Business

The digital divide

New TV channels will take years to make money, even without a recession

DANYLO HAWALESHKA October 15 2001
Business

The digital divide

New TV channels will take years to make money, even without a recession

DANYLO HAWALESHKA October 15 2001

The digital divide

New TV channels will take years to make money, even without a recession

DANYLO HAWALESHKA

Business

Doing something for the first time, especially if it requires losing tens of millions of dollars, should be nerve-racking. But Martha Fusca, chief executive of Stornoway Communications LP, a newcomer to the uncertain world of digital television and specialty channels, is prepared to go through all that. It’s not as bad as it sounds, says the affable CEO, who oversees a talky public affairs offering called i channel, as well as bprmtv, a dance channel, and Movieola, which screens short films. The numbers have been crunched, due diligence done, says Fusca. It’s just that it could take as long as five years before the channels make money.

Toronto-based Stornoway is not alone. On Sept. 7, a phalanx of content providers began wading into deep pools of red ink to launch more than 60 new channels into Canadas young digital TV universe. The marketing trick now, says Fusca, is to get more Canadians signed up. “There’s a lot of really good stuff on—honestly,” Fusca enthuses. “Everybody is busting a gut trying to provide you with stuff to get your eyeballs.”

But will Canadians watch? Tough call. Certainly the launch’s timing was unfortunate. Four days after satellite and cable companies began airing free previews of the new channels, suicide bombers levelled the World Trade Center. Most viewers were glued to CNN or other news channels. That hurt, says Mario Mota, publisher and editor-in-chief of Decima Publishing Inc., which monitors the broadcast industry. Ad campaigns to familiarize the public with the dozens of different channels fizzled. “Basically,” says Mota, “people’s attention was elsewhere.”

Worse is the huge economic impact the attacks have had. Ad dollars, already soft in a slowing economy prior to the Sept. 11 assaults, nosedived in the financial mess that followed. The hope now is that people are ready to get on with their lives, and eager for a bit of small-screen escapism. As the market grows, so will the number of advertisers, goes the argument.

Digital distraction, however, is available to a relative few so far. There are just 2.3 million digital subscribers in Canada—via either satellite or a digital set-top box for cable—compared with 10 million analogue customers on regular cable. But digital has its advantages: CD-quality sound, a sharper picture, and the option of subscribing to individual channels or discounted bundles. Satellite services have always transmitted digitally, but cable companies are now joining the party in earnest, since they can squeeze up to she digital channels through the same pipeline that used to carry just one conventional analogue channel. (Digital transmissions, relying on the discrete ones-and-zeros language of computers, can easily be compressed, just as they are in computer music or piemre files.) The market leader, according to Decima, is satellite-based Bell ExpressVu, with a 37-per-cent share of digital homes, followed by Star Choice, also via satellite, at 26 per cent. The country’s wired giants, Shaw Cable with 12 per cent of the market and Rogers Cable (whose parent company owns Macleans) with nine, are expected to increase their share as more cable subscribers take the digital plunge.

Mota says it’s hard to predict how many people will be willing to fork over more money for more TV, at least in the short term. “These are very lean business cases,” he notes. Will twitchy-fingered surfers pause long enough to, for instance, give blandly named Book Television a chance? Host Daniel Richler, author and TV personality, promises to be provocative, says Jay Switzer, president of Toronto-based CHUM Television, the channel’s producer. Switzer recalls the doubts when CHUM launched artsy Bravo! on regular cable in 1993. That channel has since thrived, notes Switzer, who has equally high hopes for Book TV. “There will be,” he promises, “nothing boring or stuffy about this channel.”

There better not be. Sports marketers like Maple Leaf Sports & Entertainment Ltd., which is offering Raptors TV for basketball fans and Leafs TV for hockeyphiles, figure programmers need something unique. “If you’re just stuff, nobody will watch,” says Ken Dryden, president of the Toronto Maple Leafs. “Nobody needs more stuff.”

And stuff, useful or otherwise, costs money, though how much remains vague. Only Bell ExpressVu has announced pricing: its channels will retail for as little as $1.99 a month. Yet anecdotal evidence suggests the new channels are driving a surge in sales for digital boxes and satellite dishes. While the World Trade Center crisis distracted viewers from the new channels, it didn’t stop people from picking up the required hardware to watch them, says David McLennan, Bell ExpressVu’s president. “I don’t want to be insensitive towards what happened,” says McLennan, “but the fact is people continued to buy the product in volumes that were stronger than even we expected.” Rogers and Shaw also report higher digital sales since the channels were launched.

The economics may be challenging, but there is clearly no shortage of players willing to take the short-term financial hit. As a carrier of many of these risky ventures, Rogers Cable president John Tory thinks the majority will survive. “Most of these channels are owned by pretty serious broadcasters,” says Tory. “These c are people who both know § the business and who have 1 the resources to have some I staying power.” Tory’s counI terpart at Shaw Cable, president Peter Bissonnette, puts it another way: “Some will die on the vine.”

Marketing will be key. For some, even bad publicity may be good publicity. Pride Vision, a channel aimed at gays and lesbians, filed a complaint with the Canadian Radio-television and Telecommunications Commission, saying Shaw was discriminating because it required viewers to pay a token one-cent fee to activate the Pride Vision preview. Shaw said it would be irresponsible to supply adult content— shows such as Frisky Fridays and Steamy Saturdays—without viewers’ permission. But the CRTC, noting Pride Vision is one of 18 so-called category 1 channels, which carriers are required to show, ruled Shaw must discontinue the practice.

Satellite or cable?

So you want to make the plunge into the digital universe. What’s it going to cost you? No one will tell you yet, with one exception. But you car make an educated guess. If you’re already a subscriber to regular cable, you need to add a digital set-top box for any TV set on which you want to watch the extra channels (the regular ones will still show on your other sets). Rogers and Shaw charge about $11 a month for the box. Satellite subscribers already have a box for at least one set.

Then you have to pay for the channels. Only the Bell ExpressVu satellite service has announced pricing: the others are trying to hook you with free previews. But they’re likely to end up close to Bell. There, adding the new channels one at a time costs an additional $2.99 a month each. The new channels are also bundled with established ones at introductory rates of $36.99 to $62.99. Adding individual digital channels to a bundle costs $1.99 each. The choice is yours.

That spat aside, carriers have been keen to bash one another to attract business. Fusca at Stornoway is unhappy with the attack ads she’s seen. While she declines to name names, it isn’t difficult to imagine she’s referring to Rogers and Shaw-owned Star Choice, which have traded barbs in TV commercials focusing on cable versus satellite. (Shaw has since withdrawn its ad, which in Ontario—Rogers’ key turf— alluded to a cable-“bloated monopoly.”) “Instead of promoting the positive aspects of what’s coming on digital, they’re trying to beat each other up,” says Fusca. “What a waste of time and energy.” Resources, she adds, would be better spent highlighting the advantages of the new digital channels. She notes that the $40 it can cost a couple to go out to a movie will buy a lot of digital channels for the whole family for a month. In tough economic times, says Fusca, “the question becomes: is digital something I need?” A lot of business plans rest on the answer. E3