Why the CRTC Blew It on the Super Bowl

Last week the debate raged on over the CRTC’s confiscation of Bell Media’s exclusive Canadian broadcasting rights for the 2017, 2018 and 2019 Super Bowls.

The story began in 2015 when CRTC Chair Jean-Pierre Blais decided to put his personal stamp on Canadian broadcasting with a series of controversial deregulatory moves. The most blatantly populist ruling was to end the CRTC’s “simultaneous substitution” rule for the broadcast of a single show, the NFL Super Bowl.

The main bone of contention is this: in the name of the terribly important policy goal of allowing Canadians to view American commercials instead of Canadian commercials, Mr. Blais deprived Bell Media of its exclusive Canadian distribution rights for the Super Bowl: the retail value of which is reputed to be $20 million dollars per year. When broad based lobby efforts to get the federal cabinet to suspend the ruling failed last month, industry observers were watching to see how badly Bell Media got hurt by the CRTC effectively ripping up a multi-million dollar distribution rights deal between Bell Media and the National Football League.

In the week after the most exciting Super Bowl in history (you know --- epic Patriot comeback, overtime, Tom Brady’s heartbeat never rising above 60) it became clear there was a massive (39%) drop-off in Bell’s viewership of the Super Bowl.

While measurement gaps mean we don’t know exactly how many Canadians watched the game on Fox Sports, one can only conclude that Fox ---which paid the NFL for the American distribution rights, but not the Canadian rights--- ate a healthy portion of Bell Media’s lunch. That lunch being the Canadian audience for which Bell had paid millions and sold advertising to cover the cost.

The ubiquitous media commentator Michael Geist, a copyright professor from the University of Ottawa and a declared foe of pretty much any television regulation, quickly blogged that Bell Media hadn’t been hurt so bad and, well, why not wipe out sim-sub altogether, not just for the Super Bowl?

So I am just going to spell it out for the professor.

Bell paid millions for the exclusive right to sell a popular copyrighted product to Canadians. The product is the entire show except for the advertising sold to cover the costs of the broadcast and make a profit. The CRTC repealed a decades-old rule that had allowed Canadian broadcasters to prevent Canadian cable companies from giving its viewers the very same product from an American competitor who did not buy the copyright for Canada. The 2017 Super Bowl was staggeringly popular (110 million viewers). Nevertheless Bell Media’s viewership dropped 39% because of leakage to the previously illegal Fox broadcast coming into Canada.

And Dr. Geist’s conclusion is “well, that didn’t hurt a bit, did it?”

Meanwhile, back on planet earth.

Now you might be thinking “why should I care? Screw Bell.”

Here is why you should care, because it’s not just Bell that gets screwed. It’s Canada.

Canadian television regulation is based on one notorious fact: home grown Canadian broadcasting cannot survive in a free-market, no-holds-barred slugfest against American programming. That is thanks to the massive scale advantage that American media companies enjoy in their 350 million-viewer domestic market versus Canada’s 35 million potential viewers. The US domination of Canada’s English speaking market would be guaranteed but for Canadian government regulation. And it wouldn’t cost American broadcasters a dime to pick up those extra customers (if they don’t have to pay for the Canadian rights) for the movies, series, specials, and sports shows they have already made for their American audience. In fact they could make a whole lot more money selling advertising to reach those 35 million Canadians with the same shows. Like Fox just did with the Super Bowl.

That’s why we have had television regulation for fifty years: to give Canadian programming enough airtime and money to claim an equal place in Canadian homes.

So where does “simultaneous substitution” or “sim sub” fit in to all of that?

Quite simply, sim sub allows Canadian media companies to generate the revenue and profits from their investment in purchasing Canadian rights to those American programs. And that allows Canadian media companies to fund Canadian-made programming.

To appreciate this, you need to know that the CRTC requires all of Canada’s media companies to spend about 30% of their programming budgets on Canadian shows; which includes movies, documentaries, sports, and ----importantly--- news journalism.

To do a good job of it, Canadian broadcasters need profitable programming. So one of the things they do is buy the exclusive Canadian distribution rights for popular and profitable US shows. When Bell broadcasts the Super Bowl, or Rogers airs the Grammys, 30 cents of every advertising dollar gets reinvested in Canadian programming. They don’t necessarily reinvest that 30 cents because they are wonderful corporate citizens; they reinvest because the CRTC makes them. And the CRTC, until recently, supported our Canadian broadcasters in doing their public duty by protecting their investment in the very US programming that bankrolls Canadian programming.

There is a critique of sim-sub that deserves honourable mention though. It’s the idea that if we abolished sim sub it would open up the “prime time” spots in the Canadian broadcasters’ TV schedule to make room for Canadian shows. In other words, the argument goes that if you make it unprofitable for Canadian broadcasters to buy popular American shows, they will fill that prime time programming hole with Canadian shows that would then get bigger Canadian audiences.

But here’s the problem with that:

1. How do Canadian broadcasters replace the revenue from high-margin US shows, revenue that feeds the 30-cents-on-the-dollar investment in Canadian programming?

2. Running Canadian shows in the same prime time spot against the most popular US shows might result in lower viewership for our Canadian shows than they already get in other time spots where they are up against less popular American shows.

Then there is the totally subversive policy idea that makes me smile: we don’t need sim sub if we haul the US networks off of Canadian cable.

Why not? Almost all of the top US shows are purchased for Canadian distribution by Canadian broadcasters. That means these American shows are already in your basic cable package or you can buy them with on pick and pay channels. All that leaves out of the TV picture is American cross-border local news. And with that hanging curve-ball, I rest my case.

Howard Law

Director, Media Sector

Unifor

@mediaunifor

howard.law@unifor.org