Results and Outlook

OUTLOOK

CBC/Radio-Canada faces a volatile economy in a highly competitive media environment. While we have addressed budget shortfalls during 2014-2015, we must continue to be prudent in our financial planning to address potential risks to our revenue and operations.

As we announced on April 10, 2014, we needed to cut $130 million from our budget, which included eliminating 657 full-time positions. Most of these positions have now been eliminated.

On June 26, 2014, we unveiled our new strategy, A space for us all, which will allow us to continue to adapt and keep pace in a volatile environment. It is a framework within which the Corporation can make strategic choices, even as market conditions and audience habits evolve. The three priority areas are relevance, organizational agility and financial sustainability.

CBC/Radio-Canada must create a sustainable financial model that includes a manageable cost structure, an adequate and reliable income stream, and enough free cash flow to invest in the future. Our financial plan supports A space for us all through four objectives:

• Reduce the fixed cost base to balance the budget for the foreseeable future;
• Create a reserve to help manage financial risk or to invest in strategic initiatives;
• Reinvest in line with strategic priorities; and
• Diversify revenues and share risks through partnerships.

A detailed review of proposed savings was completed, and a comprehensive, five-year financial plan was approved by the Board of Directors in November 2014. This included creating organizational scalability by reducing our workforce by up to 1,500 over the next five years. Some 400 full-time positions were eliminated from the first implementation phase of the strategic plan as announced on October 30, 2014. On March 26, 2015, it was announced that a further approximately 240 positions would be eliminated from the second implementation phase of the strategic plan. By the end of the next fiscal year, two-thirds of the anticipated cuts will have been announced.

In October 2013, the CRTC initiated Let’s Talk TV, a discussion about the future of Canada’s television system. CBC/Radio-Canada participated in the public hearing in September 2014 and submitted comments and a proposal for changes to the regulatory regime for television services in Canada. In November 2014, the CRTC began releasing a series of decisions as a result of Let’s Talk TV, the last of which was announced on March 26, 2015. These regulatory changes could have an adverse effect on our business, the extent to which is unclear at this time. Below is a summary of some of these decisions and how they will affect CBC/Radio-Canada:

• The Commission ruled that local TV stations must keep operating their over-the-air transmitters. The Commission did not address funding issues in the decision, announcing instead its intention to re-examine the overall state of local television programming in the 2015-2016 fiscal year.
• The CRTC is requiring cable and satellite service providers to offer a small basic package costing no more than $25 per month as an alternative to the basic services they currently offer. Cable and satellite providers can continue to offer their existing big basic package, provided that it includes all of the services in the mandated small basic package and provided that the new small basic is offered separately. In most markets, this package currently includes our national news services.
• The CRTC announced a pick-and-pay framework where all discretionary services must eventually be offered on a stand-alone basis and in small packages.
• The CRTC’s decision to immediately eliminate genre protection means that our competitors will be able to offer programming similar in format and content to our specialty services, namely, documentary and ICI ARTV. On the other hand, our specialty services will have more flexibility for genres of programming previously reserved to other specialty services.
• With the exception of services that benefit from a mandatory distribution order, there will be an increased reliance on market forces for the distribution of discretionary services. This change will take effect at licence renewal time. At the same time, enhanced protections will be provided for independent services. The CRTC will require vertically integrated companies to offer one English and French-language independently owned channel for each of their own English and French-language channels (the 1:1 rule).
• The CRTC is strengthening the Code of Conduct between cable and satellite providers and broadcasters to enhance the protections for independent programming services, ensuring Canadians have access to a range of independently owned channels, including all the specialty services owned by CBC/Radio-Canada. The Commission anticipates that this will be implemented in September 2015.

CBC’s broadcast and digital rights contract with the NHL ended in June 2014. Rogers Communications Inc. (Rogers) was granted exclusive hockey broadcast rights for the next 12 years, beginning with the 2014-2015 hockey season. On November 25, 2013, the Corporation reached an agreement with Rogers for the continued airing of Hockey Night in Canada for Saturday night and playoff hockey. Under this arrangement, we continue to broadcast HNIC, for the next four years, but no longer pay rights costs or retain the associated advertising revenue. We also provide production resources for the games aired on CBC, retain ownership of the HNIC brand, and broadcast CBC/Radio-Canada promotional material during the games.

The government confirmed that it was reintroducing a salary inflation funding freeze for fiscal years 2014-2015 and 2015-2016. The impact of this has been accounted for in our recently announced reductions.

We expect our real estate portfolio to generate more revenue as we rent out vacant space in some of our buildings. We also expect to reduce our total cost of occupancy and real estate risk by selling and exiting some buildings that we own to become tenants in more cost-efficient premises. As announced as part of A space for us all, we have increased our real estate infrastructure reduction target to at least half of the current footprint, representing two million square feet by 2020. We have completed a Functional and Technical Program (FTP) review at the Canadian Broadcast Centre in Toronto to determine the production and space needs moving forward. Based on this review, we will explore our options for the facility. We also moved, in November 2014, from two owned buildings in Halifax into one rented facility. On May 7, 2015, CBC/Radio-Canada rejected the proposal submitted for the Maison de Radio-Canada redevelopment project as it did not meet our requirements. We will be working over the next few months to review our alternatives. See the Infrastructure section, for more details.

In September, the Canada Industrial Relations Board (CIRB) ruled in favour of CBC/Radio-Canada’s application for a review of the bargaining unit structure for employees working in the province of Quebec and the city of Moncton. That structure, in place since 1995, consisted of four bargaining units. The Corporation believes that the structure must be streamlined in order to succeed in today’s highly competitive environment and properly meet audience expectations. On May 15, 2015, the CIRB ruled that the new French Services union structure will comprise two bargaining units. One of these unions will represent members of CUPE 675, STARF-CUPE 5757 and the SCRC, while the other will represent Association des réalisateurs (AR) members. Employees will vote for the new bargaining unit that will represent them prior to commencing negotiations.

CBC/Radio-Canada has been awarded the Canadian broadcast rights for the 2015 Pan Am and Parapan Am Games to be held in the Greater Toronto Area in July and August respectively and for the Olympic Games in 2018 in PyeongChang, South Korea, and 2020 in Tokyo, Japan. The Corporation announced that it will partner with Bell Media and Rogers Communications to broadcast these Olympic Games.