Let’s Talk TV: Simultaneous substitution

Ahead of this fall's CRTC hearings, a look at the issues and arguments for and against the longstanding policy of substituting Canadian ads into US programming.
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This fall the CRTC is set to hear talks from every side of the industry as it embarks on hearings associated with its Let’s Talk TV initiative. From simultaneous substitution to pick-and-pay, and terms of trade to set-top box measurement, we’ll be profiling different topics throughout August leading up to the hearings. This week a look at simultaneous substitution, what the CRTC is proposing and how the major players have responded.

The issue: When the CRTC asked Canadians to voice their concerns about the TV industry in the country one of the issues singled out was the inability to see US commercials, particularly during the Super Bowl, where the ads are as much a part of the game as the football match.

Out of the 458 complaints about simultaneous substitution received in 2013, almost 100 were regarding Super Bowl ad substitution, which sees Canadian ads appear instead of American ads during the highly rated broadcast.

Simultaneous substitution, where ads on US programming are subbed out for Canadian commercials, has been in place in the country for more than 40 years. According to a study commissioned by Bell Media, Rogers Media and Shaw Media, eliminating the policy would take an estimated $415 to $458 million in revenue away from OTA broadcasters. (The study was conducted by Armstrong Consulting using 2012/13 data.)

The CRTC asked companies for their thoughts on the advertising and programming issue as well as potential alternatives like non-simultaneous substitution where US shows would be intentionally bought and placed out of sequence with its original air date south of the border.

The players:

Bell Media: The company says that rules around simultaneous substitution are effective and balanced, and respect the integrity of the program rights acquired by Canadian broadcasters. It says that substitution revenues form an essential part of the resources available to broadcasters for the production of high-quality Canadian content and the company thinks they should stay as they are, or be strengthened in order to protect the already shaky local TV market.

The media co says that it and other media companies must do a better job at responding to existing viewer complaints around ad and programming substitution issues, and says it is imperative that there be a consistent industry approach that emphasizes the rationale for simultaneous substitution to consumers and the benefits of it to the Canadian broadcasting system.

Rogers Media: The company says that while it knows the CRTC is moving from its traditional protectionist role to one that promotes Canadian content in new ways, simultaneous substitution should be something that is maintained in its current form. Rogers says that maintaining simultaneous substitution isn’t a protection of the current model as much as it is a requirement to keep the integrity of the Canadian rights market preserved.

According to the Armstrong report, simultaneous substitution accounts for 26% or $67 million of City/OMNI’s revenue, with $50 million of that in primetime.

Rogers says the only other way to protect the rights of programs purchased by Canadian broadcasters, other than removing US signals entirely, would be to impose “black-out” periods that it says would be even more disruptive to consumers.

Non-simultaneous substitution (where American programming can be aired in Canada regardless of when it is broadcast in the US) would not be a viable solution because of typically held rights rules around airing US programming purchased by Canadian companies ahead of their American debut, according to Rogers Media. It also says that dominant broadcast players like CTV would no longer be constrained by U.S. schedules, technically leaving them able to buy as many programs as possible, and making smaller broadcasters unable to compete.

Shaw Media: The company says that simultaneous substitution remains “relevant and critical” to the economic health of OTA TV services, and says there would be limited additional revenue and scheduling flexibility if it were to be replaced by non-simultaneous substitution.

Shaw Media says it is “surprised” that the CRTC would acknowledge the pressures that local TV stations are under, and at the same time propose a policy shift that would threaten the business model for conventional TV. In addition it stresses the impact the loss of simultaneous substitution would have for the advertising industry in Canada, which create the commercials.

ACA (Association of Canadian Advertisers): The organization says that though the shows in question under simultaneous substitution are from the US, their audiences are Canadian, and are exactly the people advertisers in the country want to reach. It says taking that large piece of inventory out of the market would cause increased demand and cost pressures, likely forcing advertising to transfer ad budgets to other platforms.

The potential outcomes:

Each of the OTA media companies stress the negative impact the loss of simultaneous substitution would have on the Canadian TV and advertising landscape, with Bell saying it would “irrevocably change” the Canadian broadcasting system and shake the foundations of the already challenged local TV business. It says the CRTC needs to strengthen its protection policies to maintain the existence of a Canadian program rights market.

Rogers Media argues that removing the revenue associated with simultaneous substitution would have serious implications for stations like City and OMNI, which are already facing many financial obstacles. It says if the CRTC does decide to change its policy on simultaneous substitution, it should give Canadian broadcasters enough time to review their programming and submit revised licence conditions that would reflect the new financial reality of the updated regulatory environment.

When the issue was first brought up by the CRTC in May, Stuart Garvie, chief commercial officer of media agency GroupM Canada, said taking away simultaneous substitution would be a “dangerous road.”

“I think if you take out simultaneous substitution, the real worry is, what happens to Canadian-only advertisers and really strong Canadian companies that have the majority of their business in Canada, like Tim Horton’s?” Garvie said.”If you take it out, you would basically be saying to those advertisers, you can’t advertise in those tentpole live events.”

Garvie also expressed concerns about what the potential elimination of simultaneous substitution could mean for Canadian-produced content.

“As soon as you start taking away Canadian broadcasters’ ability to make revenue on their content, you are absolutely doing the opposite of encouraging them to invest in content. You’re taking money out of their mouths, with which they would invest in Canadian content,” Garvie said.