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Canadian broadcast biz hurting

CJNT and CHCH sold for a mere $6 each

MONTREAL Just how bad is the broadcast biz in Canada?

CTVglobemedia exec Paul Sparkes points out that rival broadcaster CanWest Global Communications recently sold two of its terrestrial stations, CJNT in Montreal and CHCH in Hamilton, Ontario to Toronto-based cable-channel owner Channel Zero for the grand total of C$12 ($11).

That’s not a typo — the stations went for six bucks apiece. CanWest wanted the money-losing stations off its balance sheet.

Meanwhile Shaw Communications scooped up Mountain Cablevision, a cable operator in Hamilton — the same market as CHCH — for between $225 million and $275 million.

Sparkes’ point is that cablers are worth loads of dough, terrestrial TV stations not so much.

In April, Shaw agreed to buy three small-market CTVglobemedia stations — in Brandon, Manitoba; Windsor, Ont. and Wingham, Ont. — for the princely sum of one Canadian dollar.

But a couple of weeks back, Shaw walked away from that deal, reportedly because execs looked at the stations’ finances and came to the conclusion that they were much worse off than they had thought. In other words, the dollar pricetag was too expensive for what was being offered.

CTVglobemedia has since sold the Brandon station to Bluepoint Investment — for one dollar.

These deals highlight the financial crunch for the country’s main broadcasters, and particularly for their smaller stations.

“Conventional television right now is not a profitable business,” says Sparkes, exec VP of corporate affairs at CTVglobemedia, which runs the CTV Network. “In order for it to be viable, we need another revenue stream.”

That new revenue stream would — if the nets have their way — come from cable and satellite operators.

Both CTVglobemedia and CanWest have asked federal broadcast regulator the Canadian Radio-Television and Telecommunications Commission to bring in a new rule forcing cable and satellite players to pay a monthly fee for carrying the networks. Right now, the cable and satellite companies pay a fee to carry cable channels like Showcase and MuchMusic, but they do not pay for CTV and Global.

The big networks think that’s unfair. This spring, the CRTC turned down their request, but the Commission now says it’s willing to take another look at the issue. In essence, the regulator realizes these networks are in deep trouble and they need some kind of lifeline — soon.

Last year, profits from the Canadian terrestrial channels plummeted to a historic low of $6.4 million, down from $91 million a year earlier. This is more than just the economic downturn. Just like in the U.S., auds for the big networks are dropping at an alarming rate while auds for cable channels are rising.

“The model is broken,” says Michael Woollatt, VP of government relations at CanWest Broadcasting, which announced it will close CHEK-TV in Victoria, B.C., and CHCA-TV in Red Deer, Alberta, on Aug. 31. “It’s more pronounced in Canada because the U.S. doesn’t have the same structural issues. It’s a unique battleground in Canada.”

What Woollatt is referring to is the fact that Canadian viewers have direct access to all of the main U.S. networks over-the-air and on basic cable. This makes life considerably more competitive for Canadian webs.

On top of that, nets like Global and CTV also have to maintain Canadian-content requirements, which cost them dearly.

Making matters worse for CanWest is the parent company’s financial crisis. The Winnipeg-based company is struggling under debts of $3.5 billion, and has been in negotiations with its lenders for the past couple of months in an attempt to stave off financial collapse. It now has until July 31 to restructure the debt.

Earlier this month, the CRTC stepped in to try to give the networks a financial boost by increasing a fund for local programming from $59 million to $86 million. The money comes from cable and satellite operators, and the idea is to bail out small-market stations facing big losses.

Cable operators have fought against paying to carry Global and CTV on their systems.

Woollatt says the profits for CanWest’s terrestrial stations are less than 10% what they were five years ago. “Without a structural fix, the future is murky,” he says.

But what CTVglobemedia and CanWest talk less about is that they, too, have highly profitable cable channels, which fare much better than the terrestrial outlets because they are able to charge monthly subscriber fees that are virtually recession-proof.

These channels are still worth something. Earlier this month, CTVglobemedia sold two of its cable channels, Drive-in Classics and SexTV to Corus Entertainment for $36 million. CTVglobemedia had acquired the two channels when it took over rival Chum Television two years ago.

Neither CTVglobemedia nor CanWest is willing to say what will happen if the regulator does not agree to force cable and satellite operators to pay a carriage fee for their terrestrial channels. But Sparkes at CTVglobemedia hints it might not be pretty.

“We’ll look at our options,” he says. “We can’t keep looking at losses.”

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