CHCH All-Day Experiment Lessons Will Help Save Local TV

We’re discussing how CHCH’s all-day news experiment didn’t succeed, but we’re only able to do so because they tried. In the end, they were innovative and lessons from this experiment will prove to be part of the formula when a viable new business model for local television broadcast stations succeeds.
It’s frustrating to watch seemingly helplessly as many lost their jobs at CHCH. We want to understand what happened – why didn’t the CHCH local news experiment succeed – and we want to know who to blame.
Frustration at Channel Zero is growing as details emerge, their use of a shell company for CHCH’s liabilities and use of bankruptcy to avoid layoff notice, severance payments, and union collective agreement requirements is allowing us to point the finger squarely at them.
While they mismanaged the ending in the demise of CHCH’s all-day local news format, they stepped in and tried to do something none of the big well financed media companies are doing – they were aggressive in trying to make local broadcast television work.
The demise of CHCH’s experiment is nationally relevant. They were the last canary in the local broadcast coalmine. CHCH is one of only two remaining independent broadcasters in Canada, the other CHEK is in Victoria. (To clarify, this means they no affiliation agreement with the networks)
CHCH innovated on the business side and those innovations – the targeting of advertising by postal code and their viewer loyalty program, among others – must be noted for future attempts by CHCH and others to save local television broadcasting.
Channel Zero says CHCH even became profitable for a short period of time peaking in 2012.
Does this mean local television broadcast can work? Maybe, and the lessons learned at CHCH could be used to save local television news if large media companies divest themselves of local stations.

The Sword Falls on CHCH All-Day News

On Friday, the Sword of Damocles above the station fell.
At 4 p.m., all 129 full-time and 28 part-time employees were terminated, the company (Channel 11 L.P.) they worked for went into bankruptcy, and the Chairman and CEO of parent company Channel Zero came onto the air with a pre-recorded message.
Romen Podzyhun confirmed the rumours which swirled during the day:

CHCH’s losses are part of a national trend for local broadcasters, CRTC figures show significant review declines year-over-year for broadcasters with the overall sector unprofitable. In 2011, combined revenue for 93 stations was $2,144,290,861. In 2014, for 92 stations, revenue was $1,803,682,152 with expenses of $1,845,026,887 – the sector as a whole is losing money.
This week, CHCH goes from 80 hours per week of local news broadcasts to 17.5 hours per week. CHCH’s 6 p.m. newscast remains. At 11 p.m., the late night newscast returns to a 30-minute format. The morning show runs from 7 a.m. to 9 a.m., instead of its previous 6 a.m. to 10 a.m. format.
The Early Edition which ran from 4 a.m. to 6 a.m. is cancelled.

Trying to Make Sense of It

Like so many Hamiltonians, I had a wide range of emotions and really struggled with deciding how to view Friday’s events.
It is painful for us as a community and while it doesn’t feel so, we’re fortunate that we’re feeling this pain in 2015. Other cities of our size witnessed the decrease in local television news during the Great Recession of 2008 and the years that followed.
Instead of experiencing this collapse, we had Channel Zero which came along and reinvigorated CHCH. Today, what we are left with is what cities of our size in the rest of the country already had for the past half-decade.
CHEK – which like CHCH was facing going off-air in 2009 as Canwest’s E stations collapsed – offers 12 hours of local news programming per week. By that measure, Hamilton is still getting a better deal than other comparable cities.
In this February 2009 clip from CHCH’s Talk Show Square Off, Peter Miller CEO S-VOX operator of Vision TV and Lise Lareau of the Canadian Media Guild discuss the crisis in local broadcast news. Miller says CHCH’s then 36.5 required hours of local content was not sustainable. He says starting at 2:35 the “most appropriate” requirement for CHCH is 15.5 hours.

Who is to Blame?

So who is to blame? Channel Zero is definitely to blame for the corporate shell game which sees them able to bankrupt the obligations to employees by having the stations liabilities in one corporation Channel 11 L.P. and the assets in another.
The Hamilton Spectator reports Channel 11 L.P. owes employees $1.62-million and overall, the shell corporation owes millions to other creditors. (Read the full details on TheSpec.com)
The reasons leading to the demise are many, and as much as we’d like to tar and feather Channel Zero right now, they are not the culprit in the demise of local broadcasting.

CRTC?

At first, I pointed my suspicions at the CRTC. After all, they decided to end the Local Programming Improvement Fund, and sent concern across the local television landscape with their recent ruling on simultaneous substitution.
The LPIF was a stop gap measure at best, it merely slowed the decline in local broadcasting. While cancelling the fund took away the $5,067,375 CHCH received at peak, it was only a part of the demise.
While the CRTC hasn’t been the predictable regulator CHCH needs, at best, all it can do is buy local broadcasters time to adjust and pivot their business models. As CHCH was trying to do this, the CRTC must take some blame for not focusing LPIF on innovation and for eliminating the fund prematurely.

Channel Zero?

I turned my finger towards Channel Zero, after all, they declared the bankruptcy of a subsidiary corporation two weeks before Christmas, leaving employees – many with 30 plus years at the station – without notice or severance.
They engaged in union busting, using the bankruptcy to end the collective agreement. A “new” company producing is CHCH News this week, but it’s not unionized and Unifor members were forced to give up their union – at least in the short term – to keep their jobs. (Note: Unifor is clear that employees remaining at the station are not scabs and the union is instructing them to continue working while all the legalities are sorted out)
On Thursday, they were in collective agreement talks with the union. It’s textbook bad faith and it should not be forgotten. When Channel Zero comes looking for any handouts, we – the public – should demand to see their books, to see their corporate structure, and to guarantee they don’t screw over employees ever again.
Despite the sins of Friday, we should remember when they took over CHCH, the station was expected to lose $30-million dollars in 2009. Industry expert Greg O’Brien, editor of CARTT, reports CHCH told him they losing $130,000 per week before the bankruptcy on Friday. ($6.76-million per year)
Channel Zero must be credited for losing money on CHCH for the first few years, they are a small player on the media company scale and they took on a herculean challenge in saving a local broadcaster.
During a CANADALAND / The Public Record panel discussion in January, CHCH Veteran Donna Skelly said she’s experienced eight owners of CHCH since 1988 when she was hired. Skelly spoke about how previous owners had stripped the station of talent, equipment, and how Canwest gave station employees mere weeks in 2009 to find a new owner:

The Internet?

Yes, the Internet is to blame. Change is to blame, as it has been for the entire of human history. Much as television killed the radio drama, the Internet is changing how we get our news.
The business models of old, based upon scarce means of distribution and a scarcity of content cannot survive in the Internet Age.
How people are consuming news is not at fault here. It’s how advertisers are reaching consumers.
CHCH’s announcement on Friday focused on the loss of decline in national advertising revenue. CHCH says local advertising was strong, which will make sense when you read about the innovations CHCH made.

National Advertisers?

Do we blame the big auto companies, the large retailers, the Procter & Gamble’s of the world?
The migration of advertising to the Internet and niche cable channels are the culprit Channel Zero is pointing to.
Sure, we can blame them, but they have no more obligation to advertise on television than viewers have to watch movies with commercial interruptions. (When was the last time you watched a movie on advertising television?)
In the case of big retails, Sears and Hudson’s Bay, they are both barely surviving the retail revolution. If local television is counting on them to save it, they may as well be on life support in a hospital powered by hand cranked electricity.

Netflix?

Netflix blasted a hole in CHCH’s business plan.
When Channel Zero relaunched CHCH in 2009, the format was simple – news from 5 a.m. to 7 p.m., a movie at 7 p.m., another movie at 9 p.m., news again at 11 p.m., and then paid programming or a movie overnight.
In 2009, movies at night worked. It filled air time to generate the revenue needed to sustain the employment of so many in the daytime news operation. In 2009, Canadians didn’t stream movies. Netflix arrived in 2010, Blockbuster closed in 2011, Rogers Video followed in 2012.
We don’t know the cost of movie royalties, if supply and demand economics apply, when streaming services started buying movie rights, this increased the demand thereby increasing the cost to CHCH for purchasing movie rights. Viewers moved to Netflix, decreasing ad value.
A combination of increased costs and decreased revenue killed the movie format.

Channel Zero’s CHCH, the Innovation Station

It was not for a lack of trying the experiment failed.
CHCH was aggressive, Channel Zero wanted to succeed. When they purchased the station in 2009, Channel Zero President and Chief Operating Officer Cal Millar talked about their plans:

When the CRTC approved the purchase, there was excitement – especially as the E! Brand was removed. If you were in Hamilton when that damned E! brand came down, you’ll understand lack of critical review of Channel Zero’s corporate structuring of its then-new asset. Everyone in Hamilton who should’ve gazed a critical eye was punch-drunk with excitement. CHCH was saved.

When Netflix came along and the movie format failed, Channel Zero could’ve thrown in the towel, ended the experiment, and only a few people would blame them for giving up.
Instead, CHCH quickly pivoted.

The CHCH Movie Pivot: Tiny Talent Time and American Programming

In fall 2010, with the Netflix writing just starting to appear on the wall, CHCH relaunched with locally produced Tiny Talent Time, created a 7pm locally produced sports show, took the leftover American shows other better financed Canadian broadcasters didn’t pick up, and converted their news operation from old equipment to new digital equipment.
Tiny Talent Time originally ran on CHCH back in the stations glory days from 1957 to 1992. Relaunching it showed Channel Zero’s ambitions were not just limited to local news.

CHCH Matters Nationally: They Fought to Make Local Work

Advertising Innovation / Value for Local Businesses

CHCH_GeoTargetted_Ads — Geo Targeted Ads map from CHCH’s current media kit (http://chch.com/pdf/2014-2015_CHCH_Media_Kit.pdf)

The most important innovation, and one which will have a legacy benefitting all local broadcasters, is targeted advertising by geography to reach cable subscribers.
Geographically targeted ads made it possible for small businesses – especially in smaller communities like Smithville, Grimsby/Beamsville, Fergus – to reach their customers using CHCH within their budgets. They can’t afford the inefficiencies of traditional mass media advertising.
CHCH also offered special discounts to attract local advertisers with very competitive advertising rates. The winter 2012 special included production and 100 on-air ads for $10,000 dollars.

These advertising innovations, combined with the Local Programming Improvement Fund, made CHCH profitable for a period of time say Channel Zero executives.
With national ad sales handled by Channel Zero’s head office in Toronto, local CHCH staff were unaware of the extend of storm clouds forming over the station.
In January, Donna Skelly and Sonja Macdonald discussed CHCH’s advertising innovation and strategy:

CH-CHing, the Viewer Loyalty Program

Screencap of CHCHING! points and a prize.

The viewer loyalty plan, CH-CHing, was a smart idea to build viewer loyalty while gaining demographic information to prove value to advertisers.
The program offered points for things such as sharing, entering contests, answering on-air questions and promotions. In exchange for points, viewers can receive CHCH swag and enter contests for prizes such as cars, trips, and other promotional items.
This reinforces that CHCH wasn’t sitting around doing nothing, there were working harder than any other independent station to succeed at local.
The loyalty program is a promising means of improving demographic information to better sell television ads to advertisers. It’s something other media looking to sustain themselves with an advertising based model should carefully review and implement.

The Innovation That Didn’t Happen

Part of the story is the innovation that didn’t happen. I work closely with CHCH outside of the station – be it breaking news or City Hall – communication between station staff and myself is common.
In mid-2012, I became aware the station was working on a smart television app for Google TV. Station employees could see the need to be on Smart TVs
While I don’t know what became of these efforts, there are two factors that are obvious suspects: the demise of the Local Programming Improvement Fund and Google’s discontinuing of the Google TV platform.
While CHCH eventually launched an online stream of the channel, they never did get onto Smart TVs.
They’ve known for years they need to revamp their website and online presence. Once again, it didn’t happen, a proper website isn’t cheap – there are many back end and process changes needed for CHCH to have an effective website.
Had the Local Programming Improvement Fund continued, would they have been able to make the necessary changes? Would they be on Smart TVs?
The questions can’t be answered, only speculated upon.

The Mechanics of the Bankruptcy

Parent Company Channel Zero’s Logo

The bankruptcy is messy, will likely end-up tied up in the courts as Unifor fights to get employees severance and maintain the union’s rights with the successor shell company created to produce the news.
A group of local lawyers tweeted about the legalities of common employer and successor company, to read further into this aspect, here’s that discussion thread.
Channel Zero contracted its subsidiary company, Channel 11 L.P., to produce the local news content. For the viewer, this subsidiary was CHCH, but legally it was not.
On Friday, only Channel 11 L.P., filed for bankruptcy. As all the employees (and freelancers) worked for this company, they all lost their jobs without severance. As the Union’s collective agreement was with the now-bankrupt entity, Channel Zero is seeming to claim to not obliged to maintain the collective agreement.
Unifor, the union representing CHCH staff, says Channel Zero is not honouring commitments to the union, and returning staff are signing individual contracts.
In short, all the assets of CHCH were held by one company, and all the liabilities held by another. It’s company structure trickery at its worse.

What Happened Financially? Why So Sudden? Why Near Christmas?

This is the question we cannot answer as Channel Zero is a privately held company.
I’m in agreement with the theory advanced by McMaster business professor Marvin Ryder – something changed financially rather suddenly. Be it a surprise dip in national ad bookings for this or the next quarter, some grant or other source of funding applied for that Channel Zero didn’t receive, or any unexpected creditor demand.
Channel Zero knew they were in decline since 2012, but choose to not share this with employees.
Ryder, appearing on Cable 14 Friday hours after the bankruptcy announcement, explained that his advice to any company is that when a financial crisis occurs they have to act swiftly and it is disservice to keep employees in the dark for a period of time delaying the inevitable.
Ryder explained that had Channel Zero waited until after Christmas, more employees could enter themselves into big or long-term life plans.
What’s damning for Channel Zero is they were meeting with the union on Thursday in labour contract negotiations. Instead of informing the union, they hid the bankruptcy until 4 p.m. on Friday.

The Future of CHCH

CHCH will continue, and it will remain better than what Channel Zero inherited from Canwest Global, we were spoiled by so much local coverage as Channel Zero worked to prove local can work.
The CHCH we now have is a CHCH we would’ve celebrated keeping in 2009. It cannot be emphasised enough in 2009 it looks like CHCH was going to be bankrupt and the transmitter powered down.

The station was losing money when Channel Zero took over, staff took a compensation cut, walked away from their pensions, and just when it looked like they had found their feet, the Local Programming Improvement Fund was cut. Somehow, Channel Zero continued on for the past three years.
CHCH needs a stable environment of federal regulation and both Parliament and CRTC needs to provide it. CHCH, and other local television stations, need investment to innovate.
Bringing back the LPIF in its previous format will only delay the inevitable. The advertising model is not what it used to be and it’s not going to go back to what it used to be.

Innovation Needed, Subsidies Will Only Delay the Inevitable

The CRTC needs to focus on funding local innovation, investments that address capital and non-human resources operating costs, and impose stricter local content rules. The Knight Foundation’s funding of online journalism innovation could serve as the model.
Another potential short-term non-advertising revenue source would be fee-for-carriage. Over-the-air broadcasters lobbied the CRTC to impose carriage fees on cable and satellite companies for distribution of their programming. The Supreme Court ruled the implementation requires Parliament to change the Broadcasting Act.
Even if local stations are successful in lobbying the new Liberal government, it’s only a stop-gap solution. People are increasingly shifting their cable television dollars to the Internet. Among my friends, none have a cable package, but all have digital television antennas and are loyal CHCH over-the-air viewers.
Local television will need to innovate, and it is a worthy public policy goal to help them do so. If it’s just a subsidy, it won’t save local television, it will only delay its demise.
There are lessons to be learned from CHCH’s experiment. Let’s hope they don’t give up and once this restructuring is complete, they get back to innovating albeit it on a smaller scale.
Now CHCH continues as all other local stations are, struggling on life support, and barely able to innovate.
The last canary in the coal mine of local broadcast is dead, is anyone in Ottawa paying attention?

With Thanks

I want to thank a few sources for providing the background and materials I relied upon for this article:

The person behind the “CHCHnewsfan” YouTube account for the amazing archive of CHCH material
Greg O’Brien for his excellent coverage of Canada’s television and cable industries.
Steve Fagstein for his excellent blog on Canadian media, which I read via RSS feed.
To the many at CHCH who’ve shared with me a behind the scenes perspective on the station over the years.