Digital shakeup expected as revenues, audiences for channels lag after one year

Huge investments in the new digital specialty channels with low returns to date, coupled with dismal ratings, likely mean that major changes are not far on the horizon. Even the large broadcasters have begun slashing staff and budgets, and many industry observers are now predicting that mergers and the shuttering of some of the digital channels are inevitable. Last September, viewers were offered a slew of choices with the biggest launch of new channels ever – nearly 50 English-language diginets. But consumers haven’t responded in the numbers initially predicted in the business plans filed to the CRTC. According to recent Bureau of Broadcast Measurement (BBM) figures, the digital channels are only capturing a 1 per cent share of total television viewing for individuals over two years old. The highest rated digital channel between March 11 and June 9, 2002, according to BBM, was Leafs TV with an average minute audience (AMA) of just 3,100 individuals, 2+. It was followed by Animal Planet with an AMA of 3,000, and Fox Sportsworld with 2,900. Most disturbing is that 31 of the 48 channels surveyed registered an AMA below 1,000, with 26 having an AMA of 500 or lower. Scraping the bottom, according to BBM, are Discovery Wings and High School TV with an AMA of 0. BBC Kids, MSNBC and MuchLoud are close behind with an AMA of 100. The combined AMA of all the diginets is 42,300. That compares to a combined AMA for 40 analog specialty channels of 938,200 and a 21.8 per cent total share of TV viewing. In contrast to the AMA of 3,100 for Leafs TV, the top three ranked analog channels have an AMA for the same time period of 90,200 for TSN, 69,400 for YTV, and 57,500 for Rogers SportsNet. Overall share of the digital channels is similar for both BBM and Nielsen, with only a couple of decimal points difference. The BBM figures have an Ontario skew, which would account for the higher rating for Leafs TV and the fact that the numbers were recorded around the National Hockey League playoffs. About 25 per cent of the diginets had similar results with both BBM and Nielsen measurements. However, there are some differences with 35 per cent having 20 per cent or higher audiences in BBM than Nielsen, including Leafs TV. About 40 per cent had significantly lower (80 per cent or lower) audience results in BBM than in Neilsen. There are also slight differences in the channels measured. BBM includes BBC World and High School TV in its measurements, but not WTSN, which Nielsen includes. The digital channels won’t become viable until there’s rapid audience growth, which will bring in more subscription revenue and likely generate more advertising dollars. But analysts are beginning to question if time is running out. "Smaller media companies like Stornoway (Communications) are at risk, given their limited resources, reported difficulties and all three entries performing relatively weakly (bpm, Movieola , i channel)," notes the April 2002 Hypn-Research Bulletin, a publication produced by media management firm Harrison, Young, Pesonen & Newell that looks at the status of the digital channel audiences after the fall free preview. Stornoway’s struggling channels are also having a negative effect on the parent company of Canada’s fourth largest cableco, Cogeco Inc., a major shareholder in i channel and bpm. But Cogeco CEO Louis Audet won’t discuss the matter. "The channels are run by Stornoway and they should answer any questions," he tells Canadian Communications Reports. Just a few months after the release of the April issue of the Hypn-Research Bulletin, Canada’s larger broadcast players – initially expected to weather the storm with their diginets due to their corporate financial staying power and ability to cross promote and share programming amongst channels – have begun cutting costs and making changes. Corus Entertainment Inc. has already bowed out of one of its digital channels. On July 24, it sold its 70 per cent ownership in the Category 1 channel Country Canada to its partner the Canadian Broadcasting Corp. for an undisclosed amount. News of the sale came a day after a third-quarter conference call for analysts, during which Corus said it had pumped $3 million during the quarter and $5 million so far in the fiscal year into its diginets. It was targeting spending $10 million on its digital services for the year, and admitted that revenue was minimal. Other broadcasters are cutting costs as well, including CHUM Ltd., which this month announced cuts of 43 positions and the axing of its syndicated technology TV program Nexttv. CHUM, which cut 19 jobs at its flagship Citytv station in Toronto, has been hit by an advertising slump, bad ratings at its all-sports radio network, and the cost of launching seven new digital channels. "There’s some work that needs to be done with the digital channels," says a cautious Allan Schwebel, VP of affiliate sales and marketing at CHUM Television. CTV Inc. has also cut staff and programs at its digital travel channel and WTSN (CCR, May 9/02). Quebecor Inc.-owned TVA Group’s digital channels are also pinching its bottom line. According to second-quarter financials released earlier this month, operating expenses at the broadcast division increased to $41.4 million for the quarter ended June 30 from $39.7 million recorded in the same period a year earlier due "almost entirely" to operating expenses incurred by the new digital specialty services during the period. TVA also reported a decrease of $2.5 million in operating income before interest, taxes, amortization and other items due to "a slight decrease in broadcasting revenues, as well as losses incurred by the new digital specialty services…" And even though the premium channel PrideVision TV generated $400,000 in revenue in the third quarter, expenses incurred during the launch of the diginet pulled down overall results at parent Headline Media Group. Operating costs at Headline’s broadcast group were $2.1 million higher in the quarter due to operating costs associated with PrideVision. Still, Phyllis Yaffe, CEO of the broadcast arm of Alliance Atlantis Communications Inc., remains optimistic. "There will be changes. Country Canada is one of them. But I don’t think that the changes will be as big as many are predicting," she tells CCR. One of the most outspoken opponents of the pre-digital channel launch rah-rah was Shaw Communications Inc. CEO Jim Shaw. He predicted that at least 50 per cent of the channels that launched would fail (CCR, June 7/01). It’s only a matter of time before the dismal ratings and the financial pressures lead to a shakeup with the digital channels. The question is whether there will be a major eruption, as predicted by Jim Shaw, or just a tremble, as suggested by Yaffe.

Digital shakeup expected as revenues, audiences for channels lag after one year

Broadcast | August 15, 2002

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