Broadcasting Notice of Consultation CRTC 2015-421 - Review of Local and Community TV

1. FRIENDS of Canadian Broadcasting is an independent watchdog for Canadian programming, primarily in the English‐language audio-visual system, supported by 335,000 Canadians, and is not affiliated with any broadcaster or political party. FRIENDS asks to appear at the forthcoming public hearing in order discuss with the Commission our views on the future of local television in Canada.

2. We welcome this CRTC review of local and community TV. The process is timely – coming close after the election of a new government and also, hopefully, before local stations start to close.

3. Unlike the issue of ‘unbundling’ – derivative from the former government’s ‘consumer’ preoccupation – that appeared to capture the attention of the CRTC over the past year, there is no material difference of opinion between federal political parties – or among Canadians – on the critical importance of local television.

4. In the words of the CRTC Chair: “Local television matters.”¹

5. A September 2015 Canada-wide Nanos Research poll² commissioned by FRIENDS in collaboration with ACTRA and Unifor demonstrates that Canadians value local broadcasting, would care if those broadcasters were no longer available to them, and trust the CRTC to ensure they can remain viable. In particular:

Value of local television news: Nine in ten (92%) either agree (78%) or somewhat agree (14%) that local TV news is valuable to them. Seven per cent either somewhat disagree (3%) or disagree (4%).
Loss of local television news: Eighty-five per cent of Canadians either disagree (74%) or somewhat disagree (11%) with the statement that they “wouldn’t care if local news broadcasts on TV were no longer available to them”. Fourteen per cent of Canadians said they agree (9%) or somewhat agree (5%) that they wouldn’t care if they lost those services.
Trust in CRTC: Regarding the CRTC and local TV, three-quarters of those surveyed agree (48%) or somewhat agreed (27%) that they trust the CRTC to make decisions that will ensure their local TV station is not forced to close. One-fifth of Canadians either somewhat disagree (9%) or disagree (11%) with that statement³.

6. This hearing will not have to look far to prove the value or importance of local TV. That is well established. What this hearing should be about is what needs to be done to preserve local TV. FRIENDS anticipates that parties to this proceeding will have differing views on the answer to that question.

7. We do not, as yet, believe it is appropriate for us to present a specific view until we have examined the submissions of other parties. We do, however, believe that there are some key principles that should be affirmed in any decision made by the Commission.

8. We therefore focus in this submission on evidence of the need to support local TV and a discussion of key principles. We will comment on specific approaches and models at the oral proceeding scheduled for January, 2016.

Local TV in Canada is in crisis

9. Due to Harper government and previous budget cuts, CBC has cut back its programming and over-the-air coverage including historic, long-standing, distribution arrangements with private affiliates.

10. Meanwhile, private broadcasters have witnessed declines in revenues and profits to the point that, in the 2014 broadcast year, private local TV stations suffered a 7.2% decrease in overall revenues – from $1.94 billion in 2013 to $1.8 billion in 2014, and a drop in PBIT from -$2.3 million to -$138.7 million – representing a reduction in PBIT margin from -0.1% to -7.7%⁴.

11. At the 2014 Let’s Talk TV proceedings, Bell Canada stated that it has contemplated shutting down five, 10 or 20 of its local stations as early as September 2017⁵.

12. Small-Market Independent Television (SMITS) broadcasters have warned the Commission over the past year that their financial situation is rapidly deteriorating, and that station closures are imminent⁶.

13. To place before the Commission, the government and interested parties an informed perspective of what is at stake, FRIENDS and Unifor commissioned a study by Nordicity and Peter Miller to examine the state of local TV in Canada⁷. That study, attached as an appendix, concludes that absent public policy intervention, “Canada’s local television heritage is at risk of major cutbacks and station closures”.

14. Meanwhile Canadians continue to voice their support for local TV. On the occasion of the opening of the LTT hearing on September 10, 2014, FRIENDS released a Nanos Research Survey of five ‘swing’ ridings including Hamilton West–Ancaster–Dundas, London West, Ottawa West–Nepean, St. John’s South–Mount Pearl and Thunder Bay–Rainy River⁸. Taken together the survey of 100 people in each riding found very strong support for local broadcasting:

81% consider local news valuable
77% would care if local news were to stop
71% think the CRTC should avoid regulatory changes that would undermine their local TV station
89% think their MP should work to keep local broadcasting strong
79% think local news contributes to making their community stronger

15. In addition to the September, 2015, Nanos Research Survey previously cited (in paragraph 5), FRIENDS commissioned two riding-specific surveys in September 2015, one in Peterborough–Kawartha, and one in Montmagny–L’Islet–Kamouraska–Rivière-du-Loup. Both are appended to this submission.

16. The Peterborough–Kawartha survey found that local residents value CHEX-TV and the window on the local community it provides:

88% agree or somewhat agree that “local TV news on CHEX helps to make the community stronger.”
80% agree or somewhat agree that “local TV news on CHEX is valuable to me.”
82% disagree or somewhat disagree with the statement: “I would not care if CHEX stopped broadcasting local news.”
78% agree that their “Member of Parliament should work to keep local broadcasting strong in my community.

17. The Montmagny–L’Islet–Kamouraska–Rivière-du-Loup survey found that local residents value their local “triple-stick” stations (TVA, SRC and V affiliates):

86% agree or somewhat agree that “local channels such as *TVA, Radio-Canada and Canal V contribute to making my *community stronger.”**
87% agree or somewhat agree that “local TV news on *TVA, Radio-Canada and Canal V in Montmagny–L’Islet–Kamouraska–Rivière-du-Loup *is valuable to me.”**
81% disagree or somewhat disagree with the statement: “I would not care if local news went off the air on my regional television stations.”
89% agree that their “Member of Parliament should work to keep local broadcasting strong in my community.”

18. In common with the Commission’s own research during the LTTV process, this polling demonstrates a consistent desire on the part of Canadians to preserve local TV. Federal politicians (of all stripes) are well aware of this fact.

19. Less research appears to have been undertaken on Canadians’ attitudes to the community channel, but what is incontestably true is that in communities without a local TV station, the community channel plays an indispensable role.

20. Striking an appropriate balance regarding the need and funding for the community channel will be another important output of this proceeding. FRIENDS looks forward to reviewing evidence and argument on this matter.

21. In its Local TV decision of January 29, 2015⁹, the CRTC set out two key areas of context for this proceeding:

22. First, the importance of local TV:

While some have suggested that conventional television will disappear and be replaced by online video, specialty or other services, the Commission considers that the large audiences consuming programming on conventional stations indicates that these stations continue to play a significant role in the lives of Canadians for the moment. In particular, conventional stations continue to be an important source of news, information and analysis for Canadians.

23. Second, the “preliminary” view that any new money for local TV must come from existing BDU 5% contributions:

[T]he Commission is of the preliminary view that there is currently sufficient funding within the system to ensure the creation of locally relevant and reflective programming, but that the allocation of such funding needs to be re-examined in order to ensure that such programming is compelling, accessible and well-financed.

24. FRIENDS believes this second contention is entirely false. Indeed, we consider that the Commission’s adherence to this view has brought local TV to the crisis it now faces.

The Local Programming Improvement Fund (LPIF)

25. Having rejected the notion of direct “compensation for carriage”, but still recognizing the structural challenges facing local television and local programming, in 2008 the CRTC established the Local Programming Improvement Fund (LPIF).

26. The initial design of this fund was based on an incremental contribution of 1% of revenues from BDUs directed to incremental expenditures on local programming.¹⁰ By the time the fund was implemented in 2009, given the economic downturn, the Commission increased the contribution level to 1.5% and waived the requirement for incremental local programming.

27. Fast forward to 2012 when, under different leadership, the Commission decided to phase out the LPIF by reducing the BDU contribution by 0.5% per year over 3 years – citing a “general rebound” in conventional TV revenues¹¹.

28. What a short-lived “rebound” and generally unwise decision that was! Had the Commission not shut down the LPIF, we would not be facing the crisis we face today. Of course, ultimately the issue is bigger than the cancellation of LPIF, and over the long term, in our view, is unlikely to be resolved by direct-BDU funding alone.

Local TV in Canada is most at risk in the IP age and insufficiently supported by public policy.

29. A key conclusion of the Nordicity–Miller Study is that “Canada’s local television heritage is at risk of major cutbacks and station closures”.

30. The Study specifically projects that about 50% of Canada’s private small and medium-market stations could close by 2020, representing a permanent loss of 100 hours of local programming weekly¹² and 900 jobs, unless action is taken. The study also estimates that an additional 2,600 jobs could be lost due to forecast revenue declines across private and public conventional TV in Canada, resulting in material reductions in quality if not quantity of local programming across the country.

31. A combination of factors is responsible for this state of affairs, including:

economic, technological and audience behavior changes affecting the industry as a whole; and
removal of both regulatory protections and public subsidies to support this particularly vulnerable sector.

32. This ought to be of grave concern to all Canadians, and especially to policy and decision-makers as well as stakeholders in the media and cultural fields, for at least three key reasons:

33. It is a fundamental tenet of Canadian broadcasting policy that the Canadian broadcasting system should include locally-produced programming and offer locally relevant services to listeners and viewers.¹³

34. The weakening or disappearance of local television services to an extent projected in the Nordicity–Miller Study will sharply reduce the availability and quality of local programming, especially local journalism, and this effect will be felt most strongly in those communities where local programming and journalism are already in short supply.

35. The staff reductions and station closures predicted in the Study to take place over the next five years will have a very significant economic and social impact in affected communities, including reductions in citizen awareness and failures in emergency response.

36. The Study notes that United States local broadcasters do not face a similar fate, as U.S. policy makers have, over the years, introduced numerous measures to strengthen local TV – measures that Canadian policy makers have failed to implement. These include:

Local market rights protection rules that require both cable and satellite to “blackout” programming imported into local markets that has already been purchased by the local broadcaster (in Canada, simultaneous substitution or “simulcast” offers only limited protection against identical programming imported into a local market at the same time);
Strong restrictions, if not outright bans on importation of distant signals on U.S. DTH due to its negative impact on local broadcasters¹⁴ (In Canada, importation of distant signals has been permitted from the beginning of DTH, and the practice has expanded to include importation by cable operators, with no compensation); and
“Retransmission consent” which allows local TV stations to negotiate compensation for their carriage by cable operators and has evolved over two decades to providing U.S. local broadcasters with direct cash payments currently estimated at $ 2.5 billion.

37. The combination of historic failure to support local TV in Canada and the recent massive changes brought on by changing technology have brought local TV in Canada to the brink of failure. The CRTC and the new government should collaborate to create a policy environment that recognizes the needs and vital importance of local TV.

38. Based on financial numbers released by the CRTC, and the evidence presented by Nordicity–Miller, we are convinced that the Commission’s proposed solution of new money for local TV coming from the existing BDU 5% contributions is, at best, a stop-gap measure that merely prevents immediate small and medium-market station closures. Much more is required.

39. We do not discount the value of such an interim emergency move, but suggest that a broader debate on securing the future of local TV must also take place, and the Commission should not duck this discussion within the current process.

40. The Nordicity–Miller study confirms that revenue losses for all local TV in Canada cannot plausibly be redressed through a reallocation of 5% BDU contributions alone – there is simply not enough money on the table to resolve the issue.

41. Nordicity–Miller estimates that a 1.25% BDU contribution would fill the revenue gap otherwise projected for small and medium-market stations in 2020, but to extend this to all private TV stations would require in excess of 3.5% of BDU contributions.

42. The former would potentially be achievable on the basis of funds coming out of existing contributions (as intended by the Commission). The latter, however, would, under such a requirement, result in, for example, no money being left for community channels and more than a 25% cut in CMF contributions, which would clearly be unacceptable.

43. In light of the September 22, 2015 Liberal Party announcement that that a Liberal government will invest $150 million in new annual funding for CBC/Radio-Canada, this aspect of the Nordicity–Miller Study does not include projected losses for CBC owned and operated stations. Assuming that the new government will act on its words, this would largely reverse such revenue reductions and job losses otherwise projected for CBC/SRC¹⁵. FRIENDS notes, however, that these new funds are insufficient to redress combined historic cuts and projected revenue losses.

44. Noted, but not modelled in the Nordicity–Miller study are:

The possibility of even more extensive closures, including large market stations such as Bell’s CTV 2 network station group, and the Rogers multilingual OMNI stations; and
Channel relocation costs, potentially approaching $500 million over the next five years for all Canadian local TV stations, as a result of the former government’s decisions on re-purposing the 600 MHz frequency band. These decisions derive from and align with a U.S. driven spectrum re-purposing agenda, but without the reimbursement for affected Canadian broadcasters that the U.S. has promised to its own local TV stations¹⁶.

Key principles

45. Whatever the CRTC’s conclusions arising from this proceeding, the Commission should adhere to a number of key principles. The first two should be self-evident.

46. The Commission must maintain and secure a future for local TV and local news. Multiple local station closures would simply be unacceptable to Canadians.

47. The notion that support for local TV must of necessity conform to a “rob-Peter-to-pay-Paul” approach (that is, support must come from existing BDU contributions) is also completely unacceptable. As a stop-gap determination, it may or may not work. But, as a going-in requirement, it has no place in a proceeding such as this. We note that the Commission did not reiterate this preliminary determination in the public notice for this proceeding, and this fact gives FRIENDS a degree of comfort that the Commission may have come to the same conclusion.

48. Everything is ultimately a matter of priority and sustainability. There is no reason that support for local TV must inevitably come from the community channel, or that it must come from incremental BDU contributions. And there is a market reality that obligations on BDUs cannot be so onerous as to – in and of themselves – place BDUs at a material competitive disadvantage vis-à-vis competing, and currently non-contributing, over-the-top television (OTT¹⁷) players.

49. For FRIENDS, a reasonable assessment of priority and sustainability suggests that what ought to emerge from his proceeding is:

new support for small and medium market stations, regardless of ownership; and
relatively stronger support for independent small and medium-market stations, in comparison to their vertically integrated (VI) counterparts.

50. In the short term, at least, this suggests that, should the Commission determine that additional local TV funding must come from existing BDU contributions, large market stations should be a lower priority for funding. As already noted, the Nordicity–Miller study demonstrates that there is not enough money in the local-expression portion of the BDU contribution to accomplish this larger task.

51. Moreover, while FRIENDS is prepared to accept that community channels operated by vertically-integrated undertakings in major urban centres should not be a top priority going forward, we refuse to accept that the community channel is without importance going forward.

52. Thus FRIENDS submits that within the 2% BDU contribution that is currently directed to local expression, the Commission must, at minimum, continue to support independent community channels in underserved communities.

53. FRIENDS will review the submissions of local TV and community TV advocates, as well as other parties to this hearing, and will comment further on the appropriate balance at the public hearing in January.

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For information: Jim Thompson 613-567-9592