Communications Monitoring Report 2019

Link directly to Broadcasting Distribution Sector Broadcasting Distribution Sector

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1. Revenues and financial performance
   • Service penetration
2. BDUs over the past 10 years
3. Industry characteristics
   • Sector composition
4. Contributions
5. Affiliation payments
6. Dispute resolution
7. Methodology
   • CRTC data collection
   • Media Technology Monitor (MTM)
   • Dispute resolution
   • Definitions

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. IPTV refers to services such as Bell Fibe and Telus Optik TV, but excludes Internet-based services such as Netflix, Crave and Club illico.

Long description

	2018	2017-2018 Growth (%)
BDU subscribers	10.8 M	-0.9%
BDU revenues	$8.4 B	-2.0%
BDU EBITDA margin	15.3%	N/A
Total BDU contribution to Canadian programming	$422 M	1.2%
Total affiliation payments reported by BDUs	$3.6 B	1.2%
Total affiliation payments to Canadian services	$3.1 B	1.0%
Percentage of households subscribing to BDUs	72.5%	Compared to 73.7% in 2017

Source: CRTC data collection

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

In 2018, BDU revenues^{Footnote 1} were $8.4 billion and represented almost half of total broadcasting revenues. While 2018 BDU revenues were down 2.0% compared to 2017, BDUs reported a combined earnings before interest, taxes and depreciation and amortization (EBITDA) margin of 15.3% in 2018. They also contributed over $422 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 72.5% of Canadian households.

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

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Indicator	Cable	IPTV	DTH	Total
2018 revenues	$4,478 M	$2,075 M	$1,860 M	$8,414 M
2017-2018 revenue growth	-3.4%	4.5%	-5.0%	-2.0%
2018 subscribers	6.1 M	2.8 M	1.9M	10.8 M
2017-2018 subscriber growth	-2.8%	7.8%	-5.8%	-0.9%
2018 average revenues by subscriber	$60.60/month	$63.91/month	$77.97/month	$64.60/month
2018 EBITDA margin	15.0%	5.0%	27.4%	15.3%

Source: CRTC data collection

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 and telecommunications service revenues such as Internet access or telephony.

Monthly revenues per subscriber (ARPU) 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.

The above-noted $8,414 million of revenues of Canadian cable, IPTV and satellite companies, in 2018, represented a 2.0% decrease from the previous year. This marked a fourth consecutive year of declining revenues. BDU revenues displayed a decline in its average five-year CAGR: revenues declined 1.5% per year on average from 2014 to 2018.

Revenues of IPTV services continued their upward trend, totalling $2,075 million in 2018. They surpassed DTH revenues for the second consecutive year, and for a second time reported a positive EBITDA margin (5.0%). DTH services, however, remain the most profitable of the three types of services, reporting a 27.4% EBITDA margin. DTH services also generated a higher average monthly revenue per subscriber ($77.97/month) than the other service, surpassing cable by IPTV services by over $14/month and $17/month.

Link directly to Service penetration Service penetration

In 2018, 96% of Canadians viewed television, on any given platform. Across Canada, 72.5% of Canadian households subscribed to services provided by cable, IPTV, and DTH. While BDU penetration decreased from 79.8% to 72.5% of Canadian households between 2014 and 2018, the percentage of Canadians who reported watching television exclusively online increased from 8% to 14% over the same period.

According to Media Technology Monitor (MTM), in 2018, 96% of Canadians claimed to have watched some form of television (e.g., traditional cable, DTH, online, other). Of those Canadians, 37% claim to have a subscription to a cable service, 16% claim to have a subscription to a DTH service, and 20% claim to have a subscription to a fiber optic service.

Although 64% of Canadians watched some television content online, only 14% 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 2018, 16% of Anglophones and 8% of Francophones watched television content exclusively online. Younger Canadians were more likely to watch television exclusively online than older Canadians: 30% of Canadians in the 18-34 age group reported watching television exclusively online, while only 15% of the 35-49 age group, 6% the 50-65 age group and 2% of the 65+ age group reported doing so.

The significant increase from 2017 to 2018 of Canadians watching television exclusively online may be attributed, in part, to MTM changing their methodology: beginning fall 2018, MTM began using the 2016 Statistics Canada census.

Link directly to ii. BDUs over the past 10 years ii. BDUs over the past 10 years

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• In the past 10 years
  • From 2009 to 2018, BDU revenues increased by 1.5% on average per year. BDU revenues peaked in 2014 at $8.9 B and declined to $8.4 B, an average decline per year of 2.0% (2015-2018).
  • From 2009 to 2018, BDU subscribership declined by 0.05% on average per year. BDU subscribership peaked at 11.5 M in 2012 and has since declined to 10.8 M in 2018.
  • BDU subscribership was lower in 2018 than in 2009.
• Average revenue per user (ARPU) for BDU services has decreased by less than one dollar in the past 5 years. It totalled $64.60 in 2018 (compared to $65.47 in 2014).

Source: CRTC data collection

A 10-year review of the evolution of the number of households in Canada, BDU revenues and BDU subscribership reveals that, although the number of households has increased constantly, the amount of revenues and subscribers have not matched this trend: subscribers to BDU services have been declining since 2013 and revenues have been declining since 2015.

Even though BDU revenues have declined since 2015, they have experienced a positive annual growth, averaging a 1.6% increase per year, over the past 10 years. BDU subscribership has been declining since 2013 (with a 0.05% yearly decline spanned over 10 years), and in 2018, total BDU subscribership was lower than in 2009.

From 2009 to 2013, BDU revenues increased annually by an average of 4.7%, while subscribership increased annually by an average by 1.3%. However, over the following five years, revenues and subscribership declined by an average of 1.5% and 1.2% per year, respectively.

The ARPU for all services combined has slightly declined over the past 5 years, decreasing from $65.47 in 2014 to $64.60 in 2018. During this period, cable and IPTV ARPUs have declined ($60.98 to $60.60 for cable; $67.24 to $63.91 for IPTV), while average revenue per DTH client has increased ($76.63 to $77.97).

See CMR Open data for 10 year trends for BDU revenues and subscribership by technology as well as additional information. Furthermore, see CMR section Communications services in Canadian households: Subscriptions and expenditures for details on Canadian household communications expenditures.

Link directly to iii. Industry characteristics iii. Industry characteristics

Long description

• In 2018, the top seven groups/entities in terms of revenues generated revenues of $8,162 million accounting for approximately 97% of total BDU revenues.
• The same groups/entities reported a total of 10.4M subscribers in 2018, representing 97% of total BDU subscribers.
• Subscribers to IPTV services represented 26% of BDU subscribers in 2018.
• BCE and Shaw – the only two groups/entities operating DTH services and terrestrial services – accounted for 51% of the total BDU revenues and 48% of the total BDU subscribers.

Source: CRTC data collection, Public disclosure of aggregate annual returns for large ownership groups

For the second time in 2018 (5.0%), IPTV services achieved a positive EBITDA. Although IPTV continued to grow in terms of subscribers and revenues, cable services continued to represent over half of the BDU market, generating 53% of the total BDU revenues and 56% of subscribers.

BCE, Corus/Shaw, and Rogers, the three ownership groups that generated the most revenues in 2018, chose to divert a portion of contributions from local expression to locally reflective news programming. These groups were the only BDUs that made contributions to locally reflective news programming for 2018.

All licensed BDUs contributed a percentage of their revenues to the Independent local news fund (ILNF) which has supported stations in the production of local news. In total, BDUs contributed $21.7 million to the ILNF in 2018. The top three BDU ownership groups in terms of revenues contributed 73 % of this total.

All seven ownership groups (listed above) generated 97% of total BDU revenues. These groups combined contributed a slightly higher proportion 99% ($416 million) of total contributions to Canadian productions.

Link directly to iv. Contributions iv. Contributions

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Recipient	Total
Certified Independent Production Funds	$46.2 M
Canada Media Fund	$193.1 M
Local Expression	$161.1 M
Licensee’s own community channel	$110.8 M
Community programming in other markets operated by the licensee	$2.6 M
Locally reflective news programming	$47.7 M
Independent Local News Fund	$21.7 M
Contribution to Canadian programming	$422.0 M

Source: CRTC data collection

Cable, IPTV and satellite companies are required to contribute at least 5% of their gross annual revenues derived from broadcasting activities to the creation and production of Canadian programming. This may include contributions to Certified Independent Production Funds (CIPFs), the Canada Media Fund (CMF) and/or local expression. Cable, IPTV and satellite companies contributed $422 million to the creation and production of Canadian programming in 2018, a 1.2% increase compared to 2017.

In addition to contributions to the funding of community channels, local expression funds can now benefit from BDU contributions aimed at locally reflective news programming on conventional television stations. In 2018, BDUs allocated a total of $47.7 million of their contributions to local stations for the creation of locally reflective news programming. IPTV services accounted for 43% of these contributions and reported 25% of the total BDU revenues. Cable and DTH services accounted for 32% and 25%, respectively, of the contributions to locally reflective news programming in 2018.

In Broadcasting Regulatory Policy 2016-224, the Commission announced that the Small Market Local Production Fund would be replaced by the Independent Local News Fund (ILNF). This fund is devoted to supporting the production, by private, independent television stations, of news and information that reflects the local reality. BDUs are required to contribute a percentage of their gross annual revenues derived from broadcasting activities to this fund. Contributions to the ILNF reached $21.7 million, in 2018.

In 2018, approximately 46% of BDU contributions to Canadian programming went to the CMF ($193 million), followed by local expression (38% or $161 million) and CIPFs (11% or $46 million). The ILNF received $22 million (5% of BDU contributions).

Link directly to v. Affiliation payments v. Affiliation payments

Providers of discretionary and on-demand programming services^{Footnote 2} (both 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 1.8% on average per year from 2014 to 2018, whereas payments to non-Canadian affiliates increased by 2.5% on average per year over the same period. In 2018, affiliation payments were of the sum of $3,565 million.

In line with revenues, cable services made the majority (53%) of the affiliation payments to discretionary and on-demand services in 2018, followed by IPTV and DTH services. Affiliation payments made to Canadian services exceeded $3 billion, over seven times more than the amount ($432 million) paid to non-Canadian services.

Link directly to vi. Dispute resolution vi. Dispute resolution

Dispute resolution is designed to effectively assist parties in reaching mutually beneficial agreements and to resolve disputes in an increasingly competitive broadcasting industry. Until late May 2019, the practices and procedures used for resolving disputes that came under the Commission’s regulatory purview were set out in Practices and procedures for staff-assisted mediation, final offer arbitration and expedited hearings, Broadcasting and Telecom Information Bulletin CRTC 2013-637. That information bulletin was subsequently replaced by Practices and procedures for dispute resolution, Broadcasting and Telecom Information Bulletin CRTC 2019-184.

Disputes are generally categorized as: (1) disputes between broadcasting distributors and programming services regarding 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. Most disputes that come before the Commission are of the first type.

In 2018, a total of 332 dispute cases were brought before the Commission: 95% were informal disputes, while 5% were formal disputes. Among the formal disputes, only two went to final offer arbitration, with the others addressed through staff assisted mediation.

Link directly to vii. Methodology vii. Methodology

Link directly to CRTC data collection CRTC data collection

The CRTC data collection sourced its statistical and financial data from the annual returns provided by broadcasting distribution undertakings (BDUs) for the broadcast year which ended 31 August 2018.

CBC/SRC revenues include parliamentary appropriations for conventional television.

Annual returns for the broadcast year which ended 31 August 2018 were required to be filed with the Commission by 30 November 2018. Data received subsequent to the compilation date is not reflected in this publication. The data reported for previous years has been updated to reflect any additional or adjusted information received by the Commission after the 31 August date for prior years' publications.

Link directly to Media Technology Monitor (MTM) Media Technology Monitor (MTM)

MTM measures Canadians’ media technology adoption and use at two points in time to monitor changes in media penetration and use over the year. Telephone interviews are conducted with a regionally representative sample of Canadians who have a landline telephone service and those who rely solely on cell phone service. The fall survey includes 8,000 Canadian adults (4,000 Anglophones and 4,000 Francophones). Of those 8,000 respondents, 2,976 have also completed an online survey introduced in the fall. An independent sample of 4,000 Canadians (2,000 Anglophones and 2,000 Francophones) is surveyed in the spring.

www.mtm-otm.ca

The CMR uses data collected from the fall survey unless stated otherwise.

“Watching television exclusively online” refers to those who do not watch live TV at home and choose to watch television exclusively online via various streaming websites and services. A small percentage of these might still have a traditional paid TV subscription or receive over-the-air broadcast signals in their household, yet they do not use them, opting instead for online services for their television viewing.

“Watching television on any platform” refers to any form of television viewership, regardless of the chosen television medium. This includes, but is not restricted to, BDU-subscribed television, private conventional television, and Internet-based television services. The content can be viewed on any platform such as tablets, cellphones, Internet-connected television, or any other device.

Link directly to Dispute resolution Dispute resolution

Disputes that involve one issue – or in exceptional cases, several closely related issues – and have the following characteristics will lend themselves to the Commission’s dispute resolution processes:

• the dispute is bilateral or involves only a small number of parties;
• the parties have been unable to resolve the dispute by other methods;
• the dispute is relevant to the regulation and supervision of either the Canadian broadcasting or telecommunications system, primarily to matters of interpretation or application of an existing Commission decision, policy or regulation; and
• the resolution of the dispute does not require the establishment of a new policy or change to an existing policy.

The resolution of certain disputes or the breaking of an impasse may, in certain cases, require nothing more than assistance from Commission staff over a period of a few hours or days. In other situations, parties may not be able to make progress in their negotiations, and may require staff’s opinion or other assistance. Where staff’s opinion is requested and where staff determines that the request is appropriate, the Commission’s objective is that, wherever possible, such an opinion be released within 60 days of the date of receipt of the request.

Generally, the more complex or technical a dispute, the more likely it is that at least some type of informal or formal oral phase (including meetings between the parties) will be required. Written submissions from the parties may not be sufficient to enable Commission staff to prepare a comprehensive opinion. In such circumstances, the 60-day objective may have to be extended.

Formal dispute resolution takes the form of staff-assisted mediation or final offer arbitration. Staff-assisted mediation is the method of dispute resolution in which Commission staff assists parties in reaching a consensual resolution of the issues under dispute. Final offer arbitration is used for disputes that involve no more than two parties, that are exclusively monetary in nature, and that otherwise meet the criteria set out in paragraph 4 of that Broadcasting Information Bulletin 2019-184. These methods are discussed in greater detail in the aforementioned information bulletin.

The formal dispute resolutions, consisting of staff-assisted mediations and final offer arbitrations, were conducted over 35 days, during the 12 month period beginning 1 April 2017.

Link directly to Definitions Definitions

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

BDU revenues refers to revenues from basic and non-basic services and exclude Internet-based service revenues, such as Netflix, Crave and Club Illico, but include IPTV services such as Bell Fibe and Telus Optik TV.

Broadcasting contributions to Canadian content include Canadian content development (CCD) contributions, Canadian programming expenditures (CPE), contributions to the creation and production of Canadian programming from BDUs and tangible benefits from ownership transactions in the form of CCD contributions and CPE.

Direct-to-home (DTH) refers to satellite service providers.

Earnings before interest, taxes, depreciation and amortization (EBITDA) or Operating Margin is a metric used to measure financial performance. It is expressed as a percentage of total revenues.

The estimated number households in Canada is calculated by dividing the 4^th quarter population estimate for Canada by Statistics Canada with the population to dwelling ratio. In turn, the population to dwelling ratio is calculated by dividing the population of Canada from the number of households found in Statistics Canada Census 2016

Household BDU subscription rate is used to calculate the household subscription rate, the number of BDU subscriptions at the end of the annual period is divided by the total number of households in Canada.

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.

Locally reflective news programming contributions refers to the contributions made by licensed BDUs to designated local television stations for the production of local news. See Policy framework for local and community television, Broadcasting Regulatory Policy CRTC 2016-224.

Monthly revenues per subscriber or average revenue per user (ARPU) 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.

PBIT refers to profit before interest and taxes.

Total broadcasting revenues include revenues from private commercial and CBC/SRC conventional television, discretionary and on-demand television, private commercial and CBC/SRC radio, as well as broadcasting distribution undertakings (BDU). They do not include Internet-based services unless stated otherwise.