Should you pay for TV?

Mark Czarnecki February 7 1983

Should you pay for TV?

Mark Czarnecki February 7 1983

Should you pay for TV?


Mark Czarnecki

There was a time, not long ago, when watching television was a simple pastime. With shoes kicked off and converter at hand, the viewer had the easiest of choices— Bruno combing the beach or Archie chewing out Edith just one more time. And when the tube announced “Movie of the Week,” the choice was even simpler. But in recent months, as Paul Newman’s blue eyes flashed out from billboards and mail slots delivered glossy announcements, notice was served that weightier decisions were looming. Then, this week pay TV made its much-heralded and long-awaited debut, ushering R2D2 and a host of other stars into the living rooms of the nation. But, despite the glut of information, many viewers still know little more about how pay TV came into existence, what it offers, and what role it will play in the information revolution exploding around them.

Bringing pay TV to Canada has been a massive undertaking. Like the CPR, it typifies the country’s profound need to span the continent in one dramatic sweep. And its constant striving for

viewers’ attention is more than simple hype—it is a desperate bid for survival on the part of the pay TV operators. After the Canadian Radio-television and Telecommunications Commission (CRTC) licensed six pay TV networks last March, years of planning were suddenly focused on the launch date of Feb. 1, 1983. The race to sign up subscribers was a financial imperative: since pay TV has no advertisers to fund programming, the networks have spent millions of dollars of their investors’ equity on seductive programs—mainly U.S. movies— to lure subscriber dollars. In the case of two general-interest licencees—First Choice, at the national level, and Superchannel, operating in Alberta and Ontario—the ante is being upped daily in a mortal combat that experts predict will end in merger or murder within a year.

At the moment, the odds do not favor First Choice. Says Superchannel (Ontario) Chairman Jon Sian: “We intend to be the foundation service—the Kleenex, not the tissue, of pay TV.”

But the real race is against time, a sprint against technological obsolescence involving mysterious, futuristic hardware such as direct broadcast satellites, earth stations and two-way addressable descramblers. Clearly, the

existing equipment is as sophisticated as any the Force could muster in Star Wars, which, ironically, is the blockbuster movie with which both major networks chose to launch their programming. Pay TV is, in fact, not an end but a means: although the scenarios vary, the conclusion is inescapable—in five or 10 years, advances in technology will make today’s pay TV system as oldfashioned as the vacuum tube.

Canada since 1972, the year Rogers Cablesystems Inc. first proposed a pay TV network. Like so many other innovations in telecommunications, pay TV was, in fact, first introduced in Canada as an experiment as early as 1960. The United States, on the other hand, has embraced the phenomenon for a decade and now has more than 20 networks offering everything from religious programming to martial arts.

Pay TV’S explosive debut and pent-up urgency stem from the fact that the CRTC has been refusing to allow it in

But pay TV in Canada had to pay its way in hard cultural currency. To counter U.S. programming’s continuing invasion of Canadian broadcasting, the CRTC has struggled to preserve a Canadian presence with content regulations. Initially, the commission saw no cultural benefit in pay TV. Eventually, however, the cable lobby grew too strong to be ignored. When the CRTC finally gave in last March, stiff Canadian-content regulations were built into the terms of the licences. Said CRTC Chairman John Meisel before handing down the decision: “This is the last new source of television money in sight—it’s our last chance to get Canadian content right.”

As the world’s most heavily cabled country after Belgium— 60 per cent of all households— the networks have an immediate subscriber base of 4.8 million. Still, despite heavy promises that all systems would take off

on Feb. 1, late deliveries of hardware to many cable companies have forced a postponement in several areas. Maclean Hunter, Canada’s second-largest cable company, with 445,000 subscribers, cannot fulfil orders until March, and in some cases not until September. Deliveries to the Atlantic region have been so slow that the regional network, Star Channel, postponed broadcasts for a month. Only companies in Rogers Cablesystems Inc., the country’s largest, are guaranteed delivery on time—not surprisingly, since Rogers licenses its own hardware.

Subscribers who paid $16 a month per channel and actually got pay TV in return this week may be puzzled by the fare they receive. At First Choice, now irretrievably identified with Playboy as the result of its decision to show softcore sex programming, the program mix is 70 per cent movies and 30 per cent variety, comedy and sports. Its offerings include Fort Apache, The Bronx, 10 repeats of Star Wars, and Romance, a made-in-Canada (but largely U.S.funded) soap. Later in the month, despite the public outcry, First Choice will doggedly disrobe its Bunnies.

On C-Channel, the special-interest national network, culture is the keynote: 40 per cent performing arts, 40 per cent critically acclaimed and predominantly foreign movies and 20 per cent quality children’s programming. Initial highlights include the Royal Ballet’s Swan Lake, Broadway’s Sweeney Todd and The French Lieutenant's Woman.


Superchannel is the biggest regional network, featuring 70 per cent movies and nearly 30 per cent sports, a blend proven to be a top draw in the United States. This week, in addition to Star Wars, Superchannel is showing The Elephant Man and the Edmonton-Montreal NHL hockey game, the first in a series not available on regular television. Although Star Channel and Télévision de l’est du Canada (TVEC), a francophone counterpart in Eastern Canada, have not yet started up, in British Columbia World View is launching multilingual programming in six languages. Licences for regionals in the other provinces and the territories are pending. Apart from hockey and several tax-sheltered clunkers from the boomand-bust days of Canadian movies in the late 1970s —such as Silence of the North—Canadian programming on all channels during the first week is confined to one comedy special with David Steinberg and a one-man play about G.K. Chesterton.

Throughout February, Superchannel will show 47 movies, First Choice 22— almost all of them American, and all repeated at least six times. Everything is proceeding according to plan, however. The avowed purpose of pay TV is to stimulate the film and television production industries, into generating a truly Canadian product for the domestic market. Under the terms of their licences, the pay TV networks must spend at least 50 per cent of their total program budget each year on Canadian programs, and half of that must go to

feature films or television drama. But, since Hollywood movies are the carrot to lure subscribers, the crucial sign-up months will see unusually high foreigncontent levels.

The devastated condition of Canadian film and television production is undeniable. In 1982 Australian television generated 450 hours of indigenous drama, Canada fewer than 100. The anglophone film industry is operating at fiveper-cent capacity. So far, independent film producers are pleased with the concrete financial commitments offered by the new networks, which in the first year alone will contract out more than $20 million for buying or investing in Canadian films, TV series and filmed versions of performing arts productions.

If the film producers have been given a new lease on life, the pay TV networks are still struggling to survive. In the huge U.S. market, pay TV has become a colossal industry. Last year Home Box Office (HBO), with lí million subscribers, earned more for its owner, Time, Inc., than NBC did for RCA. But it is one of only two networks to show a profit. And, in following the U.S. model, the CRTC ignored the almost unanimous opinion expressed at the licensing hearings—that the potential Canadian market was too small to generate enough revenue for anything other than a monopoly licence. Commented broadcaster Patrick Watson after the decision split the market six ways: “A licence to fail. Six licences to fail. Gather the ghouls.”

For its part, the CRTC predicted that several licences would generate more subscriptions and therefore more reve-

nue overall for indigenous production. Few experts agreed, and the sign-up figures so far—roughly 150,000—are inconclusive. But opponents of competitive licensing argue that private enterprise cannot be allowed total control of the distribution of the funding. “If you want unique programming, you have to define a unique economic structure,” says Montreal communications consultant Sandra Gathercole. “The past 15 years of Canadian broadcasting show that privatization equals Americanization. Outside the United States, indigenous film production is a social and political decision—you have to give it to a subsidized private sector or to the public sector.”

The CRTC decision, in effect, forced the networks and film producers to depend less on the domestic market for revenues and aim their product more at world markets. The prevalent free-enterprise thinking at the CRTC was that the shift might be a good stimulus to aggressive marketing, and U.S. pay TV is indeed hungry for new products. In 1982 HBO could find only 200 new films to show, and it has now joined with CBS and Columbia to form a separate studio. Demand is so high that even some of the universally rejected, tax-sheltered Canadian films of the late 1970s are now making their way into the U.S. market. Several are being shown this month on a Los Angeles pay station.

The irony of the CRTC decision, how-

ever, is that, instead of replacing those duds with top-quality fare, it was, in fact, licensing more of the same. Working on a monopoly model, First Choice had initially intended to pay out licence fees only, providing more ready capital for the independents. Now it must invest in production with an eye to making a substantial profit. Frustrated by Canadian-content rules and uncertain markets, network businessmen like Victor Mashaal, chief executive officer at First Choice, looked for an exit. “This industry is in the pregnancy stage,” said Mashaal. “If there are too many regulations, you run the risk of stillbirth.”

With the announcement of the $30million Playboy deal to produce softcore sex material in Toronto and Montreal, First Choice defied two “regulations”—the country’s moral standards and the CRTC’s Can-con rules—only to find its hands tied in both cases by even more regulations. Under continuing pressure from the antipornography lobby, the CRTC warned the pay TV networks last week to come up with a “voluntary” code of ethics for their adult programming—or face government regulation. First Choice quickly agreed to a voluntary code, but the competition resisted on the grounds that they were being splattered by the mud First Choice had kicked up. “I just don’t consider myself part of that garbage,” said Edgar Cowan, president of C-Channel. And Steven Harris, president of Superchannel, added that working out common principles with First Choice might be difficult “considering what they have shown their principles to be.”

In its statement, the CRTC specifically warned against shows featuring “gratuitous violence against women.” That would rule out the violent pornography shown on the Playboy channel in the United States—and replayed for a group of surprised MPs on Parliament Hill. Defending the company on charges that soft-core sex inevitably leads to hard-core, Mashaal said: “What about the miniskirt? It didn’t get shorter and shorter. People have standards—they’ll draw the line.” Reluctant or not, all three executives were expected in Ottawa this week to confer with the CRTC.

But First Choice’s end run around the CRTC’s Can-con regulations could cause the pay TV industry even more grief. The Playboy deal is built on “scaffolding,” a financial sleight of hand that allows a Canadian network to invest only a minority share (usually 25 per cent) in a coproduction with a foreign company but to write off the project as 100-per-cent Canadian content. Many of First Choice’s so-called Canadian investments, including Romance and the musical Something's Afoot, with Jean Stapleton and Andy Gibb, have been scaffolded. Viewed strictly from the standpoint of stimulating Canadian culture, First Choice’s investment of $7.5 million (out of some $11 million available for Canadian programming this year) in such a venture puts pay TV in a bad light. Says Gathercole: “The Playboy deal makes a mockery of Cancon promises. It’s the inevitable result of the economic box constructed by the CRTC. The choice was either

go this route or go bankrupt.”

In the past the CRTC has never rigidly enforced the terms of the licences it issued and has been lenient with private broadcasters such as CTV and the Global Network regarding Can-con regulations. In the case of pay TV, however, Meisel promised that the CRTC will be “extraordinarily tough” in renewing the five-year licences. Meanwhile, after reviewing its Can-con rules last fall, the CRTC has presented new guidelines that should eliminate the scaffolding loophole.

As First Choice flounders, its rival Superchannel watches gleefully from a distance. Superchannel had, in fact, briefly considered going into sex programming itself. But in the United States channels like Playboy suffer from a high subscriber cancellation rate—the so-called “churn” factor— and Superchannel decided not to risk it. Although the vehemence of the current protest could not have been predicted, Dr. Charles Allard (page 48), head of Allarcom—which owns Superchannel (Alberta) and 46 per cent of the Ontario arm—had a premonition. When rumors cropped up that First Choice had signed the agreement, Allard said to his partner Sian, “Cross your fingers and hope it’s true.”

In the race to sign up subscribers, Superchannel has surprised industry analysts and even itself. Even in Ontario the network has been able to cash in on regional resentment against Ottawa, unlike First Choice, which has reinforced its national unity image in its logo—the numeral 1 within a maple leaf. In Edmonton pay TV has already


penetrated an astounding 16 per cent of the market. Although cable companies everywhere are reluctant to reveal which channels are being purchased, Randy Elliot, vice-president of Edmonton-based Capital Cable, admitted that his customers strongly favored Superchannel. “Naturally, people are backing the local channel,” said Elliot. “This is Alberta.” Resentment has also been fuelled by well-publicized disputes between the federal and provincial governments over pay TV jurisdiction. In Quebec the government has delayed all services with its own hearings, and licences are still pending. And in British Columbia a provincial government challenge is currently before the Supreme Court.

While First Choice and Superchannel fight for the general-interest title, CChannel hopes to find subscribers by going alone or piggybacking on the larger networks. C-Channel is the television arm of Lively Arts Market Builders Inc., a com-' pany promoting the performing arts using private-enterprise techniques. Says President Edgar Cowan: “We’re not really a pay TV network at all, but a television distribution system for the performing arts.” Although pay TV may take revenues away from movie houses, Cowan believes that will not happen in the performing arts. “So many people are intimidated by opera and dance, they would never go. But when it is put in a different entertainment context, they find they like it and want more,” says Cowan.

By funding the filming of such works as Brian Macdonald’s ballet, Newcomers, C-Channel comes closest of all the networks to fulfilling pay TV’s Canadian cultural mandate. “When you place the Canadian performing arts in an international context, as we do in our programming,” says Cowan, “there is no difference in quality—you can see that it’s world class.” Nevertheless, Cowan is not strenuously pushing home-grown products, and C-Channel ads feature Gordon Pinsent plugging Luciano Pavarotti. The programming highlight in March will be the Royal Shakespeare Company’s 8 Vi:-hour production of The Life and Adventures of Nicholas Nickleby, suitably marketed with food suggestions and tips for Nickleby costume parties.

The impact of C-Channel’s cultural programming—or indeed any pay TV of-

ferings—on the CBC and private broadcaster audiences could be immense. In the United States a pay TV showing of On Golden Pond left the regular networks in the same time slot with their lowest ratings in history. However, the CRTC has warned the Canadian pay networks against “siphoning” off programming that might normally appear on regular television. Many market analysts predict that pay TV will significantly affect video cassette sales by making popular movies more accessible. Still, fixed-distribution patterns are quickly forming to produce maximum returns on movies: after the theatre potential has been exploited, a film is released on video cassette, then on pay TV—and finally on commercial TV.

While all the entertainment delights

of pay TV are at the fingertips of cable subscribers, viewers who have decided against cable (20 per cent of Canadian television households) and those who live in areas without cable services (another 20 per cent) are left out in the cultural cold. However, C-Channel’s noncompetitive position makes it an ideal partner for coproductions with both public and private broadcasters which can be seen on regular television. Not only that, but the CRTC is currently accepting applications for non-cable delivery of pay TV, allemployingdish-shaped roof-top antennas to pick up pay TV signals direct from a broadcast sal illite.

Dishes capable of picking up present direct broadcast satellite (DBS) signals cost $1,500. By 1986, with a new generation of powerful U.S. DBS satellites in the air, the dishes will sell for only $250. U.S. pay TV analyst Paul Kagan claims

that “ultimately, DBS will confront cable on the same turf, and programming will make the difference.” The threat that those advances pose to Can-con strikes fear in the strategy planners at the federal department of communications, and their only choice is to try to ensure that when the flood of U.S. programming arrives, Canadian viewers will resist the temptation to plunge in. Because cable is the only exhibition system that can be regulated, the DOC and the CRTC have a vested interest in keeping the industry healthy—and that is the reason for licensing pay TV.

But the cable companies themselves pose a major problem for the regulators. Their sole concern is to increase subscriptions, sell hardware and persuade customers to buy as many pay TV channels as possible. The cost of installing the hardware needed to deliver several competitive pay channels has been immense, and the cable companies have driven hard bargains with the networks for a solid share of subscriber revenue to amortize their costs. The result is less money available for program funding.

By licensing competitive channels requiring costly hardware in a strictly regulated environment, the CRTC has ensured that the Americanization of Canadian broadcasting will continue. Arts organizations now believe that only one system will save Can-con: a direct levy on the $600-million revenues the companies will gross over the next five years to be distributed to a nonprofit corporation to fund film and television production. The - CRTC is considering the “universal pay” option, but, after going so far in one direction, it is unlikely to reverse its mind at this stage.

The fact remains, however, that independent film producers are enjoying the most positive financial encouragement many have ever known. And, if the boom goes bust again, the CRTC may still play the last trump of universal pay. “The whole thing needs a time perspective,” says Meisel. “People make scathing generalizations, but a project of this magnitude needs to settle down and find itself.” The history of pay TV may have just begun, but many suspect that its future can be read in the lessons of the past.

With Michael Clugston in Halifax, Anne Beirne in Montreal, Shona McKay, Nicholas Jennings and Susan Riley in Toronto, Dale Eisler in Regina, Peter Gorrie in Edmonton and Diane Luckow in Vancouver.