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The statistics presented in this publication are for the fiscal year ending August 31 and cover the period from 2002 to 2006. The analysis below includes other reference periods when it is useful to put the industry’s recent performance in historical context.

Soaring revenues for television broadcasters after a period of sluggish growth

The operating revenues of the television broadcasting industries ¹  totalled just over $6.0 billion in 2006, up 8.2% from 2005. This increase was well above the average growth rate of 5.4% ²  for the last 10 years. In fact, it was the third largest year-over-year revenue gain during that period.

This resurgence followed two years of appreciably slower growth, as revenues rose just 3.3% in 2005 and 4.3% in 2004.

Television broadcasters’ two main commercial revenue streams grew faster in 2006 than in the previous two years. Air time sales rose 7.6% to $3.3 billion, and subscription revenues jumped 11.3% to $1.6 billion. By comparison, air time sales and subscription revenues increased 1.8% and 6.6% respectively in 2005.

The same was true for grants, ³  which climbed to $848.2 million in 2006, up 7.1% from $791.8 million in 2005.

However, the overall picture for the television broadcasting industries masks some substantial differences between the various segments.

Private conventional television  ⁴  sees zero growth

Private conventional television broadcasters reported revenues of $2.2 billion in 2006, unchanged from the previous year.

Flat revenues are nothing new for this segment, as this marks the third time in five years that its year-over-year revenue growth has been less than 1.0%.

What is new, though, is that in 2006, this industry’s revenue stagnation was accompanied by a precipitous drop of more than 62.5% in its profits before interest and taxes, from $242.7 million in 2005 to $90.9 million in 2006. It is the first time in 15 years that this segment has generated less than $100 million in profits before interest and taxes. The 4.1% profit margin is the smallest in the last 30 years.

Every recent episode of sluggish revenue growth has been accompanied by a decline in profits, though not as large a decline as in 2006. A tight rein on spending had enabled the industry to curb the decline in profits until that year. However, operating expenses jumped 7.7% in 2006, mostly because of higher programming and promotion costs (+10.0% and +9.3% respectively). Those are strategic expenses in an increasingly fragmented market, where the competition for viewers is becoming more intense.

A formidable challenge for private conventional television

In contrast to public television and specialty television, private conventional television’s business model is based almost exclusively on advertising sales. As a result, it is more vulnerable to conditions in the advertising market.

The television broadcasting industry as a whole has seen relatively modest growth in advertising revenues in recent years, and the number of players sharing the advertising pie is rising. Between 1996 and 2006, television broadcasters’ advertising revenues rose from $2.0 billion to $3.2 billion, a compound annual growth rate of 5.1%. The number of conventional television stations remained nearly unchanged during the period, while the number of specialty channels expanded from 21 to 136.

The growing number of players, including those in other media, has obviously led to greater competition for advertisers’ dollars, but also to downward pressure on advertising prices. During this period, private conventional television broadcasters’ share of the advertising market dropped from 73.8% to 62.2%.

Consequently, private conventional television broadcasters recently applied for the CRTC’s permission to switch to a business model that would give them access to cable and satellite television subscriber revenues. Up to now, that revenue stream has been the exclusive domain of the specialty and pay channels. Those revenues tripled between 1996 and 2006, climbing from $0.5 billion to $1.5 billion.

The CRTC rejected the application, instead granting a gradual increase in advertising time per hour of broadcasting. This should enable broadcasters to increase their revenues, though the impact that the decision will have on the advertising market remains to be seen.

Better results for specialty television  ⁵ ,  ⁶ 

Specialty television broadcasters topped the $2 billion mark in revenues in 2006, up 11.2% from the previous year.

Advertising revenues soared 14.7% to $0.9 billion, while subscription revenues totalled $1.1 billion, nearly 9.0% more than in 2005. In both cases, the increases were larger than the 2005 gains. Some of the 2006 growth was due to the launch of 13 new digital channels.

Despite these positive results, there has been a very clear downward trend in revenue growth in the last few years. Revenues grew at an average annual rate of 10.8% in the last five years, compared with 17.3% in the previous five years. This trend affected both advertising and subscription revenues.

This loss of momentum is not surprising. Introduced over 20 years ago, specialty television is no longer a brand-new industry in an initial period of rapid growth. The industry has now reached a plateau characterized by decelerating growth.

Another clear trend is that specialty television is increasingly dependent on advertising revenue for its growth. Advertising accounted for 43.8% of its revenues in 2006, compared with 36.4% in 2001 and 28.6% in 1996.

Specialty television made $447.8 million in profits before interest and taxes, slightly less than the $449.2 million it earned in 2005. However the segment generated 22.2 cents in profit for every dollar of revenue in 2006, its second-best performance in 10 years.

Vigorous growth for digital channels  ⁷ 

A new era dawned in Canadian television in 2002, as 49 new digital specialty channels went on the air. They became part of the audiovisual package available to households that had acquired a digital receiver from their cable company or satellite television service provider. More channels have made their debut since then, bringing the total to 87 in 2006.

Digital television remains a minor player in the industry from a revenue standpoint, but it is growing very rapidly. Its revenues have nearly quadrupled in five years. In 2006, the 87 channels’ combined revenues were $192.9 million, just under 10% of the total revenue earned by specialty channels. In 2002, their revenues were $49.4 million, less than 4% of the specialty television industry’s revenues.

More than 80% of their 2006 revenues were from subscribers, as they had not yet made serious inroads in the advertising market. As a result, the digital segment’s growth is closely tied to viewers’ choices, since the channels are not available in basic cable packages.

The digital segment was still in the red in 2006, but it is quickly approaching the break-even point. Before interest and taxes, it lost a total of $18.1 million in 2006, just over 9 cents for every dollar of revenue. That is about one third of what it lost in 2005.

A good year for pay television

The revenues of pay, pay-per-view and on-demand television jumped 17.7% to $482.3 million in 2006. This surge follows three years of well-below-normal revenue growth for the industry.

More than a quarter of the revenues went back to company owners in the form of profits before interest and taxes. In this case, business remains good, as the segment’s profit margin has hovered above 20% since 2001. In fact, it has been the most profitable segment of the television broadcasting industry in the last five years.

The strong growth in the segment’s revenues is largely attributable to the increasing popularity of pay-per-view television and video-on-demand. Revenues from those services soared by 41% to $157.4 million in 2006.

Back to normal for public television

After seeing its advertising revenues slump by more than 25% in 2005, public television returned to a more even keel in 2006. The National Hockey League players’ return to the fold after a full season away had a positive effect on advertising revenues, which climbed to $351.1 million, this segment’s second-best performance in the last 10 years. Grants totalled $848.2 million, up 7.1% from 2005. As a result, the segment was able to invest more than $975 million in programming, 14.4% more than in 2005.