Communications Monitoring Report 2018

Link directly to Broadcasting distribution sector Broadcasting distribution sector

Link directly to Infographic 10.1 Infographic 10.1

Source: CRTC data collection

Long Description

	2017	2016-2017 Growth (%)
BDU subscribers	10.7M	-1.9
BDU revenues	$8.5B	-2.3
BDU EBITDA margin	18.3%	N/A
Total BDU contribution to Canadian programming	$412M	-3.7
Total affiliation payments reported by BDUs	$3.5B	0.7
Total affiliation payments to Canadian services	$3.1B	1.6
Percentage of households subscribing to BDUs	72.3%	N/A

Affiliation payments refer to the remuneration that providers of discretionary and on-demand programming services (Canadian and non-Canadian) receive from the BDUs distributing their services.

Broadcasting distribution undertakings (BDUs) provide subscription television services to Canadians. They distribute conventional television, discretionary and on-demand services. The broadcasting distribution section of this report focuses on three types of BDUs: cable, Internet protocol television (IPTV) and national direct-to-home (DTH) satellite service providers.

In 2017, BDU revenues^{Footnote 1} stood at $8.5 billion and represented almost half of total broadcasting revenues. While revenues were down 2.3% compared to 2016, BDUs reported a combined earnings before interest, taxes and depreciation and amortization (EBITDA) margin of 18.3% in 2017. They also contributed over $400 million to the creation and production of the Canadian programming, in addition to making over $3.1 billion in affiliation payments to Canadian television services as a result of delivering programming to almost 11 million subscribers or 72.3% of Canadian households.

Link directly to i. Revenues and financial performance i. Revenues and financial performance

Link directly to Infographic 10.2 Infographic 10.2

Source: CRTC data collection

Long Description

Indicator	Cable	IPTV	DTH	Total
2017 revenues ($ million)	4,593	1,985	1,959	8,538
2016-2017 revenue growth (%)	-4.1	10.3	-8.9	-2.3
2017 subscribers (million)	6.1	2.6	2.0	10.7
2016-2017 subscriber growth (%)	-2.9	5.5	-7.2	-1.9
2017 average revenues by subscriber ($/month)	62.32	65.24	76.76	65.85
2017 EBITDA margin (%)	18.6	7.7	28.1	18.3

National direct-to-home (DTH) refers to satellite service providers, while IPTV refers to Internet protocol television, such as Bell Fibe and Telus Optik TV, but excludes Internet-based services, such as Netflix, Crave and Club Illico.

Monthly revenues per subscriber are calculated by dividing BDUs’ annual revenues from basic and non-basic services by the average number of subscriptions in the year. The result is then divided by 12 to obtain the monthly amount. The average number of subscribers is determined by dividing by two the sum of the number of subscribers at the beginning and at the end of the year.

The EBITDA margin is a metric used to measure financial performance; it represents earnings before interest, taxes, depreciation and amortization and is expressed as a percentage of total revenues.

As previously stated, 2017 revenues of Canadian cable, IPTV and satellite companies stood at $8,538 million, a 2.3% decrease from the previous year, marking a third consecutive year of declining revenues. For the first time, BDU revenues displayed a decline in its average five-year CAGR. Revenues declined 0.7% per year on average from 2013 to 2017.

Revenues of IPTV services continued on their upward trend and totalled $1,985 million in 2017, surpassing for the first time DTH revenues, as well as reporting for the first time a positive EBITDA margin (7.7%). DTH services, however, still remain the most profitable of the three types of services, reporting a 28.1% EBITDA margin. DTH services also generated a higher average monthly revenue per subscriber ($76.76/month) than the other services, surpassing cable and IPTV services by over $10/month.

Taken together, cable, IPTV and DTH services provided services to which 72.3% of Canadian households subscribed. Although BDU penetration has been in decline in the recent years, Canadians don’t seem to be necessarily replacing the service by its online counterpart. While BDU penetration shrank from 81.5% to 72.3% of Canadian households between 2013 and 2017, the percentage of Canadians who reported watching television exclusively online only went up from 6% to 9% over the same period.

In 2017, traditional television still reached 95% of Canadians, while Internet television reached 61% of Canadians. Although 61% of Canadians watched some television content online, only 9% of Canadians watched television exclusively online. Most Canadians watching television exclusively online were Anglophones and tended to be in the 18-34 age group.

In 2017, 10% of English-speaking Canadians and 6% of French-speaking Canadians watched television content exclusively online. Younger Canadians are more likely to watch television exclusively online than older Canadians. Specifically, in the same year, 18% of Canadians in the 18-34 age group reported watching television exclusively online, while only 12% of the 35-49 age group, 5% the 50-65 age group and 1% of the 65+ age group reported doing so.

Link directly to ii. Industry characteristics ii. Industry characteristics

Link directly to Infographic 10.3 Infographic 10.3

Source: Public disclosure of aggregate annual returns for large ownership groups

Long Description

• In 2017, the top six groups/entities in terms of revenues generated revenues of $8 billion and accounted for approximately 94% of total BDU revenues.
• The top five groups/entities reported a total of 10.3M subscribers in 2017, representing 96% of total BDU subscribers.
• Subscribers to IPTV services represented almost a quarter of BDU subscribers in 2017.
• BCE and Shaw, the two groups/entities operating DTH services as well as terrestrial services, accounted for 51% of the total BDU revenues and 49% of the total BDU subscribers.

As in the case of the overall broadcasting industry, the majority of the BDU sector’s revenues are generated by a few large entities. In 2017, the top six groups/entities reported 94% of the total BDU revenues, as well as accounting for 96% of BDU subscribers.

While IPTV is still growing in terms of subscribers and revenue and achieved a positive EBITDA for the first time in 2017, cable services still represented over half of the BDU market, comprising 54% of the total BDU revenues and 57% of subscribers.

Link directly to iii. Contributions iii. Contributions

Cable, IPTV and satellite companies are required to contribute at least 5% of their annual broadcast-related revenues to the creation and production of Canadian programming. This can take the form of contributions to various Certified Independent Production Funds (CIPFs), the Canada Media Fund (CMF) or local expression, which includes the creation and distribution of community programming. Further, in 2009, the Commission established an additional fund, the Local Programming Improvement Fund (LPIF), in an effort to support local programming by conventional television stations during a difficult financial period. From 2010 to 2014, LPIF contributions made by BDUs averaged $87 million per year. On 1 September 2014, the LPIF was discontinued.

Contributions to the creation and production of Canadian programming by cable, IPTV and satellite companies totalled $412 million in 2017, a 3.7% decrease relative to 2016. From 2013 to 2017, contributions decreased by 4.4% on average per year.

In 2017, approximately half of the BDU contributions to Canadian programming went to the CMF ($206M), followed by local expression (36% or $149M) and independent funds (14% or $58M).

Link directly to iv. Affiliation payments iv. Affiliation payments

The providers of discretionary and on-demand programming services^{Footnote 2} (Canadian and non-Canadian) receive remuneration from the BDUs distributing their services. This remuneration is referred to as an affiliation payment and is based on the number of BDU subscribers who receive the programming service.

Payments to Canadian affiliates increased by 3.1% on average per year from 2013 to 2017, whereas payments to non-Canadian affiliates increased by 2.6% on average per year over the same period. Altogether, in 2017, $3,504 million in affiliation payments were made to all affiliates.

In line with revenues, cable services made the majority (53%) of the affiliation payments to discretionary and on-demand services in 2017, followed by IPTV and DTH services. Affiliation payments made to Canadian services exceeded $3 billion, over seven times more than the amount ($420M) paid to non-Canadian services.

Link directly to v. Dispute resolution v. Dispute resolution

Dispute resolution is designed to effectively assist parties in reaching mutually beneficial agreements and resolve disputes in an increasingly competitive broadcasting industry. The process and procedures used for resolving disputes that come under the Commission’s regulatory purview are set out in Practices and procedures for staff-assisted mediation, final offer arbitration and expedited hearings, Broadcasting and Telecom Information Bulletin CRTC 2013-637, 28 November 2013.

Disputes can be generally classified as follows: (1) disputes between broadcasting distributors and programming services concerning the terms of distribution, (2) disputes between competing broadcasting distributors over access to buildings and the end-user and (3) disputes between programmers regarding programming rights and markets served.

In 2017, a total of 332 cases were brought forward: 95% were informal disputes, while 5% were formal disputes. Among the formal disputes, only two went to final offer arbitration.