When the digital channels launched 18 months ago, one of the questions that I started asking in response to skeptics who thought that there were too many channels was ‘Why?’

We never walk into a bookstore and say there are too many books, or walk into a grocery store and comment that there are too many brands of cereal. So, why do we take issue with the idea of more choice on television? What exactly is the downside to a greater selection of programming tailored to specific viewer interests and tastes?

I remember when we launched the tier III channels back in 1997. At the time, some were predicting failure. One Toronto daily even conducted a survey and reported that only 12% of homes were interested in the new channels, and that many of the tier IIIs would die on the vine.

But, just over five years later, tier IIIs are in approximately 75% of Canadian homes and are growing by leaps and bounds with consistent year-over-year growth and significant increases in share of hours tuned. In fact, according to Statistics Canada, revenues and profits are on the rise for specialty television, with reported revenues of $1.2 billion for 2001, up 13.9% from the previous year. And, according to Nielsen data, the share of buyable hours for all specialty channels, including tier IIIs, is up to 42%. Not bad for a group of channels that weren’t supposed to make it.

And here we are a few years later, with more new channels launched and the same naysaying and negative reporting taking place.

We have certainly heard the opinions of those who have a dire view of the digitals, but we have heard relatively little from those who are more bullish about the future of digital – those who acknowledge that, as new commodities, the digital channels are still developing and growing, but those who also recognize the positive indicators that point to the long-term success of these channels in Canada.

Since the launch, the channels have made significant progress in many areas, not the least of which is in average minute audience (AMA). Current Nielsen Media Research data shows that the digital channels experienced a 53% increase in the 2+ audience between summer and fall 2002 (summer period: July 1 to Sept 1/02; fall period: Sept 2/02 to Jan 5/03).

In fact, the AMA for some digital channels is occasionally exceeding some analogue channels, with Nielsen numbers showing digital channels experiencing AMA numbers as high as 144,000 for such popular movies as Die Hard With A Vengeance (Showcase Action, 11/03/02, 8pm-10pm EST, 2+) for specific movies and series. These numbers are on par with programs on some of the most successful established specialty channels.

The subscriber story is also a positive one with channels like Showcase Action and BBC Kids having upwards of 700,000 subscribers – more than some pay-TV services that have been around for more than 10 years. This is particularly significant given the business models for most of the digital channels.

Speaking on behalf of Alliance Atlantis, I can confirm that at this point in our business plan, subscriber revenue is a key metric for our success. As a result, although advertising is, and will absolutely remain, a top priority for us, using ad revenue as the sole measure of success for the digital channels is only telling half of the story.

To paint a more accurate financial picture of the digital channels, we should be looking at how many subscribers the channel has, together with total advertising revenue. In fact, to extend the canvas even further, we should also be looking at the growth trending attributed to the channels, the brands associated with the channels, the programming that appears on the channels and the ‘environment’ that a channel provides to viewers and advertisers alike.

Interestingly, it is this environment that is increasingly becoming attractive to advertisers who are concerned with targeting their product or service message and driving efficiency. Advertisers see the value in being focused and strategic in their media buys and are increasingly seeking out packages to address a specific objective. In some cases, this might mean not buying packages of a full 24-hour audience, but rather narrowing the buy to an individual program audience.

Providing focused packages is an approach that has worked well for us so far. We are currently tracking on plan and have more than 100 clients who have embraced our digital channels in a range of industries including entertainment, toy, communications, packaged goods, pet products, beer/alcohol, health/beauty, retail, hardware products, government, travel and tourism, automotive, technology, music and home appliances.

In fact, the recent Canadian Radio-television and Telecommunications Commission results confirm the success of this strategy, with our digital channels recording advertising revenues of approximately $2.4 million.

But in the end, regardless of the measures used, these channels are not based on two-year economics. The broadcasters and distributors have made a commitment to these channels which represents longer-term economics and a set forecast for profitability. There may be some degree of consolidation and attrition in the future, but adaptability has always been one of the hallmarks of the successful Canadian specialty sector.

So I will continue to remain bullish about the future of the digital channels and continue to remind those who are skeptical that we have already made significant progress in many areas including subscriber growth and AMA. In some cases, these still nascent channels are outperforming channels that have been around for five or 10 years. Not bad for the first 18 months.

Brad Alles is SVP broadcast sales at Toronto-based Alliance Atlantis Broadcasting. He can be reached at (416) 967-1174.