical music well down the list, whereas Radio 2 listeners put it on par with fiction and non-fiction books. Despite the gutting of much classical music on Radio 2, current listeners remain supportive of it. Even among the high-brow CBC radio audience professional dance finished dead last in importance and many other traditional art forms like painting and sculpture fared relatively poorly.  The details for CBC radio listeners are shown below:  

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 our analysis we usually only report Anglophone results.   Both Anglophones and Francophones have been surveyed in this period, using questionnaires in each respective language.  Francophones have been surveyed in 5 of the 10 years.  To compensate for poorer response rates among younger adults results are statistically weighted in keeping with industry standards.  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.

Saturday 15 September 2012

Mr. Bettman: CBC is Losing Money on the NHL

A lockout of NHL players may actually save CBC money this year.  In a typical year CBC TV will broadcast over 100 NHL regular season and playoff games, occupying about 350 hours in the schedule and generating relatively large audiences which are sold to advertisers.  CBC has aired hockey on Saturday nights for going on 60 winters and some believe CBC and Hockey Night in Canada are synonymous in the public’s mind.  CBC Sales refers to HNIC as “the longest running and most influential program in Canadian television history.”  CBC management seems determined to renew the contract for the NHL and its executives and former executives seem to believe CBC would collapse without HNIC.  A psychologist would likely say that if the CBC were a person, it is addicted to the NHL.

Here we examine some of the facts about the NHL on CBC TV and other networks and consider what the real cost of HNIC is to the CBC. 

While CBC airs 100 or more NHL games each year, including exclusive rights to the Stanley Cup finals, sports specialty networks air a surprising number of NHL games.  This was a result of recent CBC NHL contracts, especially the contract that started in 2008-09, which resulted in CBC losing more of its exclusive rights to hockey. We examined the years 2010-11 and 2011-12 to determine what other NHL hockey is available to Canadian viewers: 
·        Sportsnet annually broadcasts over 200 NHL games on one or another of its four regional networks. 
·        TSN, like CBC has national rights, and airs just under 200 games on either its original TSN or TSN2 services. 
·        RDS broadcasts over 200 NHL games in a typical season, including all the Montreal Canadiens games.
·        NHL games are also available on NBC stations imported by cable/satellite, U.S. superstations such as WGN, Chicago and the NHL network.
·        Virtually all NHL games are also available via NHL Center Ice which can be purchased from your local cable/satellite operator or directly from  

There was a time when CBC TV had a distinct advantage over TSN and Sportsnet, which are only available on cable and satellite.  When CBC abandoned over-the-air broadcasting on July 31st, it lost that advantage.  In many communities the only way to receive CBC is via cable or satellite.  In effect, sports specialty channels are now almost as widely available as CBC and they too capture large NHL audiences, although some of their games involve U.S. team match-ups that normally do not draw audiences as large as HNIC.  It is apparent that if the 100 or so games that currently appear on CBC TV were to be carried by CTV, for example, it would represent a fairly minor change for Canadian hockey viewers.

Former CBC executive with NHL's Gary Bettman
CBC in recent years has lost the rights to all other major league sports. At one point in time CBC had CFL, NFL, MLB and other professional sports but over the years the Corporation has been pushed aside by deep-pocketed sports specialty channels.  CBC’s management structure which puts senior people with little broadcasting experience at the negotiating table with the NHL, etc. has also no doubt taken a toll.  Other than hockey, CBC TV airs only about 120 hours annually of minor professional sports, consisting of horse racing, the Calgary Stampede, one tennis tournament and other bits and pieces. Perhaps as a result CBC has gone to great lengths to conceal the financial terms of its NHL contract, which expires in 2014, two years hence. 

Other Canadian networks have generally followed suit, perhaps fearing ridicule from their competitors over what they paid for rights.  Having a publicly-funded network bid for sports rights has engendered a desire for secrecy.  When U.S. networks sign deals with the NFL, NBAMLB or the NHL, they are quite open about the amounts paid for rights.  For example, the 10-year deal signed last year between the NHL and NBC Universal has a price tag of $200 million annually, a substantial increase from the previous contract.  A number of analysts put the price of CBC’s current NHL contract at $100 million per season and the total cost of NHL contracts in Canada at just north of $150 million.  The $100 million CBC pays currently represents an increase of about 50% over the previous contract.

What does CBC spend on sports in general?  CBC in 2008, the last year it held Olympic rights, spent $180 million on sports programming.  This declined to $139 million the following year, the first year of the current NHL deal, and increased to about $150 million by 2011.  The cost of the NHL contract is a large part of this $150 million.  Also included in the $150 million would be the minimal amount spent on the other sports aired by CBC and the cost of HNIC production, especially all the salaries associated with HNIC, including the salaries of Don Cherry and Ron MacLean.  HNIC costs more than just the rights money sent to Gary Bettman in New York.  Thus, making allowances for the cost of technicians, play-by-play announcers, etc., the total cost of HNIC is probably closer to $125 million annually ($100 million for rights and $25 million for production).

What ad revenues do HNIC generate?  For years CBC has claimed that HNIC is a revenue generator, not only pays for itself but makes a profit and pays for other programming and is the jewel in CBC’s crown.  Given the management structure of CBC, it is unlikely that anyone, including the president of CBC, knows precisely how much revenue HNIC generates (and almost certainly not the total cost of HNIC).  In 2008, with the help of the Beijing Olympics, CBC had ad revenues of $253 million.  Revenues declined precipitously in 2009, as did the revenues of most companies during the 2008-09 financial crisis; they rebounded in 2010.  Last year total ad revenues of CBC were $246 million.  Does HNIC account for half of the total ad revenues of CBC TV?  Probably more like a third of the total revenues, with the hundreds of other programs on CBC accounting for the other two-thirds. 

Let’s say that HNIC accounted for 40% of 2011 total revenues, or roughly $100 million.  We have seen that the cost of the NHL rights and production of the NHL games is in the range of $125 million.  So, even with the generous assumption that 40% of all revenues are generated by 350 hours of hockey and the other 8,000 hours or so of the CBC schedule only generate the other $146 million, HNIC must be losing money today. 

The true cost of HNIC can’t be measured without considering the cost of selling the ads in hockey and other CBC programs.  CBC’s sales and promotion expenses have increased markedly since 2008, from under $50 million to over $80 million in 2011.  Some of the $80 million that CBC spends on sales, which, according to their sales department’s web site, has almost 100 managers, is spent on HNIC, perhaps $20-30 million.  This amount should be added to the real cost of HNIC to CBC. Adding in the cost of sales means CBC’s HNIC is losing tens of millions of dollars with the current NHL contract, perhaps as much as $50 million.

These expenditure and revenue data raise an interesting question. If HNIC is currently losing money on CBC is the current NHL contract affordable for CBC or any broadcaster?  The contract CBC negotiated with the NHL in 2008 gave CBC 100 or so regular season and playoff games and gave hundreds of games to TSN/Sportsnet/RDS at a combined rights cost of roughly half what the CBC pays.  CBC paid a very high a price and unleashed market forces that make the current NHL contract unworkable.  CBC may have priced everyone, including itself out of the future market for NHL games.  If CBC can’t make a profit on HNIC, how could CTV, Rogers or Global?  Gary Bettman, like the IOC, which sold the Vancouver-London Olympics at a price the Canadian market can’t support, faces a dilemma.  Neither CBC, CTV, Rogers or Global will want to pay the current fees for conventional TV rights.

CBC did without hockey when the players were locked-out in 2004-05 and fared surprisingly well, losing only a small proportion of  its audience that year, according to the CBC.  Of course, it wasn't competing against hockey and results would be more modest if it were.  As it approaches 2014 the CBC would be wise to think about programming strategies that do not include NHL hockey, as Radio Canada did years ago, which made SRC a distinctive and more vital service.  Initially there was a public (read: media) outcry and the CBC president was hauled before a Parliamentary committee to explain this horrible decision but within weeks it was all but forgotten.  CBC is losing money now on HNIC and will for another two years, if the players and owners can agree on a new contract. 

The good news is that by ending HNIC and assuming replacement programs can eventually generate the same revenue it will free up something like $150 million (rights costs, production costs and sales and promotion expenses).  That $150 million could be spent on new Canadian drama and other entertainment. CBC executives will argue of course that replacement programs for the 350 hours of hockey will cost hundreds of millions of dollars and bring in much less ad revenue.  They might even suggest that all this expensive programming has to go into the HNIC time slot. What they fail to recognize is that the replacement hours don't all have to be original drama that cost $500,000 an hour and new programs can be strategically placed in the schedule. Even if it is only $75 million in savings that would actually double the budget that CBC currently spends on Canadian drama and comedy and perhaps lead to a CBC television service that appeals to a broader spectrum of viewers.   

Note: all financial data provided by CRTC.

Tuesday 11 September 2012

CBC Is So Transparent

CBC devotes a section of its web site to accountability and transparency.  To achieve these goals the Corporation is required by the government to publish quarterly reports on its performance.  The report for the first quarter of 2012-13 has just been released.  Inexplicably, the year's first quarterly report does not contain audience targets or past audience data for CBC's main TV and radio services and the report claims the data are not available. Audience data are obviously the most important CBC performance indicators, since they are the ones that tell us how Canadians are responding to CBC TV and radio.  The only audience data in the new report relate to and CBC News Network.  Data for CBC News Network come from exactly the same source as audience data for CBC's main TV/radio service, so clearly the data are available but CBC has chosen not to report them to the government.  Here is what the Corp included in the recent report:

Last year the first quarter's report for 2011-12  included the annual audience targets for radio/TV and the annual results from the previous year; results were then reported in subsequent quarters. Here is what the report looked like last year:

The quarterly report just issued made no mention of either targets for CBC TV or radio in 2012-13 or the performance in 2011-12.  The 2011-12 audience data are available of course and their omission in the most recent report raises serious questions about the integrity of CBC's reports to stakeholders.  Facing a CRTC licence renewal in November 2012, is it possible that CBC didn't want to reveal major audience losses, which would call into question its current strategy and future plans?

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.