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We need a new TV funding plan: O'Farrell
10/14/2003

OTTAWA - Canadian Association of Broadcasters president and CEO Glenn O'Farrell appeared before the Standing Committee on Finance during the committee's pre-budget consultations.

While giving the committee a TV cultural policy history lesson, he also told the government cake-cutters that not only did funding to the Canadian Television Fund need to be re-established to its previous $100 million level, but also that a new, stable funding plan had to be set in place if Canada's broadcasters are to meet the policy objectives set out in the licenses granted to them by the CRTC under the rules set out in the Broadcasting Act.

Here is O'Farrell's speech, given Wednesday, October 8, 2003.

Good evening and thank you Madame Chair and members of the Committee for this opportunity to appear before you today. My name is Glenn O'Farrell, President and CEO of the Canadian Association of Broadcasters, representing the vast majority of Canadian programming services, including private radio and television stations, networks, and specialty, pay and pay-per-view services.

I am here tonight to speak to you about television programming. I know you have already heard from many Canadians on this issue and will hear from many more. Let me get right to the point. Viewer numbers show that Canada's private broadcasters provide the windows through which most Canadians get to see, hear, and enjoy the best of Canadian culture.

We have the will to produce it.

We have the creative talent to do it.

What we don't have is a plan. A national television programming plan, or a strategy, that harmonizes CRTC Canadian programming demands as established by CRTC license decisions with fiscal policy providing support mechanisms.

Let me explain. Canadian private television broadcasters are licensed to provide programming services in accordance with the licenses they hold. The individual programming requirements placed on private broadcasters are developed to comply with CRTC policy and regulation designed to provide Canadian audiences with diverse programming choices. And by many accounts, we have one of the best broadcasting systems in the world. Through commercial revenue sources ranging from advertising to subscription fees paid by consumers to receive the services, private broadcasters support their businesses.

As you would expect, the single largest cost of business for broadcasters relates to programming expenditures. The realities of our regulated industry demonstrate that given our market size and the cost of producing programming, the commercial marketplace sustains certain genres of Canadian programming - for example, news, sports - and is incapable of sustaining other programming categories such as drama.

Originally, the regulatory contract between private broadcasters and the CRTC was rooted in a complex paradigm of public policy objectives yet its commercial underpinnings were fairly straightforward: Canadian programming to be provided by private broadcasters would be financed by its commercial revenues or by a cross-subsidy flowing from revenue derived from US programming broadcast on the channel.

However, as the broadcasting system evolved by adding more and more channel choice for consumers, fragmenting audiences, the original commercial underpinnings of the regulatory contract became seriously strained. As we appear before you this evening, we take pride in the fact that government in partnership with private broadcasters and distributors, have developed a sophisticated and enviable Canadian broadcasting system.

However, along the way, we have neglected to develop a plan to harmonize government's cultural policy of creating more Canadian programming options for consumers with support mechanisms through fiscal policy.

We urge the members of this Committee to recommend that the departments of Canadian Heritage and Finance come together to lead a critically important initiative dedicated to address this deficiency by developing a multi-year, accountable and transparent Canadian programming production plan.

We need a coherent, clear-cut action plan - we don't have one now and it shows.

We need this now more than ever before. Canadians are demanding access to more choice, and technology is providing it. We need to ensure that the plan going forward is accountable and transparent and meets the needs of the stated objectives.

Our industry is strong and vibrant. Taken together, Canada's broadcast and production industries account for economic activity that is equivalent to all air and rail transport sectors taken together.

What's more, the Canadian broadcasting sector is a new economy industry with a young workforce that's among the most highly skilled and highly paid in the country. These young, highly-skilled creative workers, tens of thousands of them, are a big part of the great success story of Canadian Innovation. Their creativity and dynamism drives exports of over $2 billion annually. Their passion and ingenuity keep Canadian cultural production alive and thriving… against the greatest of odds.

The government has set for our industry a major cultural objective: to fill our small screens with Canadian stories, Canadian voices. With TV programming that reflects Canada and its people back to Canadian viewers. The CRTC implements this cultural objective by mandating Canadian content requirements.

At the same time, the CRTC, responding to the Canadian public's desire for more choice and variety, has issued licenses to an ever-increasing number of television services, each with a mandate to deliver Canadian programming content.

Conventional television services have grown in recent years. And the number of pay and specialty services have shot up exponentially. In fact, since 1996 the number of English and French language services licensed by the CRTC has tripled, growing from 38 to 118. Each one of these 118 services has a condition of license of varying degrees of requirements for Canadian content.

For example, conventional broadcasters are required to devote 60% of the broadcast day to Canadian programming, and air eight hours of priority programming in prime time. For pay and specialty services, this varies from one service to another. For example, History requires 50% Canadian content during the day, 33% in the evening; Canal Vie 50%; and Discovery Canada must spend 45% of previous year's gross revenue on Canadian programming.

The effect of this regulatory policy is to offer Canadian choices to viewers and what we need to focus on is what is not sustainable in the Canadian marketplace and to create a demand for Canadian content. And as we mentioned, some of it is market-sustainable, some of it is not. The Canadian government has long recognized the need to support the production of Canadian programming content that is not market-sustainable - through financial mechanisms such as the Canadian Television Fund and tax credits.

Unfortunately, these financial mechanisms have not kept pace with the increase in CRTC awarded licenses for new programming services. This has resulted in a serious disconnect between the cultural objectives of the Canadian government and the means to achieve them. Witness the three-fold growth in television services since the CTF was launched as a public-private partnership in 1996.

And this disconnect became crushingly evident in the last budget, which cut $25 million from the CTF.

We have calculated that the impact of this 25-million dollar cut would have resulted in a six-fold reduction in programme spending. After aggressive lobbying from all sectors of our industry $12.5 million was rolled forward from next year to help save Canadian programs and many jobs in all regions of the country. However, this is only a stop-gap measure - and it leaves the Fund with an even more desperate shortfall next year – down to $62.5 million of new money. This will not meet the demand required to address the cultural objective.

The impact is greatest on dramatic programming, the kind of programming that is the most expensive to produce while meeting the government's cultural objectives. The cost of dramatic production is high, and drama accounts for more than one half (60%) of the CTF's funds, putting a tremendous squeeze on other genres, such as documentaries, children's programming and variety programs, all competing for funding.

At the same time, production budgets for Canadian drama are anorexic in comparison to the U.S. shows against which they must compete for audiences. The market cannot sustain heavy front-end costs in script development, pilots, and audience research and testing. These R & D investments help U.S. drama producers create successes that run away with our audiences, year after year.

For sake of reference, Canadian conventional broadcasters revenue are, on average, 275- thousand dollars an hour on those U.S. shows. This off-sets the cost of airing Canadian programming which typically loses 100-thousand dollars an hour (McQueen 2003).

That's not exactly an incentive to create great Canadian programming – certainly not for private sector CFOs or shareholders. We urgently need a plan of action that makes sense. Business sense, policy sense, and plain old common sense. Here's what we propose:

First: recognize the critical importance of the CTF as the cornerstone of the action plan, restore its funding to previous levels, $100-million in 2004, and commit to sustaining it as a stable source of federal government investment.

What we need is multi-year stable funding, yielding predictable outcomes, which is accountable, transparent making the audience the winners. The reduction in the CTF last February puts into question the commitment of the government to telling Canadian stories.

Yet there is strong support in many quarters for the reinstatement of funding to the CTF. In April 2003, Paul Martin responded to a question at a town hall meeting about the restoration of the $25 million reduction by stating: I would restore it unequivocally. I think that the manifestation of our culture in terms of our identity is absolutely crucial, and to be cutting that Canadian Television Fund and then in fact to be turning the money over to be bringing in foreign product doesn't make any sense to me.

The Standing Committee on Canadian Heritage Committee agrees - and I quote: "That the Canadian Television Fund (should) be recognized by the government as an essential component of the Canadian broadcasting system. This recognition must include increased and stable long-term funding."

End the disconnect between "demand" and "supply." Moderate demand by the CRTC, so that it is in tune with the level of available supply of investment funding.

Third: recognize the fact that the potential to produce outstanding Canadian programming is a major link in the chain of ongoing Canadian innovation. Currently, we are not meeting our potential. Other middle power competitors, like Italy and Australia, have made gains, in part because the political will has been there.

In Canada, we have the will, we have the talent. What is absent is a sense of cohesion between the various players - Heritage, Finance, the CRTC and the Canadian Broadcasting industry - to meet the stated government cultural objective that seems to be missing.

We are asking that the activities that create outstanding products - which in turn will build natural audiences for Canadian content - be recognized properly as Research and Development activities - and funded accordingly.

Consideration must be given broadly across all fiscal platforms. Perhaps by the development of a "creativity fund" - to invest in innovative Canadian content creation, to build audiences in Canada for our Canadian stories.

And finally: we need a viable long-term strategy (5 years) - a comprehensive action plan. Digital compression will totally redefine the market for content across North America. We need to review the imminent threats to the current value chain, and the impact on our legal, policy and regulatory frameworks. This work would involve all stakeholders as well as government Heritage/Finance/CRTC and policy experts, and should completed by October 2004.

Let us take these decisive steps. The future of Canadian television programming is too important to be left hanging in the balance.

Thank you again for this opportunity. I will be happy to answer your questions.

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