Thank you, Mirko.
There is no doubt that the television business has seen many changes in recent years, including the growing impact of the Internet. For conventional broadcasters, a primary driver of change has been the massive expansion in specialty television services. While the number of TV stations in Canada has remained stable at about 100, the number of specialty stations has exploded from 21 in 1996 to 145 today. Where once the conventional broadcasters were the best--or only--vehicle for advertisers, there are now many alternatives.
Whether this is a structural problem--as the conventional broadcasters call it--or a structural evolution depends on your perspective. Other sectors, such as communications, have certainly had to make difficult adjustments due to shifts in consumer tastes, competition, and regulation. In spite of the growth in specialty services, conventional broadcasters have been able to maintain their advertising revenues at about $2.1 billion annually, although the recession has put some pressure on these revenues. In response to this pressure, broadcasters have not reduced their costs and this has led to a deterioration in their bottom line.
Nevertheless, compared to satellite TV broadcasters, the conventional broadcasters have been exceptionally profitable. During many unprofitable years when satellite TV accumulated the more than $2.2 billion losses that referred to, we were able to continue providing TV service, in part because Bell Canada has other lines of business that are profitable. The conventional broadcasters are in a similar situation, as they also own highly profitable specialty and pay-TV services. The CRTC data in figure 1 show the recently combined pre-tax profit of conventional and specialty services since 1996. CTV and Canwest capture about 57% of the revenue generated from specialty services.
So is the current situation in broadcasting a crisis, or an evolution? It appears to us to be the latter, and the entire industry must adjust. Conventional broadcasters are adjusting by acquiring highly profitable specialty services. But they also seek financial support from consumers or BDUs--cable and satellite. The impact of the broadcasters' request on Bell TV would be, at a minimum, $115 million annually. As we noted, Bell TV continues to run a cashflow deficit, so we can ill afford such a transfer of wealth. Canadian consumers would unfortunately be left with the bill for the broadcasters' demands.
Mirko.