Friday, September 05, 2014

Goodbye Canadian Content?

UPDATE: Those of you interested in what's happening to TV in Canada should read this article in The Globe and Mail.  It's a good summary of all the potential changes that are coming and how it might change the production landscape.  The reader comments show the level of animosity towards the cable companies and broadcasters.  You can't hold an audience with regulations, only by giving them something they want to watch.

There's an alternate TV universe developing in Canada.  It looks a lot like the old TV universe.  In fact the majority of the programming comes from the old TV universe, but there's an important difference: it comes via the internet and not cable channels.

So what?  Well, you can impose Canadian content quotas on cable, because no service gets on cable unless the Canadian Radio and Television Commission approves it.  And the CRTC always imposes conditions on any license it grants.

However, the CRTC has decided to keep its hands off the internet, precisely because it can't stop anyone from using the internet to distribute content.

There are huge repercussions from this.  First, when there were limited channels available and they had to run Canadian content, there was a demand (even it if was mandated demand and not audience demand) that had to be filled.  Second, when the public paid for cable TV and when the cable channels earned money from advertising, a percentage of the money was put into the Canadian Media Fund, which provided money for the production of Canadian content, including animation.

The problem started when Netflix came to Canada.  It allowed viewers to pay a flat monthly subscription rate to watch anything on the service.   As Netflix arrives via the internet, it has no legal obligation to put money into the Canadian Media Fund or to use Canadian content.  When a generation of young adults who have declined to have cable TV combines with disgruntled viewers who cut their cable to lower their bills, the cable companies panic.  Their billing is dropping and the shrinking audience will force advertising revenues downwards as well.  That's a one-two punch aimed at Canadian content.

Shaw and Rogers, the two largest cable TV providers, are fighting back.  They're collaborating to create Shomi (pronounced "show me") to compete with Netflix.  That's like Coke and Pepsi collaborating on a new soft drink, a move that could only be driven by desperation.  Bell Media has just purchased a library of older shows from HBO for their own version of video on demand.  Suddenly, the cable TV business has the cooties and everyone is running away from it.  Because these new services are on the internet, there's no obligation to run Canadian content and none of the subscription money goes to the Canadian Media Fund.

This will make it harder to produce original animation in Canada.  With lower ad rates, less money in the Canadian Media Fund and the audience abandoning cable, there will be less demand for Canadian content and it will be harder to finance.  For better or worse, studios interested in creating shows will have to compete with the rest of the world, without the government carving out a protected space for them.

There will still be service work, but that doesn't bode well for the future of Canadian animation.  Service work is sensitive to currency fluctuations.  The Canadian dollar has ranged as low as 63 cents and as high as 1.03 compared to the U.S. dollar over the last decade or so.  In addition, there is the volatility of tax credits and government subsidies.  The new government in Quebec has cut their tax credits due to their deficit.  Any deficit-ridden government (which is all of them at the moment) will be looking hard at expenditures.  Service work is great for cash flow, but the flow stops when the job is delivered.  There are no residuals and no money from merchandising.  Studios doing service work are always just a few months away from a potential bankruptcy.

This could be a great opportunity for Canadian studios, forcing them to cut the government's apron strings and grow up, but I'm doubtful.  History hasn't demonstrated that Canadian studios are eager for that challenge.  In the last 35 years, no studio has walked away from government protection or money to stand on its own.

While Canadian animation is booming right now, the future is uncertain at best.  The entire notion of Canadian content quotas may disappear quickly, not through government decree, but through cable TV erosion.  While Canadian studios have worked hard to satisfy the regulations, now it's time for them to focus on satisfying the audience if they want a healthy future.

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