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ANALYSIS: A Canadian upfront of $2.9 billion and other stories in this look into Canadian TV advertising
By Susan Tolusso

IT'S STILL EARLY DAYS in the frenzied TV advertising sales season that some call the Canadian upfront market, with certain major media buyers predicting record spending of $2.9 billion - and there was never a better time to invoke the cliché 'Let the buyer beware'.

Contradictions, half-truths, marketing spin and bullish bravado spewing forth from buyers and sellers conspire to cloud any sense of the fair cost - it would be naïve to try to suss out the 'true' value - of a 30-second spot, or any spot for that matter. Moving TV inventory is feverishly competitive, and making a good deal amid the fracas is best accomplished by shrewd buyers whose clients have lots of money and negotiating power.

That said, there is consensus Canada in its second consecutive hot sales market for fall programming. There is less consensus as to how much prices for prime time fare have risen this year, but buyers cautiously agree that prices averaged across all inventory - prime time, off-peak and daypart - are up between five-to-seven percent over last year. Broadcasters, some of whom were said to be raising their rate cards for the second, third or even fourth times since fall launches started, contend that ad prices for top programs in the major markets of Calgary, Edmonton, Vancouver and Toronto have risen by 10% to 14%, with high single-digit increases in smaller markets.

But Sunni Boot, president of Toronto buying house Optimedia Canada, says average prices for Top 10 shows have accelerated between 15% to 25%. In the case of the top-rated, Canadian co-produced CSI, she says a 30-second ad on that show last year cost $40,000 while the same spot will run you $71,000 this year, with audiences expected to rise 40%.

"We launched June 4th and we are seeing a very, very heated upfront," says Jack Tomik, Toronto-based president of CanWest Media Sales, which unveiled a hefty slate of 15 new Canadian and U.S./foreign programs for the 2003-'04 season on Global and CH stations.

"Advertisers are buying more and they are buying earlier than last year. But it's hard to tell what the overall spend will be. It's too early to quantify," he adds.

But it's not too early for educated guesses. Boot forecasts sales of between $2.8 billion to $2.9 billion, based on statistics from 2001, as set out in TV Basics, which is published by the Television Bureau of Canada. It reckoned total spending on TV ad spending for that year at $2.56 billion.

"Therefore, if in 2002-'03 there was a five percent to six percent increase and a similar or slightly higher increase in 2003-'04," this year's total spending will come in between $2.8 billion and $2.9 billion.

"It would be amazing if we broke $3 billion. This is a good news story because it shows, one, that the economy is good, two that advertising works and, three, that television advertising works."

At Alliance Atlantis Broadcasting, Brad Alles, senior vice-president of broadcast sales, emphasizes the selling season is young, but, "we've done a few deals. And from those clients, the overall investment has gone up significantly. All of them have been double-digit increases," he notes, adding buyers readily combine on-air and online buys. If his company doesn't offer what clients need, "we try to partner with someone who does."

Media buyers all say the significant price hikes this year can be linked in large measure to large hype around eye-popping increases in the U.S. upfront market in May. American trade magazine Advertising Age reported record sales this year, with many deals featuring 16% to 20% increases for prime time programming on NBC, CBS, ABC, Fox, WB and UPN - and an anticipated total of about US$9.2 billion in upfront prime sales, a stunning 14% increase over last year..

"Broadcasters are relating (the higher prices) to what's happening in the U.S. and using it to their advantage," says Dennis Dinga, vice-president, director of broadcast buying at M2 Universal in Toronto. But he says his clients' balance sheets do not justify such hefty spending. "Both (CTV and CanWest Global) were both originally looking for double-digit increases. We do not do double-digit increases. You have to remember that in the U.S.," a certain amount of ratings are guaranteed, which is not the case in Canada. "There's a lot of speculative buying in the U.S."

Broadcasters link rising prices to Canada's continuing strong economy, while quietly acknowledging at least temporary weakness in certain sectors such as travel, hospitality and beef because of the SARS outbreak in Toronto and the scare over mad cow disease.

Sales executives also point to normal course-of business factors. "Costs are dependent on a number of things," says CanWest's Tomik. "First of all, we're seeing increases in programming costs, for both Canadian and foreign programs. Second, when demand goes up, so do prices." He adds that Alberta buys are much more expensive this year because of an inventory shortage and a booming provincial economy.

This time next year, however, the Alberta market might be a little cooler, courtesy of the CRTC. In an Edmonton hearing last week, the Commission heard an application from CHUM to open new stations in Edmonton and Calgary and a rebroadcaster in Red Deer. While CanWest, CTV and Craig Media intervened against CHUM's application, CanWest was also presenting its bid to amend the licence of CKRD-TV Red Deer by disaffiliating from the CBC network and adding transmitters in Edmonton and Calgary.

However, with media buyers east and west bemoaning a lack of shelf space for ads aimed at Albertans, advertisers support the CHUM application. Robert Reaume of the Association of Canadian Advertisers told commissioners the rise in specialty viewing has done little to "relieve the acute pressure on conventional station inventory. Most specialty stations are national in scope (or regional in a few cases) and their entrance into the marketplace has not really added to the local market inventory."

Statistics support Reaume's contention that advertisers overwhelmingly prefer conventional. According to the Canadian Media Directors Council's annual Media Digest, total net advertising revenue flowing to Canadian TV outlets in 2000 totalled $2.456 billion, broken down as follows: $444 million to networks (CBC, CTV); $1.615 billion to the selective conventional stations, which includes the Global/CH group plus regional/local stations; $381 million to specialty channels, and $17 million to infomercials. Figures for 2001 reinforce the 2000 trends, but at time of writing some figures were still listed as estimates.

High prices notwithstanding, broadcasters say they are selling their inventories but take pains to point out Canada's sales model is nothing like the U.S. For one thing, Canada's spring-summer selling season lasts much longer than the 2.5 day- to two-week slam bam phenomenon in the U.S. where broadcasters set hard deadlines for the upfront time to be purchased and buyers race. Also, although they would not specify, several Canadian broadcasters hinted they sell less than 50% of their inventory in these early days – compared to American nets which reportedly release 75%-80%.

René Bertrand, CBC's executive director sales, English Television Network and Newsworld, says because Canadian broadcasters do not guarantee ratings, some clients wait before buying unproven programs. But he says CBC has already sold out its Christmas movies and specials, has major interest in its partnership with TSN to carry the entire CFL season, and is delighted next year's Summer Olympics figured into this year's launch.

Bertrand agrees prices are up and sales are brisk, and weakness in certain categories has been offset by other factors. "The dot-coms are gone, but new categories are emerging. Also, a lot of accounts do their advertising in U.S. dollars, and those are cheaper now that the Canadian dollar is stronger."

CBC has also restructured its fall schedule to avoid launching its comedies and dramas opposite the more high-powered American entries; in fact, (as reported earlier by Bertrand says the Corp's new shows won't debut until after the Grey Cup.

But ad buyers and their clients have done little to restructure their thinking in terms of where they'll spend their money. As ever, most of the chatter and hype at the non-CBC fall launch events concerned American programs. Even though it's been a tough year for Cancon, especially drama, and even though broadcasters have complained almost as loudly as producers over the federal government's $25 million cut to the Canadian Television Fund ($12.5 million of which has since been restored), you'd hardly know it at upfront time.

Into this thorny debate, enter CHUM Limited president and CEO Jay Switzer. In a June speech at the Banff Television Festival he suggested the advertising community could help alleviate the pain afflicting Canada's drama producers.

"Research suggests that even mediocre U.S. programs are a preferred buy for advertisers - even against Canadian dramas with similar rating points. We need to creatively find a way to bring advertisers to the table. Obviously increasing audience helps… but perhaps one step further outside the box… what if advertisers could avail themselves of a tax credit bonus for spending specifically on Canadian priority programming?"

Switzer argued ads-with-incentives could "create commercial success for hit shows, that would in turn allow the broadcaster to make stronger investments in Canadian programming", and "give private broadcasters an added incentive to invest in Canadian drama instead of taking more mediocre U.S. shows….It's also clear that distant signals are making the simultaneous substitution regime harder to exploit. This is further compounded as the studio-driven networks - who reach 80% of Canadian homes - move to a North American rights regime."

Switzer says questions following the speech indicated few people had considered the idea that "the advertising side of the business should be considered legitimate stakeholders" in the production and broadcasting businesses. Whether via tax incentives or some other approach, he says quick action is imperative given that eight times out of 10, even when a U.S. program is similar in ratings and demographic appeal to a Canadian program, Canadian advertisers 'buy American'. He also worries American producers are helping to create a North American market for their productions, bypassing Canadian advertisers:

"(T)his past April…CBS ran a prime-time Hallmark Movie-of-the-week. Hallmark chose to not license the movie in Canada, although previous Hallmark/CBS films had been licensed to CTV. Hallmark bought all the advertising on CBS and ran ads promoting the movie in the U.S. and Canada, including full page ads in Canada pushing tuning to CBS.

This is a very visible next step in the creation of a North American market; controlled, programmed and sold by New York for North America. So while tax incentives for advertisers may be extremely unorthodox, I think we need to look to all of the players in the system to help us make it to the top of the drama summit."
reads his speech, which has been covered by ["End the game of prime time roulette": Switzer [6/10/2003]

M2 Universal's Dinga says Switzer is "exaggerating the point a bit" with his Can-Am comparison because "eight of 10 times you won't have Canadian programming that measures up with American." Furthermore, "buyers buy reach and frequency, not Canadian or American. They buy Canadian because they get the audience reach, and demo target they want, and (the program) is priced efficiently. Produce good Canadian content and we'll buy it."

Optimedia's Boot doubts a government incentive for Canadian ad buys would work. "I never liked government involvement. Most of our advertisers are multinationals. They would be incensed. It might be so small an incentive that their financial people might say the paperwork is not worth it."

David Kirkwood, executive v-p, sales and marketing at CHUM, naturally supports the Switzer proposal. Incentives would "create more demand for Canadian programming and (given) margins are thin, every percentage point off costs is helpful for profit….If clients get better ratings and (some tax credits) on the financial back end, everybody wins."

In terms of what clients are buying, media directors outline this general scenario: first conventional prime time if they can afford it, then analog specialty and then media buyers may "throw the digital channels into a deal with a broadcaster, as a bonus," in the words of Theresa Treutler, senior v-p, broadcast investment director at Starcom Worldwide in Toronto. Like her peers, Treutler says digi-nets don't have big enough audiences to attract much attention.

Also, she says, clients work out the best mix of TV placements according to the needs of each campaign. "The trend is consistent," says Treutler. "Conventional broadcasters do have the major share of the TV budget, but it's shrinking to the benefit of the specialties, which continue to increase year-over-year."

Adds Kirkwood: "A concern around specialties is that, although buyers are becoming more familiar with them and they offer good value compared with conventional, (specialties') share of tuning is twice their share of revenue."

And what of convergence? Are advertisers still looking to max out their messages across multiple platforms, a mix of TV, print, online, for instance? Little agreement here. "Convergence never worked," states Treutler. "There wasn't a single client here that it made sense for. The proof is in the fact that Bell Globemedia disbanded their convergence team."

Boot sees the opposite trend: "There has been an increase in multiple media cross-promotions and this is reflected in the fact that one owner owns TV and print, say, plus web properties, plus plus. It's a unique and wonderful way to reach consumers and to reach consumers of a particular type. Advertisers appreciate being made aware of opportunities to reach target markets," she says, explaining that this is especially important for such demos as children and teens who are spending less time with TV and more with video games and the Internet.

But while "a hot word two to three years ago, convergence, for the industry as a whole, is flat or on a downturn," says Dinga. "But we try to do it whenever we can."

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