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Where we are
Well, here we are again. This is the third time I have to stand up before you in these circumstances, and, I have to tell you, I hate doing this. I imagine you feel the same way.
I told you in February about dark clouds. My job is to deal with, and communicate the facts, however unpleasant. My promise to you has always been, and continues to be, to give you the truth and to tell you what our circumstances are.
So how did we get here?
Many of you might be thinking: It’s all because of hockey. Well, no. It would be too easy to blame everything on the decision by the NHL to go exclusively with Rogers.
I will be the first one to admit that hockey was for us an integral part of our Corporation, anchored our CBC Television schedule and mobility offering, gave us clout in the advertising markets, and factored in when we allocated our financial resources between CBC, Radio-Canada and our non-media services.
And, the choice by the NHL of a single, exclusive broadcaster also affects the overall ad market, the balance of power between the conventional broadcasters and the sports specialty channels. The media environment in the francophone market is also affected with TVA now holding rights to the Saturday evening national games and play-offs.
So yes, the loss of the hockey contract is significant but is only one piece of a much more complicated puzzle. Let's talk about that.
[Slide – Compilation of pressures listed below]
First, television, where there’s an industry-wide softening of the television advertising market - down approximately 5% overall in the last year. This is common to all conventional broadcasters, and neither CBC nor Radio-Canada was spared. In addition, on the CBC side, since last summer, our prime time TV schedule performed poorly in attracting 25-54 year-old viewers, the most important demographic for advertisers. And yes, on top of that, we now have to plan the revenues coming from our prime-time CBC TV schedule without the pull effect of hockey and with Rogers/TVA now holding the NHL rights.
The combination of these factors represents about a $47M hit to our revenue.
Second, as you know, advertising sales on CBC Radio 2 and Espace musique are much weaker than expected. This is a major disappointment. We’re trying to fix this, but the initial projections won’t be met. We are not close. This represents a $13M shortfall, nearly all of it impacting English Services.
Third, we are facing other pressures from factors such as fixed cost increases of $42M and the $30M impact of a two-year salary inflation funding freeze by the federal government.
So, by the time we get to the bottom of this slide, you see what kind of a challenge we were facing just to balance our 2014/2015 budget.
[SLIDE – Budget 2014/2015]
And we can't forget that these reductions come after we will have managed almost $390M in financial pressures since 2009 due to the 2008-2009 recession, DRAP and the actions we took to adjust our business strategies then, the elimination of the LPIF by the CRTC, salary funding freezes in 2010, 2011 and 2012, cost increases and reductions in our CMF funding.
Balancing our 2014/2015 budget wasn’t easy. Probably the most difficult budget to land since I came in on January 1, 2008. But this challenge made one thing very clear: we can’t be resizing the public broadcaster every two years. It’s not good. It’s not healthy. And it’s not the normal course of business.
So, there will be two parts to our announcement today.
First, we’ll tell you how we did balance the budget for this year.
Then, we’ll talk about more fundamental changes to come as we develop our next strategic plan and aim to achieve a sustainable financial model, which includes an ability to invest for the future.
To balance our budget this year, we’ve had to cut $130M from across the Corporation and, in addition, incur one-time severance payments of $33.5M. This means that we are eliminating the equivalent of 657 positions over the next two years.
We went at these cuts the same way we did the DRAP cuts. We looked at everything, systematically, and through the prism of our 2015 strategic plan and its priorities.
However, as we looked for solutions and tried to shield our Canadian programming in prime time, our commitment to the regions and our commitment to digital from these cuts, we realized that the numbers were too big and our margin for manoeuvring too thin from the cuts we’ve had to make since 2009.
We were not able to protect these priorities as much as we would have liked. And Canadians will notice.
And, in the context of these reductions, I wanted to tell you that there will be no voluntary retirement program. The incremental costs of such a program are too great. We simply can’t afford one. So, I wanted you to hear it immediately from me: there is no VRIP.
There’s no easy way to deliver news like this. I know many of you are sad. I know there will be many questions. We will answer them straight up: both in our Q&A session today, in the meetings that will follow, and as things take shape over the coming days.
I promise that those who will be affected will be treated with respect. We will work with your union leaders to implement these reductions fairly and in the spirit of our labour agreements. And support will be available for those who will be affected as well as those who will see our friends and colleagues go.
We’ll do it together, as we must. But that won’t make it easy, and I know that.
As we made our choices to balance 2014-2015, we had to accelerate the work already started for our next strategic plan that will carry us to 2020. We had to make sure that the measures announced today weren't made in a vacuum, and weren't jeopardizing future strategic choices by reacting to immediate needs.
So, we established a few rules to help us make these choices:
On the national level: TV prime time has to perform; talk programming has to resonate; national news continues to be the service of record; national websites continue to strive for impact and differentiation;
On the regional level: focus and commitment to the regions remain but an urgent need to modernize/rationalize the "how we deliver" in light of budget realities; any further expansion of our local services that was envisioned in Strategy 2015 is immediately stopped; and
On the digital level: still, a commitment to allocate 5% of media programming budgets, but resources can/should be focused on fewer high impact initiatives; and protect strategically important projects (like tou.tv).
But, by applying these rules, very tough and controversial choices needed to be made, and were made. Before turning to Heather and Louis for more specific details on how our media lines will be affected, let me tell you about three areas that are affected by these choices. This will also shed some light on what kind of a public broadcaster we will become.
[SLIDE – Sports: Sales: Regions]
First, sports. As of today, CBC and Radio-Canada are out of the business of competing with the privates for professional sports rights. It’s quite obvious that we can’t compete in this area anymore against private broadcasters that have specialty sports channels (often more than one) and multiple media platforms to monetize the broadcasting rights now expected to be paid.
The cuts will also mean fewer events and fewer sports being covered and the loss of 50 hours of original programming on CBC’s schedule in 2014-2015.
Our coverage of amateur sports will also be reduced. From now on, we will only consider broadcasting events that allow us to at least break even.
In light of these decisions, we are thus substantially reducing the size of our sports departments in both CBC and Radio-Canada
That being said – and this is very important - we remain committed to signature events of national significance like the Olympics. I am of the strong opinion that these are part of our mandate and that, eventually, if we don’t care about them, no other broadcaster will. We will simply have to find a way to go about them differently, as we did in Sochi.
Second, with the loss of hockey, the importance of self-generated revenue is even more important and more strategic. We need to regroup our sales force, and share our vision for a Canada-wide multiplatform offering with our business partners.
That’s why we plan to consolidate the revenue groups under one department head, and provide a more streamlined service to advertisers.
Next is regions, where we will maintain our presence and our news-gathering capabilities. This means that we’ll need to pool even more resources in the regions, and in some cases, substitute local programs with regional, network or syndicated ones.
I hope these examples give you a sense of where we’re going. It’s all about choices, about combining the strengths of CBC and Radio-Canada even more, and about rethinking our services.
I have to tell you that our challenges go far beyond balancing the 2014-2015 budget. When we look to 2015-2016 and beyond, we still have a lot of work to do to achieve financial sustainability.
I’ll tell you more about the process we’ve undertaken as part of our next strategic plan, the one that will take us to 2020. But first I want to invite Heather and Louis to tell you more about the impact the budget will have on our networks.
Heather in Toronto – the floor is yours.
[SLIDES - HEATHER CONWAY]
[SLIDES – LOUIS LALANDE]
Merci Louis, thank you Heather.
So, this is where our next strategic plan comes in.
As I said earlier, we’ve accelerated this process. We had originally envisioned completing our work in 2014, and announcing our conclusions in the fall or, at the latest, in the first quarter of 2015. Now, look for announcements at the beginning of the summer.
Over and above Canadian programming in prime time, the importance of regions and a strong digital/mobility presence, and the guiding principles I mentioned earlier, we’ve begun identifying priority areas. We’ll also need to find, within ourselves, the dollars to invest in them. This will mean exiting some lines of business, or completely re-inventing them. This will mean making significant changes about what we can afford to do with a much different revenue base.
The fundamental changes we will make must serve us for many years to come. So, we are reviewing everything, and asking ourselves big questions like:
[SLIDE – Big Questions]
At the same time we’re looking abroad. We’re having discussions with public broadcasters around the world. Most are struggling with the very same questions as we are.
In all these reflections, our goal is to build an economic model that avoids announcements of the kind we’re making today. The fact is we can’t shield ourselves from budget reductions from government decisions and fluctuations in the markets. But we can increase our ability to weather the storms.
In 2020, we need to be a leaner and more focused public media company, one that is more agile and can adjust as the media consumption habits of the audience change, while still fulfilling the spirit of the mandate that we were entrusted with more than 75 years ago.
Through Sochi we reached over 33 million Canadians.
We did it together, CBC and Radio-Canada working more closely than ever.
We did it differently, leading with our mobile offering.
And we [acted] quickly, met our revenue and [audience] targets and we wowed them all!
That’s the spirit in which we need to go forward.
And with that, we’re here to take your questions…