ARCHIVED - Transcript, Hearing 28 June 2011

Volume 6, 28 June 2011

TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

SUBJECT:

To review its regulatory framework relating to vertical integration. Broadcasting Notice of Consultation CRTC 2010-783, 2010-783-1 and 2010-783-2

HELD AT:

Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec

28 June 2011

Transcription

In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.

However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.

Canadian Radio-television and Telecommunications Commission

Transcription

To review its regulatory framework relating to vertical integration. Broadcasting Notice of Consultation CRTC 2010-783, 2010-783-1 and 2010-783-2

BEFORE:

ALSO PRESENT:

HELD AT:

Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec

28 June 2011

- iv -

TABLE OF CONTENTS

PAGE / PARA

APPEARING ITEMS

PRESENTATION BY:

Appearing individually

Panel

Panel

Appearing individually

Panel

- v -

UNDERTAKINGS

PAGE / PARA

Gatineau, Quebec

--- Upon resuming on Tuesday, June 28, 2011 at 0901

6449 LE PRÉSIDENT : Bonjour. Good morning.

6450 Madame la Secrétaire, commençons.

6451 LA SECRÉTAIRE : Merci. Bon matin.

6452 J'inviterais maintenant V Interactions inc. à faire sa présentation.

6453 Veuillez s'il vous plaît vous présenter et présenter vos collègues, et vous avez 10 minutes pour votre présentation. Merci.

PRESENTATION

6454 M. RÉMILLARD : Merci.

6455 Monsieur le Président, Mesdames et Messieurs les Conseillers, Membres du personnel, je m'appelle Maxime Rémillard et je suis co-président et chef de la direction de V Interactions.

6456 Permettez-moi de vous présenter ceux qui m'accompagnent aujourd'hui :

- tout d'abord, à ma gauche, Sami Chaouch, vice-président exécutif, stratégie de l'entreprise et chef des services financiers;

- à ma droite, Serge Bellerose, qui agit comme conseiller spécial auprès de notre entreprise; et

- à la droite de Serge, Tony Porrello, vice-président exécutif et chef des services de diffusion.

6457 L'examen du cadre réglementaire relatif à l'intégration verticale revêt beaucoup d'importance pour V Interactions. Les décisions que prendra le Conseil au terme de cet exercice auront une grande influence sur les orientations futures de notre entreprise et sur sa capacité d'étendre ses activités à l'extérieur de la télévision traditionnelle, notamment dans le secteur des services spécialisés. Nous nous attarderons donc à des enjeux qui nous touchent plus directement.

6458 Le phénomène de l'intégration verticale a pris beaucoup d'ampleur au Canada avec les acquisitions récentes de CTV par Bell Media et Canwest par Shaw.

6459 Dans l'avis de consultation relatif à cette instance, le Conseil réaffirme que l'intégration verticale comporte des avantages pour le système notamment au niveau des réductions de coûts.

6460 Mais la création de grandes entreprises intégrées verticalement a aussi des impacts sur les joueurs indépendants du système comme nous.

6461 En adoptant un cadre réglementaire plus flexible pour permettre à ces grandes entreprises de faire face à la concurrence étrangère, le Conseil ne doit pas perdre de vue pour autant la contribution apportée à la diversité par les entreprises de programmation indépendantes.

6462 Il est donc important que le Conseil adopte pour les entreprises de programmation indépendantes des mesures de souplesse et de protection qui leur permettront non seulement de survivre mais aussi de prospérer dans un environnement contrôlé par de tels conglomérats.

6463 Car il ne faut pas se le cacher. La situation est particulièrement préoccupante dans le marché de langue française au Québec où nous évoluons.

6464 Quebecor Media y occupe une position très importante dans les secteurs du câble, de la télévision traditionnelle et spécialisée, de la vidéo sur demande, de l'Internet et de la téléphonie mobile. Elle est aussi très présente dans le secteur des médias imprimés. Et les positions défendues par QMi au cours de la présente instance et sur d'autres tribunes ne sont pas de nature à nous rassurer.

6465 On a beaucoup parlé d'exclusivité de contenu au cours de cette audience et en particulier de l'exploitation de contenus sur des plateformes mobiles possédées par des entreprises intégrées verticalement sur une base exclusive.

6466 Il faut toutefois distinguer les enjeux. Un peu comme Astral l'a mentionné lors de sa comparution, nous pensons que l'acquisition et l'exploitation de droits de programmation exclusifs est à la base même du succès d'un télédiffuseur généraliste ou spécialisé. C'est ce qui le distingue de ses concurrents et lui permet de fidéliser ses auditoires.

6467 Mais pour un diffuseur indépendant comme V, le problème ne se pose pas de cette façon. Le défi, c'est plutôt de réussir à négocier des ententes satisfaisantes de distribution des contenus pour lesquels nous avons acquis les droits, sur des plateformes qui nous ne contrôlons pas, à des conditions commercialement acceptables.

6468 Prenons un exemple, celui de la vidéo sur demande d'une EDR comme Vidéotron. Rien ne l'oblige à offrir nos contenus sur demande. Et les discussions que nous avons eues avec Vidéotron n'ont pas donné de résultats concluants jusqu'à maintenant. C'est d'autant plus préoccupant que les contenus de sa compagnie sour TVA qui se trouve à être un de nos concurrents dans le marché, y sont largement offerts.

6469 Malheureusement, nous n'avons pas de solution magique à proposer pour régler ce genre de situation. Mais nous soulevons cet exemple pour illustrer les difficultés pour un télédiffuseur indépendant de faire sa place dans un marché où une entreprise verticalement intégrée occupe une position aussi importante et contrôle autant de leviers.

6470 L'autre défi pour un groupe indépendant comme le nôtre, c'est de prendre de l'expansion dans le secteur des services spécialisés. Et croyez-moi, le défi est de taille parce que, encore une fois, nous sommes, en quelque sorte, pris entre l'arbre et l'écorce.

6471 D'une part, le secteur des services de télévision payante et spécialisée est dominé par Astral dans le marché de langue française. Astral possède 11 services spécialisés et deux chaînes payantes, dont Super Écran qui a plus de 600 000 abonnés. La plupart de ces services jouissent d'une protection de genre, d'un droit d'accès garanti et d'une nature de service souvent très large. Ils obtiennent plus de 23 parts de marché auprès de l'auditoire francophone.

6472 D'autre part, vous avez Vidéotron, filiale de QMi, avec laquelle vous n'avez pas vraiment le choix de négocier des ententes de distribution pour les nouveaux services facultatifs de catégorie B que vous voulez lancer dans le marché. Vidéotron contrôle environ 60 pour cent des abonnés au Québec, et TVA, une autre filiale de QMi, qui contrôle déjà 32 parts de l'écoute dans le marché, est, elle-même, engagée dans une stratégie agressive de lancement de nouveaux services spécialisés de catégorie B.

6473 Il est donc évident que sans protection réglementaire adéquate, il est illusoire de penser que des entreprises indépendantes comme la nôtre puissent contribuer à apporter un certain équilibre et de la diversité dans le système en lançant de nouveaux services spécialisés tout en espérant rentabiliser un jour ses investissements.

6474 Le projet de modifications au Règlement sur la distribution de radiodiffusion propose d'imposer aux EDR verticalement intégrées l'obligation de distribuer trois services de catégorie B, dont deux de langue française pour chaque service de catégorie B de langue française d'une entreprise de programmation liée qu'elle distribue. QMi est en désaccord avec cette règle, mais nous prions le Conseil d'intégrer cette proposition au Règlement.

6475 Nous pensons aussi qu'au moins un de ces services doit être indépendant afin d'éviter que des ententes de réciprocité entre distributeurs intégrés verticalement ne permettent de contourner l'intention du Conseil derrière cette mesure.

6476 Nous préconisons également que l'application de cette règle du 3 pour 1 soit étendue aux services de catégorie C détenus par des entreprises indépendantes afin d'en favoriser la distribution.

6477 Nous pensons aussi que de nouveaux services de catégorie B de langue française, aussi attrayants qu'ils soient, n'ont aucune chance de survie dans un environnement aussi concurrentiel en étant offert uniquement à la carte. Le Conseil devrait donc s'assurer qu'ils soient obligatoirement offerts dans un bouquet d'au moins cinq services afin d'en favoriser la pénétration auprès des abonnés des EDR.

6478 Concernant l'ouverture à la concurrence de certains genres autres que les nouvelles et les sports, nous sommes en profond désaccord avec la position d'Astral, qui propose de maintenir la protection de genre pour les services de catégorie A détenus par des entreprises indépendantes.

6479 Toutefois, nous donnons raison à Astral sur un point : une telle ouverture à la concurrence présente un risque réel de déséquilibre dans le marché si les entreprises intégrées verticalement peuvent, elles aussi, lancer des services dans un genre ouvert à la concurrence, compte tenu de tous les leviers dont elles disposent pour favoriser la pénétration et la croissance de ces services.

6480 Comme solution, nous proposons que dans le marché de langue française, à l'exception des services de nouvelles et de sports, seules des entreprises indépendantes, non intégrées verticalement, puissent lancer de nouveaux services dans des genres ainsi ouverts à la concurrence, conformément aux critères du Conseil. Si de telles conditions sont réunies, nous avons la ferme intention de déposer des demandes au Conseil en vue de lancer de nouveaux services.

6481 Au sujet des données financières des services spécialisés, nous sommes d'avis que le Conseil doit continuer à les rendre publiques annuellement sur une base individuelle et non seulement consolidées par groupe de propriété.

6482 Deux raisons motivent notre position.

6483 D'une part, l'accès à ces données financières est le seul moyen dont nous disposons réellement pour répondre de façon satisfaisante à l'un des critères du Conseil, celui de la rentabilité, dans l'appréciation de la pertinence d'ouvrir un genre à la concurrence.

6484 D'autre part, dans un univers contrôlé par des entreprises intégrées verticalement, la divulgation des données financières des services spécialisés détenus par ces entreprises fournit des indications utiles sur l'efficacité de stratégies de mise en marché potentiellement préférentielles au détriment de concurrents indépendants.

6485 Concernant l'obligation éventuelle pour les EDR d'offrir un service de base épuré, nous sommes en faveur d'une telle mesure parce que nous croyons que cela donnera davantage la possibilité aux consommateurs de choisir les chaînes qui leur conviennent, ce qui favorisera du même coup la distribution de nouveaux services facultatifs attrayants de catégorie B.

6486 Dernier point, mais non le moindre : le Fonds des médias.

6487 Nous croyons sincèrement que le Conseil doit adopter des mesures vigoureuses pour s'assurer de l'accessibilité par des entreprises de programmation indépendantes à des enveloppes de financement suffisantes pour leur permettre de respecter leurs engagements et conditions de licence et ainsi contribuer ainsi à la diversité d'une offre de programmation canadienne de qualité et particulièrement au rayonnement de la culture d'expression française.

6488 La situation actuelle est devenue totalement intolérable.

6489 D'une part, vous avez quatre entreprises de distribution intégrées verticalement, Rogers, Shaw, Bell Télé et Vidéotron, qui contrôlent environ 82 pour cent des abonnés au pays.

6490 Ces quatre EDR versent au Fonds, à partir des revenus qu'elles tirent de ces mêmes abonnés, plus de trois quarts des quelque 235 millions de dollars provenant des EDR du pays.

6491 Les quatre conglomérats qui possèdent ces EDR contrôlent aussi une multitude d'entreprises de programmation de télévision traditionnelle, spécialisée et payante qui jouissent d'importantes contributions du Fonds pour le financement de leurs émissions.

6492 Ce sont aussi ces mêmes entreprises qui nomment la majorité des administrateurs du Fonds, dont l'un des mandats est de déterminer à chaque année les critères d'attribution des enveloppes de rendement.

6493 En 2011-2012, dans le marché de langue française, les succès d'écoute des émissions financées par le Fonds comptent pour 50 pour cent et le rendement historique pour 25 pour cent dans la pondération des facteurs qui déterminent l'attribution des enveloppes de rendement.

6494 Comment peut-on imaginer un seul moment qu'un diffuseur indépendant comme V puisse obtenir sa juste part des sommes disponibles quand il est en période de relance après une faillite technique qui a failli entraîner la fermeture de TQS et qu'il n'a aucune possibilité d'augmenter ses enveloppes de rendement en raison de règles qui favorisent d'abord les entreprises de programmation liées à des groupes intégrés verticalement?

6495 En 2011-2012, l'enveloppe de rendement de V passera de 3,9 millions à moins de 2 millions. Et curieusement, celle de TVA augmentera de plus de 2 millions et atteindra sans doute près de 21 millions de dollars par année.

6496 A notre avis, il s'agit d'un cas concret de situation où le Conseil se doit d'intervenir pour rétablir un juste équilibre.

6497 Ce que nous proposons, c'est qu'une partie des sommes versées au Fonds des médias par les EDR faisant partie de groupes intégrés verticalement soit versée dans un nouveau programme de soutien aux entreprises privées de programmation indépendantes afin de financer sur une base sélective des projets qui leur sont destinés.

6498 Ainsi, à titre d'exemple, si 25 pour cent des sommes annuelles versées par Shaw, Rogers, Bell et Vidéotron étaient consacrées à cette fin, ce nouveau volet de financement du Fonds des médias disposerait alors d'un budget annuel de quelque 45 millions de dollars, dont le tiers serait alloué au marché de langue française. Le programme des enveloppes de rendement serait amputé d'un montant équivalent.

6499 Dans le marché de langue française, les téléspectateurs sont friands de séries dramatiques originales.

6500 La série " Prozac " que nous avons diffusée à l'automne et qui était financée en partie par le Fonds des médias est en nomination dans cinq catégories aux prix Gémeaux pour meilleure série. Et pourtant, nous avons dû malgré tout renoncer à produire une deuxième saison en raison de la baisse dramatique de notre enveloppe de rendement, conséquence directe des règles d'attribution.

6501 Nous espérons sincèrement que le Conseil entendra notre appel et prendra des mesures concrètes pour corriger une situation profondément inéquitable à notre point de vue.

6502 Nous vous remercions de nous avoir permis de nous exprimer dans le cadre de ce processus et nous sommes disposés à répondre à vos questions.

6503 LE PRÉSIDENT : Merci pour cette présentation.

6504 Votre dernier point sur le Fonds, vous réalisez que ce n'est pas notre juridiction, que le Fonds est administré par le ministère du Patrimoine, et ce sont eux qui mettent en place les règles, pas nous.

6505 Qu'est-ce que vous espérez concrètement de nous sur ce sujet-là?

6506 M. BELLEROSE : Par contre, Monsieur le Président, vous permettrez, vous avez juridiction sur les EDR. Vous avez la possibilité d'imposer aux EDR qu'elles assignent une partie des pourcentages qu'elles sont tenues par condition de licence de verser à des fonds, et notamment au Fonds des médias, vous pouvez intervenir en les obligeant à ce qu'une partie de ces fonds-là soit consacrée à des fins plus spécifiques, à mon avis.

6507 Dans le fond, ce que nous vous demandons, ce n'est pas d'avoir juridiction ou d'intervenir sur la portion de la contribution qui provient de Patrimoine canadien. Ce que nous vous demandons, c'est d'agir uniquement sur la portion qui est versée par les entreprises de distribution intégrées, conséquence directe des conditions de licence que vous leur avez imposées, parce qu'elles ont 5 pour cent à verser à des fonds, dont un certain pourcentage au Fonds des médias.

6508 En quelque sorte, ce que nous vous demandons, c'est de faire en sorte que le pourcentage que vous les obligez à verser aux fonds soit plus spécifiquement dédié à un fonds de soutien qui permettrait d'aider les entreprises indépendantes.

6509 LE PRÉSIDENT : Ça veut dire indirectement que nous créons un deuxième fonds, un fonds pour les indépendants au centre du CMF. Le CMF va être divisé en deux parties, une partie qui contient les fonds du ministère, l'autre qui contient les fonds des EDR, et ces fonds-là sont dédiés pour les producteurs indépendants?

6510 M. BELLEROSE : Écoutez, c'est une proposition de règles qu'on avance. L'idée derrière ça, c'est vraiment de permettre à des entreprises indépendantes de ne pas être totalement à la merci et vulnérables par rapport à des entreprises intégrées verticalement qui agissent à la fois comme contributeurs grâce aux sommes d'argent qu'elles collectent de leurs abonnés et qu'elles versent aux fonds par condition de licence, et qu'elles reprennent directement en finançant des productions qui sont diffusées et acquises par leurs entreprises de programmation. C'est ce qu'on dit.

6511 J'ai été administrateur du Fonds, moi, canadien de télévision pendant deux ans, et à cette époque-là, il y avait un conseil d'administration qui était considérable. Je pense qu'il y avait 18 ou 20 personnes. Et sur le conseil d'administration à l'époque, il y avait des représentants des entreprises de télévision. Il y avait aussi des représentants des producteurs.

6512 Et un des éléments qu'on a trouvés à l'époque, c'était que ce n'avait pas de bon sens que des gens qui bénéficiaient du Fonds se retrouvent au conseil d'administration. Donc, il y avait des télédiffuseurs qui étaient représentés. Il y avait des producteurs également.

6513 Et lorsqu'on a apporté des modifications au Fonds canadien de télévision pour créer le Fonds des médias et qu'on a réduit énormément le conseil d'administration pour le limiter à sept personnes, qui sont nommées à la fois par Patrimoine et par les EDR, dans le fond, on a voulu à ce moment-là que ce ne soit que des contributeurs qui gèrent les fonds.

6514 Mais la réalité, c'est que, avec l'accélération des entreprises intégrées, on est revenu exactement à la case du départ. On se retrouve aujourd'hui dans la même situation qu'on dénonçait à l'époque, avec des entreprises qui nomment des administrateurs au Fonds alors qu'elles sont également bénéficiaires du Fonds.

6515 LE PRÉSIDENT : Mais vous devez réaliser que le ministre de Patrimoine est très fier de la restructuration du FCM, et vous voulez que nous leur disions, ça ne marche pas, on doit faire une autre réorganisation, effectivement?

6516 M. BELLEROSE : Pas vraiment, Monsieur le Président, parce que ce n'est pas un nouveau fonds qu'on veut créer.

6517 M. RÉMILLARD : Non.

6518 M. BELLEROSE : Si tu permets, Maxime.

6519 C'est un volet comme il en existe de multiples volets. Le Fonds n'est pas constitué uniquement du volet des enveloppes de rendement. Il y a également un volet pour soutenir les productions destinées aux minorités de langue française. Il y a un fonds pour la production régionale. Il y a un fonds pour soutenir des productions pour les Autochtones. Il y a des fonds pour soutenir des projets numériques.

6520 Alors, donc, il y a plusieurs volets au Fonds. Tout ce qu'on vous demande, c'est de créer un autre volet qui adresserait spécifiquement le problème dont on vous a fait mention.

6521 M. RÉMILLARD : Et si je peux ajouter, Monsieur le Président, ça s'inscrit très... c'est notre avis que ce point-là s'inscrit très bien dans la présente instance, parce que si je prends la situation particulière du Québec ou le produit de langue française, vous savez, l'instance sur l'intégration verticale, l'exclusivité de contenu, si V n'a pas la capacité, n'a pas la possibilité d'avoir du financement pour de la dramatique, ça vient avoir de l'impact sur la valeur de notre contenu, ça vient impacter l'exclusivité du contenu.

6522 Ça l'a vraiment un impact sur notre opération quotidienne parce que, à la fin de la journée, les Québécois sont très friands de dramatiques.

6523 Si nous, on ne peut pas avoir accès au financement, toute la négociation éventuelle avec nos distributeurs, toutes les plateformes de distribution, ça va avoir un impact sur notre capacité à valoriser notre contenu parce qu'on ne pourra pas offrir de la dramatique dans notre portfolio de contenu.

6524 LE PRÉSIDENT : Un autre point que j'ai soulevé avec Astral, c'est la divulgation des informations dans une compagnie verticalement intégrée. Il y a beaucoup de personnes qui sont venues ici qui ont peur que les informations soient partagées et qu'une la partie EDR dans une compagnie intégrée va avoir accès aux données de quelqu'un comme vous et va les partager avec le bras de cette organisation qui fait...

6525 Astral m'a dit, bon, franchement, je crois qu'il n'y a rien que vous pouvez faire pour exiger qu'il y ait une non-divulgation interne dans la compagnie, et espérons qu'on va la respecter, mais effectivement, il n'y a pas de mesure qu'on peut prendre.

6526 D'autres compagnies ont proposé qu'on crée dans les compagnies intégrées une section qui est dédiée à avoir des relations avec le programmeur, que ces gens-là ne peuvent pas divulguer ladite information, quelque chose que nous avons dans le domaine du téléphone qui s'appelle customer services group.

6527 Est-ce que vous avez... est-ce que vous partagez la position d'Astral ou est-ce que vous avez une autre position sur ce point-là?

6528 M. RÉMILLARD : Je vais te laisser ça.

6529 M. BELLEROSE : Je pense qu'Astral a vraiment raison sur le principe. Je pense que le principe est éminemment défendable, il devrait y avoir cloisonnement de l'information.

6530 Je vais vous donner un exemple très concret, très précis d'une situation qui peut se produire dans une entreprise intégrée verticalement.

6531 Disons que moi, je travaille pour une entreprise intégrée verticalement et que ma responsabilité, c'est d'aller négocier les ententes d'affiliation pour les services spécialisés de ce groupe-là, et demain matin, on m'offre une position et on me dit, maintenant, tu vas aller dans le secteur de la distribution, tu vas aller travailler pour notre bras de distribution, et c'est toi maintenant qui va aller négocier avec les services spécialisés concurrents.

6532 Il y a beau avoir eu un cloisonnement, l'information, je l'ai, je l'ai toute. A défaut de l'avoir sur papier, je l'ai dans ma tête. Alors, qu'est-ce que vous voulez, c'est ça la réalité.

6533 LE PRÉSIDENT : O.K. Merci. J'apprécie votre réponse honnête.

6534 Michel, tu as des questions?

6535 CONSEILLER MORIN : Oui. Merci, Monsieur le Président.

6536 Bonjour. J'ai bien pris note que vous avez un préjugé favorable pour un service minimaliste. Vous pensez que le consommateur aurait plus de choix et que, au fond, peut-être le système, on l'a vu par d'autres intervenants, que le système naturellement évolue vers un service de plus en plus restreint où les consommateurs ne sont pas, comment dirais-je, inondés de services qu'ils ne veulent pas, mais où on voudrait, finalement, laisser le choix entièrement au consommateur.

6537 Mais quand vous parlez des services de catégorie B de langue française, vous dites en même temps qu'ils n'ont -- les nouveaux services -- aucune chance d'être lancés dans un environnement concurrentiel s'ils sont offerts uniquement à la carte, où le consommateur est maître-d'oeuvre.

6538 Et vous dites :

" Le Conseil devrait donc s'assurer qu'ils soient obligatoirement offerts dans un bouquet d'au moins cinq services afin d'en favoriser la pénétration auprès des abonnés des EDR. "

6539 Est-ce qu'il n'y a pas là une apparence de contradiction, dans la mesure où dans un premier temps vous êtes d'accord à ce qu'on laisse au consommateur le plus de choix possible en restreignant le service de base à un service minimaliste qu'on a appelé le " skinny basic service " et, d'autre part, vous dites : il n'y a pas d'avenir si on ne fait pas partie d'un assemblage précis pour ce qui est du lancement de services de catégorie B?

6540 M. BELLEROSE : Je ne crois pas qu'il y ait de contradiction, Monsieur Morin, parce que, évidemment, d'être obligé d'offrir le service de catégorie B dans un bouquet ne veut pas dire qu'il ne sera pas également offert à la carte. Les deux vont ensemble.

6541 La raison pour laquelle V est en accord avec un service de base épuré est assez simple. C'est que le consommateur, il a un budget X à consacrer à chaque mois à un service d'abonnement au câble. Plus il va devoir payer cher pour un service de base avec des services qui ne l'intéressent pas nécessairement, moins il va consacrer d'argent à la souscription d'abonnement à des forfaits facultatifs.

6542 Alors, notre raisonnement est le suivant : à partir du moment où on laisse le choix au consommateur en lui offrant un service minimaliste de base qui serait constitué notamment des services de télévision en direct, des services éducatifs, de la télévision publique et d'un certain nombre de services que le Conseil aurait jugé nécessaire de distribuer au service de base en vertu du 9(1)(h), eh bien, évidemment, ça offre à ce moment-là la possibilité pour le consommateur de consacrer les dollars additionnels qu'il vient de libérer à l'abonnement de services de catégorie B qui vont vraiment l'intéresser. C'est ça le sens de la position de V, en favorisant un service de base épuré.

6543 Maintenant, la réalité du marché fait en sorte que si on laisse entre les mains d'une EDR aussi importante que celles que nous avons au Québec, qui est dominante, la possibilité de faire une mise en marché d'un service spécialisé uniquement à la carte, ça va être extrêmement difficile pour ce service-là de pouvoir obtenir suffisamment d'abonnés pour espérer un jour être rentable.

6544 Donc, il faut vraiment être en mesure d'offrir...

6545 Actuellement, la réglementation, elle prévoit que ça peut être à la carte ou on peut offrir tous les services analogiques ou de catégorie A (si je me rappelle bien) dans un forfait où tous les services sont offerts.

6546 Mais les services de catégorie B sont laissés en compte, là-dedans. Donc, c'est important qu'ils puissent être également offerts dans un forfait, dans un bouquet complémentaire à l'offre à la carte, parce que ça peut-être également un choix attrayant pour le consommateur et ça va être un choix additionnel qui va contribuer à augmenter les taux de pénétration des services de catégorie B.

6547 Alors donc, il n'y a pas vraiment de contradiction en ce sens-là, Monsieur Morin.

6548 CONSEILLER MORIN : Mais vous nous demandez de libérer le service pour les consommateurs pour offrir plus de choix aux consommateurs, mais en même temps, compte tenu du marché québécois, d'être vraiment intrusif, si je peux dire, dans les assemblages.

6549 M. BELLEROSE : Oui, mais la technologie du numérique, aujourd'hui, est tellement souple et flexible qu'il est très facile pour une EDR d'avoir une offre de services facultatifs... à la fois d'offrir pour un montant X de sélectionner X chaînes (ce qui est vraiment le principe de l'abonnement à la carte) ou alternativement ou, de façon complémentaire, de dire " vous pouvez choisir, pour tant d'argent, X services à la carte " et vous pouvez également opter pour un bouquet de cinq services à X dollars.

6550 Alors, ce n'est un problème, au niveau de la commercialisation et je pense même que ça peut être un atout et un attrait pour le distributeur, dans la mesure où il exerce des marges intéressantes et il a tout intérêt lui aussi, en arrivant avec une offre attrayante de forfait, de faire une proposition au consommateur pour laquelle il va avoir une retombée positive lui aussi.

6551 CONSEILLER MORIN : Alors, si je comprends bien, ce n'est pas uniquement offert sous la forme d'assemblage, mais ce pourrait être aussi offert sur une base unique, au choix à la carte.

6552 M. BELLEROSE : Absolument! C'est exactement...

6553 CONSEILLER MORIN : Mais il faudrait au moins que le distributeur puisse l'offrir dans un assemblage.

6554 M. BELLEROSE : Exactement.

6555 CONSEILLER MORIN : Pour revenir au service minimaliste, évidemment c'est une question que la cour décidera ultimement, mais en ce qui concerne la valeur pour le signal, si d'aventure la cour confirmait le droit pour les généralistes d'obtenir une valeur pour leur signal, est-ce que vous pensez que les généralistes qui demanderaient une valeur pour leur signal devraient aussi faire partie du service de base?

6556 Autrement dit, si on parle d'un service de base, c'est qu'on veut exclure d'une certaine manière les services spécialisés qui ont des redevances et qui alourdissent en quelque sorte le prix pour le consommateur. Mais si éventuellement certains généralistes veulent être traités comme des services spécialisés -- donc, veulent bénéficier de redevances d'abonnement -- est-ce que ces généralistes devraient être sur le service de base?

6557 M. RÉMILLARD : Absolument, Monsieur Morin. Nous croyons fortement que nous devrions être sur le service de base.

6558 Je vous donne un exemple concret. Advenant que la cour tranche en faveur d'une valeur pour le signal -- et nous sommes en des discussions de négociation avec une EDR pour une région spécifique -- et on ne serait plus sur le " package " de base. Excusez mon anglicisme, mais le... tu sais le...

6559 Bref, " basic package ", la règle... En tout cas, notre compréhension de la réglementation n'est pas nécessairement très claire. C'est si jamais on avait une baisse d'abonnés dans une région donnée, parce qu'on n'a plus le même taux de pénétration...

6560 Là, c'est tout le modèle économique qui est remis en cause. Et là, on aurait potentiellement davantage de difficulté à remplir nos obligations et engagements envers le Conseil. On aurait des engagements dans, par exemple, la station de Sherbrooke, de faire des heures de programmation locale, de faire des nouvelles de catégorie 1 et, parallèlement à ça, parce qu'on opte pour une valeur pour le signal, on aurait potentiellement moins de pénétration, donc moins d'auditoire, donc moins de revenus. Pour nous ce n'est pas valable. Et de là, notre position est : on doit être sur le " basic package " (excusez mon anglicisme).

6561 M. BELLEROSE : Pour compléter le commentaire de Maxime, Monsieur Morin, un des éléments, je pense, qui milite aussi en faveur du maintien au service de base de la télévision en direct même si éventuellement elle pouvait recevoir une compensation pour la valeur de son signal, c'est les caractéristiques mêmes de la télévision en direct qui est une télévision événementielle qui joue un rôle particulier au sein du système et qui mérite, pour cette raison-là, d'avoir une distribution au service de base.

6562 Et dans le marché de langue française plus particulièrement, c'est aussi la très grande contribution de la télévision en direct à l'égard de certains genres, dont la dramatique -- et tu l'as soulevé tantôt, Maxime, et c'est une des raisons pour lesquelles V est aussi préoccupé par la situation qu'il vit et qu'on a décrite tantôt, c'est que la situation vécue actuellement freine la capacité d'un groupe comme V de pouvoir contribuer adéquatement par l'apport de dramatiques de qualité et qui est attrayante pour les consommateurs. Parce que ça fait partie également, je pense -- et particulièrement dans le marché de langue française -- du mandat et du rôle apprécié de la part des téléspectateurs.

6563 M. RÉMILLARD : Absolument. C'est le rôle, le mandat de la généraliste d'offrir des dramatiques. Et mes clients publicitaires veulent la dramatique dans leur investissement publicitaire. Et si on n'a pas la possibilité de leur offrir ça, bien, évidemment, on va souffrir au niveau des revenus publicitaires au détriment de nos compétiteurs qui eux, vont jouir d'une source de financement beaucoup plus adéquate que la nôtre.

6564 Et je mentionnais tout à l'heure, par rapport à la valeur... le signal, si je n'ai pas de dramatique, comment puis-je valoriser adéquatement mon signal si je n'offre pas ce que mes compétiteurs offrent? Alors, je vais être défavorisé lors de cette négociation.

6565 M. BELLEROSE : Sans compter que l'attribution de compensation pour la valeur du signal va dégager également des ressources financières qui vont pouvoir être mises à profit au niveau du budget de programmation.

6566 M. RÉMILLARD : Exact.

6567 CONSEILLER MORIN : Dans le projet de modification au règlement de la distribution, il y a une règle qui s'applique... qui voudrait s'appliquer en ce qui concerne les services de catégorie B.

6568 Et évidemment, le Conseil, en 2008, avait fait un grand bond en avant avec la catégorie C, où il y a la concurrence sans protection du genre pour les nouvelles et pour les services de sports, à la différence près que, en ce qui concerne les nouvelles, c'est la concurrence parfaite, tandis qu'en ce qui concerne les services de sports comme TSN ou RDI, ils sont encore protégés de la concurrence étrangère, même s'ils font partie de la catégorie C du Conseil avec les nouvelles.

6569 Vous, vous proposez d'établir dans ce marché concurrentiel une nouvelle règle d'attribution. Vous proposez d'étendre le ratio des services un pour deux ou un pour trois avec une station anglaise à la catégorie C.

6570 J'ai un peu de la difficulté à comprendre. Le Conseil a donné des indications claires, dans le fond, qu'on est pour la concurrence et qu'il y a des genres qui s'y prêtent davantage et qu'on peut ouvrir, mais là, vous introduisez une règle qui ferait que peut-être une entreprise intégrée, pour ne pas la nommer, voudrait lancer un autre service, mais il devrait y avoir également des services indépendants.

6571 Est-ce que vous pensez que le marché québécois, qui est -- ne nous le cachons pas -- un petit marché à l'échelle nord-américaine, a suffisamment d'abonnés pour établir des règles de cette nature qui, bien sûr, apportent un certain équilibre, mais est-ce que le marché québécois peut supporter ces règles-là?

6572 On a vu qu'est-ce qui arrivait dans la radio. Deux radiodiffuseurs contrôlent plus de 90 pour cent des revenus. Ce n'est pas pour rien; puis ils ne sont pas nécessairement encore très rentables dans le genre nouvelles, par exemple.

6573 Mais là, vous proposez des règles de distribution qui contrediraient... qui seraient en contradiction avec l'ouverture qu'a voulu faire le Conseil à ces nouveaux genres dans un marché qu'on veut concurrentiel.

6574 M. BELLEROSE : En fait, peut-être que ce que nous avons dit mérite peut-être davantage d'explications.

6575 On ne demande pas un droit d'accès garanti pour un service de catégorie C. Ce qu'on demande c'est que les services de catégorie C soient considérés au même titre que les services de catégorie B lorsqu'il s'agit d'appliquer la règle du trois pour un.

6576 Donc, ça veut dire que si vous avez, dans le marché de langue française au Québec, une entreprise intégrée verticalement... comme QMi -- on va dire les vraies affaires. On va arrêter de se cacher, on va parler des vraies affaires.

6577 Disons que vous avez QMi qui -- et ils ont le droit... Ils ont décidé d'adopter une stratégie très claire, très nette de lancement de services spécialisés. On le voit, ils lancent à chaque année de nouveaux services spécialisés, ils l'ont fait encore cette année.

6578 Donc, dans la mesure où ils en lancent beaucoup, des services de catégorie B, évidemment, la règle du trois pour un va faire en sorte qu'ils n'auront pas le choix également de lancer des services de catégorie B d'entreprises non liées. Mais peut-être aussi qu'ils pourraient, avec notre règle, lancer des services de catégorie C, évidemment, dans l'éventualité où il y aurait ouverture au genre.

6579 Il faut regarder la situation du marché de langue française. Vous avez publié la semaine dernière les plus récentes données financières individuelles des services spécialisés pour le Canada. Dans le marché de langue française, vous avez, à titre d'exemple -- je vous donne quelques exemples -- un service comme Canal D, qui a fait une marge de 51 pour cent l'année dernière; Canal Vie, 41 pour cent; Historia, 44 pour cent. Le champion : Séries Plus, 60 pour cent de marge bénéficiaire, 28.6 millions de revenus, 17.1 pour cent BAII.

6580 Donc, je pense qu'effectivement, dans le marché de langue française, il y a effectivement place pour ouverture à la concurrence et que le système peut en bénéficier au plan de la diversité. Une fois qu'on a dit ça, comment ça va se passer dans les faits, avec la réglementation actuelle?

6581 Et je vais prendre pour exemple mon client, qui a très ouvertement indiqué qu'il voulait lancer des services de langue française. Il a fait des demandes; il a fait des demandes de services de catégorie B, mais malheureusement, avec les restrictions qui sont imposées en vertu de la réglementation actuelle, il serait plutôt hasardeux pour V -- et tu me corrigeras, Maxime, si je fais une erreur, mais il serait plutôt difficile, à tout le moins, de lancer la plupart de ces services-là, compte tenu des restrictions, et d'en faire des succès.

6582 Alors, évidemment, dans un contexte pareil, V est en train de considérer une alternative. L'alternative, c'est de demander une ouverture à la concurrence de certains genres. Vous pouvez devinez lesquels, je viens de vous donner quelques chiffres. Ils ne seront pas les seuls; il y en a d'autres.

6583 Alors, comment ça va se passer concrètement si V décide de procéder en faisant une demande au Conseil? On va prendre un exemple : Séries Plus. Je ne vous dis pas qu'ils vont faire ça, mais on prend l'exemple. Il est beau... 60 pour cent de marge. Alors, on regarde les critères et puis on dit : Bon, est-ce que c'est assez rentable pour respecter le critère? On pense que oui.

6584 Est-ce qu'il y a une demande dans le marché? On pense que oui. C'est populaire, les gens regardent.

6585 Est-ce qu'il y a suffisamment de programmation dans le marché? On pense que oui.

6586 Donc, on pense qu'il y a des chances que le Conseil dirait oui à une ouverture à la concurrence.

6587 Donc, V fait la job : il fait la demande. Il a une licence. TVA fait la demande lui aussi et il pense avoir son service. V essaie de négocier avec QMi et comme par hasard, c'est difficile de négocier une entente satisfaisante. Je ne dis pas qu'il n'en négociera pas une, mais une circonstance fait que c'est difficile.

6588 Le service concurrent de TVA, lui, est parti. V veut toujours le partir, mais il n'est pas capable parce qu'il n'est pas capable faire une entente.

6589 Ça va être ça la réalité, Monsieur Morin, dans le marché. Alors pourquoi nous, on arrive avec cette proposition-là? On dit : Regardez, si vous voulez créer de la diversité dans le système, il y a place à ouverture à la concurrence.

6590 La solution d'Astral c'est quoi? C'est : Ouvrez-les pas à la concurrence. Nous autres, on n'en veut pas, protégez-nous.

6591 Nous autres, on a dit : Bien oui. Ils ont des services de catégorie 1, ils font de l'argent comme de l'eau. Ils veulent pas être ouverts à la concurrence, ils veulent protéger leur genre.

6592 Nous, on dit non. On pense qu'il y a de la place pour ouvrir à la concurrence certains genres. Puis nous, on est partant. V, mon client, il dit " Moi, je suis partant. " Il est pas le seul; il y en a d'autres qui peuvent partir. Pelmorex, c'est un indépendant, il peut en partir des services. TV5 pourrait décider qu'il trouve qu'Historia, ça devrait être ouvert à la concurrence puis il voudrait peut-être partir une chaîne concurrente à Historia.

6593 Je lance des exemples comme ça. Il y en a plein de joueurs. Serdy voudrait peut-être en partir.

6594 Donc, ce n'est pas vrai que ce serait une approche qui viserait seulement V. Ça viserait beaucoup de joueurs. Mais ce que ça aurait pour incidence dans le marché, c'est que ça créerait de la diversité. Et c'est pour ça qu'on préconise cette règle-là, Monsieur Morin.

6595 CONSEILLER MORIN : Donc, vous pensez que malgré les trois tests du marché québécois il y a place et il y a des joueurs sérieux au niveau de la diversité et de l'ouverture des genres, même dans le marché québécois?

6596 M. RÉMILLARD : Absolument. Il y en a qui sont présents, là, qui opèrent aujourd'hui dans le marché, qui font des très beaux produits et qui pourraient être intéressés par des genres comme on vient de mentionner. Absolument.

6597 CONSEILLER MORIN : Ce sont mes questions, Monsieur le Président. Merci beaucoup.

6598 LE PRÉSIDENT : D'autres questions?

6599 CONSEILLER PENTEFOUNTAS : Très brièvement.

6600 Est-ce que vous devriez peut-être prendre une part de blâme pour le fait que vous avez perdu une certaine somme de financement issue du CMF? Est-ce que V est responsable en partie de cette perte de revenu?

6601 M. RÉMILLARD : Non, je ne crois pas qu'on soit responsable. Peut-être responsable parce qu'on a hérité d'une situation, on a hérité d'une compagnie qui était techniquement en faillite, alors ça a joué veut, veut pas dans le calcul.

6602 Je me suis posé la question à maintes reprises " Est-ce qu'on aurait pu faire quelque chose d'autre qui aurait amélioré le calcul? " La réalité reste que produire de la dramatique au Québec, c'est une proposition extrêmement dispendieuse.

6603 On aurait pu utiliser notre fonds sur divers projets pour justement étendre notre base de calcul sur plusieurs projets, en espérant que ces produits-là puissent avoir un succès d'auditoire considérable, mais ça aurait été une proposition qui aurait été extrêmement onéreuse pour nous et, compte tenu de la situation financière de l'entreprise, ce n'était pas envisageable. On avait d'autres priorités afin de stabiliser l'entreprise et d'assurer... de mettre des fondations pour sa croissance future. Alors, on aurait pu mettre moins de fonds dans plus de produits, dans plus de projets, mais il aurait fallu des investissements colossals.

6604 CONSEILLER PENTEFOUNTAS : Mais le FMC se base principalement sur le succès auditoire pour déverser les fonds; on s'entend là-dessus?

6605 M. RÉMILLARD : En partie : 50 pour cent, oui, exact.

6606 CONSEILLER PENTEFOUNTAS : Cinquante pour cent?

6607 M. RÉMILLARD : Oui.

6608 CONSEILLER PENTEFOUNTAS : Et c'est la cote d'écoute, l'auditoire qui manquait vraiment de renouveler?

6609 M. BELLEROSE : Bien, au-delà de ça, Monsieur Pentefountas, c'est qu'évidemment si vous n'avez pas beaucoup de séries financées par le Fonds, ce sont ces séries-là qui sont prises en compte dans le calcul. Alors, évidemment, moins vous en avez, et moins vous êtes bénéficiaire au niveau du facteur.

6610 Tony peut peut-être compléter...

6611 M. PORRELLO : Le fait qu'on avait seulement deux séries dans une certaine année, on ne peut jamais se comparer aux... avec le pas qui est mis sur les cotes d'écoute. Il y a d'autres diffuseurs qui en font cinq, six.

6612 Même si nos séries avaient eu énormément de succès avec les auditoires, jamais on aurait pu aller augmenter notre montant qu'on avait de base. C'était pratiquement impossible, quand on regarde les calculs. Il fallait plus de produits, plus de projets en même temps que les autres diffuseurs qui en ont cinq, six. Quand on a 18-20 millions--

6613 CONSEILLER PENTEFOUNTAS : Plus de projets dans le dramatique que vous avez--

6614 M. PORRELLO : Exactement.

6615 CONSEILLER PENTEFOUNTAS : ...plus de chance que vous avez de frapper un gagnant, disons?

6616 M. RÉMILLARD : Exact.

6617 Et si tu peux me permettre, Tony, il y a une pondération quand même assez importante qui est l'historique. Donc, plus que tu en as, plus que tu en as fait plus que ta pondération est élevée.

6618 Donc, ça créé un peu un cercle vicieux, avec une barrière à l'entrée presque infranchissable. Donc, ceux qui se font exclure ont beaucoup, beaucoup de difficulté à rembarquer dans le système de calcul parce que les autres, évidement, les compétiteurs continuent d'opérer, continuent de diffuser.

6619 CONSEILLER PENTEFOUNTAS : Il y a un préjugé fixé dans le système pour les établis, les gens qui sont déjà établis. C'est ça?

6620 M. RÉMILLARD : C'est exact.

6621 CONSEILLER PENTEFOUNTAS : O.K. C'est ce que vous voulez changer?

6622 M. RÉMILLARD : On aimerait qu'il soit plus inclusif, qu'il donne la chance à tous les joueurs indépendants, à tous les joueurs indépendants d'avoir accès à une part équitable.

6623 Et pour nous, dans toute la discussion, comme je l'ai mentionné à monsieur Morin, c'est important d'avoir de la dramatique parce que c'est -- excusez le terme, mais c'est du " marquee content ", et au Québec, c'est important. Si je n'ai pas de " marquee content ", je vais avoir de la misère à pouvoir exploiter mon contenu adéquatement.

6624 CONSEILLER PENTEFOUNTAS : C'est l'écoute lors de cette émission-là qui permet de promouvoir les autres émissions sur votre station?

6625 M. RÉMILLARD : C'est exact.

6626 CONSEILLER PENTEFOUNTAS : Et c'est de la même façon que les autres joueurs, surtout le joueur principal, maintient sa part de marché...

6627 M. RÉMILLARD : C'est exact.

6628 CONSEILLER PENTEFOUNTAS : ...la base de votre argument?

6629 Dernière question -- je sais qu'on est pressé... Nous avons entendu des EDR, plus tôt cette semaine et la semaine passé, nous dire que la règle de trois pour un ou deux pour un les empêche en quelque sorte de lancer des nouveaux services parce que quand ils veulent lancer un service, ils ne peuvent pas trouver trois indépendants ou trois non liés qui sont prêts avec un service. Et ça les empêche de lancer.

6630 Est-ce que vous avez une réponse à ce constat?

6631 M. RÉMILLARD : Moi, je suis en désaccord total avec cet énoncé-là.

6632 Comme on a mentionné tout à l'heure, il y a des groupes indépendants, ici au Québec, qui seraient probablement prêts à lancer des services et qui feraient un travail remarquable. Je regarde juste Serdy Vidéo (ou Serdy), qui a lancé Zeste; c'est un produit de très haute qualité. Évasion, c'est un produit de haute qualité.

6633 Nous, on est prêts à investir; il y a d'autres groupes qui seraient prêts à investir et qui auraient un... qui produiraient un produit qui est de haute qualité et que les consommateurs voudraient consommer.

6634 CONSEILLER PENTEFOUNTAS : Dernière question, monsieur Rémillard. Vous avez obtenu des licences pour des stations spécialisées, c'est exact?

6635 M. RÉMILLARD : Oui.

6636 CONSEILLER PENTEFOUNTAS : Et là, vous êtes à la recherche désespérée, si vous voulez, d'un distributeur, d'une EDR. Comment vont vos négociations?

6637 M. RÉMILLARD : Pour être très honnête, on n'a pas commencé ces discussions-là avec les EDR parce que les restrictions et les conditions de ces licences-là ne font pas qu'il y ait une réalité, une viabilité économique possible pour nous, avec la situation actuelle, avec l'intégration et tout ça. Donc, on ne croit pas qu'on serait capable de négocier des ententes de distribution qui seraient adéquates et qui assureraient une rentabilité adéquate.

6638 CONSEILLER PENTEFOUNTAS : Je comprends ça, mais vous n'avez même pas essayé, si je comprends bien.

6639 M. RÉMILLARD : Bien, parce qu'on avait demandé certaines conditions à ces licences-là et le Conseil a jugé de nous donner d'autres conditions. Pour nous, donc, ça rend plus difficile; on est en période d'analyse, pour ça, pour certaines de ces licences-là.

6640 CONSEILLER PENTEFOUNTAS : Mais ça rend ces licences-là inutiles, à toutes fins pratiques. C'est ça que vous voulez dire?

6641 M. RÉMILLARD : On est en période de réflexion.

6642 CONSEILLER PENTEFOUNTAS : De réflexion. O.K. Merci.

6643 Merci.

6644 LE PRÉSIDENT : O.K. Merci.

6645 Comme tous les autres intervenants, je vais vous demander de partager avec nous, par écrit, vos pensées sur des principes, des faits très saillants, comme c'était suggéré, entre autres, par Pelmorex, qui est maintenant dans une situation des compagnies qui sont aussi verticales, que c'est nécessaire qu'on adopte un code de principes qu'on va appliquer pour les négociations entre les EDR et les programmateurs, les grands programmateurs et les petits distributeurs. Et vous n'avez pas commenté sur ça, vous n'avez pas fait quelque chose en écrit, mais si vous avez le temps, j'aimerais voir votre idée aussi.

6646 O.K.? Merci.

6647 M. RÉMILLARD : Merci.

6648 LE PRÉSIDENT : C'est tout, pour vous.

6649 On va prendre cinq minutes de pause avant qu'on commence avec le prochain intervenant.

--- Upon recessing at 0951

--- Upon resuming at 1002

6650 LE PRÉSIDENT : Commençons.

6651 THE SECRETARY: We will now proceed with the presentation by Pelmorex Communications Inc.

6652 Please introduce yourselves for the record, after which you will have ten minutes for your presentation.

6653 Thank you.

PRESENTATION

6654 M. MORRISSETTE : Bonjour, Monsieur le Président, Messieurs les Vice-présidents et membres du Conseil. Mon nom est Pierre Morrissette. Je suis le Président du Conseil et Chef de la direction de Pelmorex Communications Inc., qui exploite les licences de MétéoMédia et The Weather Network.

6655 Je voudrais introduire notre panel :

6656  - à ma droite, Paul Temple, premier Vice-président, Affaires stratégiques et réglementaires; et

6657  - à ma gauche, Luc Perreault, Vice-président, Relations gouvernementales et aux affiliées.

6658 Mr. Chairman, to answer the Commission's first question regarding perceived problems resulting from vertical integration, I ask you to indulge me in a little reminiscing.

6659 We are coming up to a key milestone for Pelmorex, the 20th anniversary of acquiring The Weather Network and MétéoMédia. Those were exciting days, taking on risk and then building on new ideas to create the service we have today.

6660 At every turn, industry newcomers were investing in specialty television, turning traditional business models upside down. Michael MacMillan and Robert Lantos came from the production sector. The Waters and Rawlinson families came from radio. Others came from multicultural communities. These new voices were diverse and very innovative.

6661 Today's broadcasting environment is completely different. It is pretty much a closed shop.

6662 Canadian independent broadcasters have now become an endangered species. With vertical integration on a massive scale, our collective leverage with BDUs, such as it was, has completely disappeared. Worse, future business models and precedents will be decided mostly by large vertically integrated companies negotiating with themselves.

6663 The problem is the inherent conflict of interest when BDUs own content. Self-dealing is inevitable and a natural consequence of vertical integration.

6664 Vertically integrated BDUs have the opportunity and incentive, in every decision, to weigh the competitive advantage they might gain or competitive disadvantage they might inflict on unaffiliated programmers. This is true regardless of whether they have a directly competitive service. Every viewer watching our programming is a viewer not watching theirs.

6665 This self-dealing will directly impact diversity within the broadcasting system. Without your intervention, it will be very challenging for independent broadcasters to survive or new players to succeed.

6666 MR. PERREAULT: As a result, the old problems faced by independent services will continue and worsen -- prejudicial channel placement, packaging or repackaging, lengthy audits, contract issues and, of course, the difficulty in launching new Category B services.

6667 But serious new concerns will also arise, and the Commission must look as much to the future as to the past when considering the implications of vertical integration.

6668 For independent broadcasters, the future holds new revenue opportunities, such as dynamic ad insertion and interactive TV. At the same time, and for the same activities, it holds dangers that arise from vertical integration.

6669 What happens, for example, without large independent broadcasters such as CTV and Global to negotiate balanced precedents for revenue sharing? How can these opportunities ever be structured fairly?

6670 The Commission needs to be forward thinking and put in place strong and meaningful measures, because we are just in the early days of vertical integration.

6671 Pelmorex is particularly concerned about set-top box related issues, such as increased competition from BDU-controlled VOD platforms, the creation of walled gardens, where interactive services are controlled by vertically integrated distributors, and the sharing or withholding of competitive information gleaned from the set-top boxes, to name a few.

6672 MR. TEMPLE: Mr. Chairman and Commissioners, we have some specific suggestions for measures that might be taken to help protect independent broadcasters.

6673 First, Pelmorex proposes to build on the proposal made by Score Media to entrench in regulation a requirement that a BDU shall not alter the fees paid to an independent Category A or distribute or package the independent in a manner that would have a negative impact on the average penetration of that service across the same language markets served by the licensee. Next to genre exclusivity and access rules, security over distribution and packaging is necessary if independent services are to survive.

6674 This is not an unreasonable request. Vertically owned services have security of distribution and packaging, and Bell, for example, has contractually agreed to similar conditions for foreign services. Surely the same protection can be extended to independent Canadian services.

6675 Second, to offset the undisputed preferential marketing treatment that vertically integrated broadcasters receive from their owners, Pelmorex recommends that the Commission restore its original policy that set aside ad avails on foreign specialty services at no cost to licensed Canadian programmers. We are asking that independent services have access to two-thirds of these ad avails, and similar access to TV listings, electronic programming guides and barker channels. Newcomers and independent players will then have a fair chance of attracting subscribers and viewers. This is not a new measure, simply an adjustment to an existing rule.

6676 Third, measuring and making public the behaviour of vertically integrated BDUs will help curb or modify their behaviour. We propose that BDUs file regular reports on the penetration levels of vertically integrated and independent services, affiliation agreement expiry dates and renewal terms, and on audit requests.

6677 Pelmorex believes that these ex ante rules, and others, are the most effective way of dealing with the potential harm resulting from vertical integration. There are immense difficulties for independent services in dealing with unfair BDU practices after the fact. It's risky, it's expensive, it's time consuming, and given the market power of vertically integrated BDUs, it's probably foolhardy as well.

6678 Ex ante measures will give independents some negotiating leverage and help create an environment that will support existing independent services and entice new players into the broadcasting system.

6679 While some issues related to vertical integration can be easily anticipated, others have yet to manifest themselves. It is still early.

6680 As TV and internet converge, access to consumers through the set-top box will become increasingly vital. Set-top boxes will enable BDUs to create viewer profiles and to develop and deliver interactive, dynamic content and advertising to our viewers. We are concerned that it's a Pandora's box of potential undue preference. Viewer information for our service must not be hoarded by a vertically integrated BDU or shared with our competitors.

6681 Additionally, all broadcasters must have access to develop and deliver their own ITV applications if they wish. These are our fourth and fifth ex ante rules.

6682 Just as net neutrality measures are a safeguard in the telecom industry, Pelmorex encourages the Commission to ensure that there is a set-top box neutrality regime to ensure fair, equal and unhindered access to customers through set-top boxes.

6683 We don't expect the Commission to resolve all of these new issues today, but we believe that you must start planning for them.

6684 Pelmorex understands that the Commission can't make rules to cover every possible abuse.

6685 We believe that a clear list of activities that would be prima facie undue preference behaviour should be adopted and incorporated into the BDU Regulations and the New Media Exemption Order. We developed and filed the beginning of such a list with other independents.

6686 But a code is not enough. The rules governing dispute resolution must be strengthened. Specifically:

6687 Reverse onus must be applied to vertically integrated BDUs contravening the code.

6688 Standstill or rollback provisions must be implemented.

6689 Whenever the Commission conducts a dispute resolution related to any of the provisions of the code, it should also conduct a parallel inquiry under section 12(1) of the Act to ensure that any decision that the code has been violated can be enforced quickly and expeditiously.

6690 And, the dispute process must be streamlined, but not so as to disadvantage smaller independent players who lack the resources of large vertically integrated entities.

6691 To address the remaining issues raised by the Commission that are relevant to Pelmorex, we have attached a summary of our position as Appendix A to these remarks, and we are fully prepared to discuss these and other issues raised during the hearing.

6692 M. MORRISSETTE : Ce processus ouvre la porte à la mise sur pied de mesures proactives qui contribueront à assurer la pérennité des services indépendants aujourd'hui et pour le futur.

6693 Aujourd'hui, de jeunes entrepreneurs dans le domaine des médias travaillent sur de nouveaux concepts qui visent les secteurs du Web et du mobile. Membres du Panel, vous avez la possibilité de créer un environnement au sein duquel cette nouvelle génération de jeunes entrepreneurs auront une chance de bâtir des entreprises médias fortes disponibles sur toutes les plateformes, un environnement duquel nous avons grandement bénéficié et dont nous vous remercions.

6694 Ce faisant, vous soutenez les objectifs de la Loi sur la radiodiffusion en ce qui a trait à la diversité des voix et à l'innovation. Cet environnement se veut positif pour le consommateur, pour le système de radiodiffusion, ainsi que pour toute l'industrie de la radiodiffusion ici et à l'étranger.

6695 Commissioners, we thank you for this opportunity to share our views on these matters.

6696 THE CHAIRPERSON: Thank you for your submission, and thank you for the annex. It makes it a lot easier to go through these issues.

6697 You start off by saying that you echo Score's suggestion that there be no alteration of Category A's that would have a negative impact.

6698 In practice, how would that actually work? Doesn't that basically mean that you have to sign up for any changes that the BDU wants to make?

6699 MR. TEMPLE: Yes. I think we modified the Score proposal a bit, to add not only changes in carriage, but changes in the fee.

6700 I think, when you were discussing that with Score, you basically said: Aren't we giving you the hammer?

6701 I think that is exactly what we are asking for, because everyone else has a hammer. Every vertically integrated service doesn't wake up in the morning wondering whether they are going to be repackaged or whether their rate is going to be changed. They have the comfort of knowing that they have 2 million-plus subscribers safely in their pocket, and the leverage of 2 million-plus subscribers when dealing with other vertically integrated BDUs. So they have quite a hammer.

6702 U.S. services also have a hammer. What we have long known informally was finally put on the record by Bell, that in the case of most U.S. foreign services, they can't be repackaged without their permission.

6703 They also have a significant market force, so they can, more or less, command the rates that they wish. So they have the hammer.

6704 All of the vertically owned services have a hammer. The only people who don't have a hammer -- in fact, the only people who get hammered -- are independent services. So we want the hammer.

6705 THE CHAIRPERSON: But you are not talking about independent services here, you are talking about Category A's. You already have mandatory carriage. You are not doing anything for the Category B's here, you are only talking about --

6706 MR. TEMPLE: Our focus on this particular issue is on services that have access, as was the Score Media proposal. The Score Media proposal applied only to Category A services that have access, and because they have access and they have additional regulatory burdens, we should have some kind of, for lack of a better word, hammer to offset all of the other hammers.

6707 THE CHAIRPERSON: Okay. Then, in terms of foreign ad avails, you basically want us, if I understand it correctly, to reopen this, change our regulations, saying that two-thirds of the ad avails should be made available to independents alone?

6708 MR. TEMPLE: That's correct.

6709 If you go back to the original application made by Rogers for ad avails, the premise of getting permission to use those avails was that they would be available to licensed Canadian services at no cost, to promote Canadian programming on the ad avails, to leverage the fact that people would be watching foreign services, but that this would be an effective way to promote Canadian services.

6710 We are just asking for the Commission to go back to its original policy, because what has happened is, that policy has morphed into a bit of an abomination, where all we are seeing are promotions for vertically integrated services, cellular phones and such, because that is how it has changed, and they are allowed to charge their cost to independent services.

6711 When we filed in earlier proceedings, we calculated the cost. If they sold out, they would have hundreds of millions of dollars in revenue, which, I think, far exceeds their costs.

6712 We are not asking for all of the avails. They will be able to still use avails to promote their own vertically integrated services, but there will be some balance in the system, and we will be able to promote our services.

6713 THE CHAIRPERSON: What about the issue of costs?

6714 MR. TEMPLE: All of this equipment has been in place for years, I am sure it has more than been written off, and there is an incentive. By having a third reserved for their exclusive use, they still have an incentive to want to promote these services.

6715 But the cost is -- they probably spill that much money every day on the floor. It's a modest cost.

6716 THE CHAIRPERSON: So your proposal is: Give us two-thirds at no cost.

6717 MR. TEMPLE: To go back to the original Commission policy.

6718 THE CHAIRPERSON: Okay. Then, you want to file regular reports on penetration levels of vertically integrated and independent services, affiliation agreement expiry dates and renewal terms, and audit requests.

6719 That is quite a truckload of documentation that you are sending our way.

6720 First of all, does it have to be filed or made available?

6721 Wouldn't it be enough if they made it available on their website or something?

6722 MR. TEMPLE: Oh, if they want to make it available on their website, I don't have a problem with that.

6723 Actually, there is not that much documentation. We are not asking for the actual affiliation agreements to be filed, but there is the saying that work that gets measured gets done.

6724 THE CHAIRPERSON: No, whatever you are asking here from the BDUs, you are asking for it to be filed, which means that they would send it to us.

6725 MR. TEMPLE: Yes, but not the affiliation agreement itself. We would just simply want them to say in a letter that Pelmorex requested an audit today.

6726 And, then, when the audit is settled, they would send a letter saying that the audit has been settled.

6727 And then we can see how long it takes for audits to be done, and if some of the BDUs are doing them within a year, and some of them take two or three years, then it will be apparent to everyone --

6728 THE CHAIRPERSON: Yes, but my point is quite picayune. I have to worry about paper coming in and people using it, et cetera.

6729 Do we need to get involved?

6730 You want exposure, you want sunlight. Surely you can get that with all of this stuff being forced to be put on the website, rather than sending it to us.

6731 MR. TEMPLE: As long as it is being made public. If it is being made public and being put on the website -- and I think there is some discretion. You don't necessarily have to say that this service asked for an audit today, or that this service has contract renewal terms. But if they can identify, anonymously, each service that they carry, and what the terms are, then we can see.

6732 This summer we will be celebrating the 10th anniversary of not having a contract with one of our largest distributors. Ten years without a contract.

6733 THE CHAIRPERSON: But you are being carried and you are being paid.

6734 MR. TEMPLE: We are being paid, but not the way we think we should be paid.

6735 THE CHAIRPERSON: You are 9(1)(h), so your rate has been fixed, hasn't it?

6736 MR. TEMPLE: There are so many issues -- bulk discounts, transient subscribers.

6737 THE CHAIRPERSON: Put some flesh on the bones for me here. Let's go through these one-by-one.

6738 Penetration levels: You want, let's say, Rogers to say, once a year --

6739 MR. TEMPLE: Once a year for penetration --

6740 THE CHAIRPERSON: -- these are the following channels that we carry, and this is the penetration rate that these channels have achieved.

6741 MR. TEMPLE: And a summary.

6742 Most of the information they already provide to Mediastats, but I think by making it public, we will see over time -- because, as we point out, this is still early in terms of vertical integration.

6743 For instance, Bell has just bought CTV. So if Bell now -- just to pick on Bell as an example, but let's say that the penetration of Bell-owned services is, in total to all the services they distribute, 30 percent, and then the next year it's 35 percent, and then it's 40 percent, that starts to shine a light on an area that, maybe, the Commission or other interested parties want to look at.

6744 But right now it's all in secret.

6745 THE CHAIRPERSON: But surely --assuming that scenario takes place, it may very well be, as you suggest, because there is preferential treatment of their own services. It may also be the fact that they have put more money into it, more effort, more advertising. Maybe the programming is better than that of others, et cetera.

6746 MR. TEMPLE: I agree completely.

6747 THE CHAIRPERSON: The mere fact that they have a better penetration rate than others does not tell very much, but yet you are raising the suspicion and you are, in effect, wanting us to step in.

6748 MR. TEMPLE: But what I will be able to do is, I will be able to look at their penetration on another service to see if it is mirrored. Have those wonderful CTV services experienced the same growth on Rogers?

6749 We filed evidence with the Commission to show that the distribution of Rogers' services on Rogers and Corus services is skewed.

6750 There is certainly no harm to the proposal. It is easily done by the BDU, and if it advances the public good and the policy objectives, and provides for a safeguard, I think we are all better off.

6751 THE CHAIRPERSON: Mr. Temple, let's play this out. Let's assume that you establish this. You find out that CTV does better on Bell than it does on Shaw or Rogers. Okay, so what? Then what?

6752 And the figures are there. The penetration figures are there. Then, what follows next?

6753 MR. TEMPLE: That might be useful information in the case of an undue preference dispute, but right now no one has any information, it's all in the dark. It's all hidden.

6754 And you are quite right. There may -- it may never be used but it could be very helpful and it's easily accommodated.

6755 THE CHAIRPERSON: Audit requests you mentioned those. What is the issue with audit requests?

6756 MR. TEMPLE: Audit requests can take a long time and when you are a vertically-integrated service you don't have to worry about audit requests because it's the same company. So you know you are going to be paid.

6757 But for independent services that's not necessarily the case. So again, it's very difficult for independent services to keep coming to the Commission, complaining either at hearings about these things.

6758 You know filing an undue preference complaint is a very significant undertaking for an independent service. I mean, you are basically taking your biggest customer to court.

6759 So if we can put a light on some of these activities I think some of them will be self-regulated. If it's quite apparent that a particular vertically-integrated BDU is dragging its feet on audits and everybody knows it, I think they will smarten up and then we won't have to have undue preference complaints and we won't have to have you know small services whining at hearings.

6760 THE CHAIRPERSON: Set-top boxes. You are the only person as far as I can see who has raised that issue. You are obviously looking forward and you even go further. You say you want set-top box neutrality.

6761 I mean Astral raised it indirectly because they raised the issue of whose data is it now -- can they get data about their customers. And we had some discussion about that.

6762 But what -- and you see this as a growing problem. We call it the Pandora's Box of potential undue preferences. Explain to me exactly what your fears are here.

6763 MR. TEMPLE: We are looking ahead. We know that increasingly in the digital environment that we are moving into that that set-top box and access to it will be increasingly important.

6764 We have heard on a number of hearings, the framework hearing and others, that the box will allow for a lot of innovative, new services. There was a lot of talk about dynamic ad insertion, about interactivity. For an information service like our own, interactivity is very important. And if we are in any way restricted or held up in being able to provide applications that will allow us to innovate and strengthen our service that's a significant problem.

6765 So we are looking ahead because we are talking about the rules now that are going to be in place for the next five, whatever number of years.

6766 There is no use just solving yesterday's problem. Yesterday there wasn't that much vertical integration and there wasn't as many digital set-top boxes. But tomorrow there will be a lot of digital set-top boxes and there is going to be an awful lot of vertical integration.

6767 THE CHAIRPERSON: But isn't tomorrow likely to be on the internet and mobile devices rather than on the set-top box?

6768 MR. TEMPLE: It may very well be and I think you will see that a lot of our proposals, particularly on the undue preference, we want applied -- any codes applied to the new media exemption order. We have got to look ahead.

6769 But as TV, if you can go on your TV and basically get the same experience when you are watching TV as you get when you are watching the web, that's where it's going. When we have -- when we operate our web services we have detailed information. We know how many pages everyone is looking at, when they are looking at it, how long they look at it. We have all this rich information from our own file servers.

6770 That set-top box and that infrastructure is now going to be captive to the BDU on the regulated system and they will have it and we won't necessarily have any of it.

6771 THE CHAIRPERSON: So let's say, Mr. Temple, you have convinced me this is the issue of the future and we have to establish a set-top box in neutrality. What do I do?

6772 MR. TEMPLE: Well, first of all, just as you have determined a policy of access rights on the programming side, I think at a minimum those same services and probably all services should have the same type of access rights to the information and to be able to develop applications for those boxes so we can --

6773 THE CHAIRPERSON: Yes, but when did we establish rights, information rights on neutrality? I'm not quite sure what you are talking about.

6774 I mean that neutrality is essentially an anti-immigration -- anti-discrimination policy by saying you cannot discriminate unless you can justify it for technical reasons. I don't quite see where information sharing gets into it.

6775 MR. TEMPLE: The information sharing, I agree, is a separate issue.

6776 But the access to that box, I think there is a parallel. It's not a perfect analogy but it's a good parallel to the telecom side so that we can have access.

6777 Separately, we want access to the data.

6778 THE CHAIRPERSON: Yes. So, in effect, this set-top box neutrality idea that you are pushing is really access to information. You want to have access.

6779 MR. TEMPLE: No, more than access to information.

6780 THE CHAIRPERSON: Then, secondly, you want to get what your colleague calls the "walled garden".

6781 MR. TEMPLE: We want, yes, to either be in that walled garden or to provide our own applications.

6782 To go back again, a number of years ago -- I don't want to pick on -- but it's a useful example -- Bell launched an interactive weather service on ExpressVu. We asked for access to do the same. We were denied. We complained. We went to dispute resolution. Well, before that it was mediation.

6783 And about three or four years later we finally got our own interactive service on ExpressVu and now they are quite happy. But it took a long time to get that access.

6784 We could have developed a very powerful application that enhances our service on ExpressVu and every other BDU. That's just what we want to be able to do, and if they do their own applications that's great too.

6785 THE CHAIRPERSON: You have an interactive service on Bell?

6786 MR. TEMPLE: Yes, we do.

6787 THE CHAIRPERSON: On the satellite?

6788 MR. TEMPLE: We have. We were the first ones, as far as I know, anywhere to create an interactive application on ExpressVu that does not only in a consumer interact with it, but we actually pushed data to them so the customer doesn't even realize that they are interacting with the box.

6789 We were one of the first, if not the first, to do that on a satellite service.

6790 THE CHAIRPERSON: Explain to me how that works.

6791 MR. TEMPLE: I beg your pardon?

6792 THE CHAIRPERSON: How does that work if I'm a Bell customer and watching the Weather Network?

6793 MR. TEMPLE: If you go to the Weather Network a little icon will appear and then you can click on that and you can identify the home city that you want information for. That information is stored on the box.

6794 Then whenever we -- then we are constantly sending data for several hundred cities and when it comes to the locals the box says, "Oh, he wants -- this customer wants the local weather for Ottawa". It's presented. If someone is in Red Deer they get Red Deer.

6795 And at any time they can go interact interactively and call up their own city. They don't have to wait for the locals or they can get weather on other communities.

6796 That's been in place, I think, since 2008 or so.

6797 THE CHAIRPERSON: So you are setting it down basically altogether and it goes to set-top box and the set-top box does the selection.

6798 MR. MORRISSETTE: Mr. Chairman, in-channel interactivity, and that's what we are talking about -- we have been doing this for almost 20 years actually. When we acquired the Weather Network MéteoMédia, we were doing this with Videotron in the very early stage of ITV service. The next service was ExpressVu.

6799 Since that time we have developed a very strong application with Videotron and we are currently negotiating with several other BDUs to expand this capability.

6800 The real benefit of ITV is for the consumer. It's personalized information on demand. They get to pick the location of their choice and they will get all that local information whenever they want it.

6801 It's a tremendous opportunity to meet the consumer needs and enhance the value of our service.

6802 In the future what we are hoping for is to expand this with all distributors. What we are concerned about is that in some cases certain distributors may have their own application and in the meantime we are shut out. That's it.

6803 THE CHAIRPERSON: But on set-top box - I don't want to put words in your -- but you are more using this hearing to alert us rather than asking us to institute specific measures at this point in time?

6804 MR. TEMPLE: If I can push my luck a little bit, I would love the Commission as an outcome to this hearing to determine that programming services have access rights to the set-top box to develop applications consistent with their conditions of licence and nature of service.

6805 The Commission has policies in place but I think that they are not strong enough given the vertical integration that has taken place and the growth of digital technology in the industry.

6806 So again, there are policies in place. We think they need to be updated in light of vertical integration.

6807 THE CHAIRPERSON: And if you don't -- you don't specifically address this issue that triggers this whole hearing, which was the whole issue of exclusivity and that the vertically integrated companies using the linear content that they have and push it on to mobile or internet on an exclusive basis and not share it and, as you know, we put a moratorium.

6808 What is your position on that point?

6809 MR. TEMPLE: Well, it was -- I guess it was the issue -- it was one of the issues that initiated this hearing. If you recall at the time of the Shaw/CanWest hearing we appeared and raised these same issues.

6810 So I would hope part of this hearing is to also address the concerns of independent services and our concern with regards to exclusivity is that basically we want to be able to provide our service and content on every platform on fair terms and not be hindered. We don't want any situation where our --

6811 THE CHAIRPERSON: I understand that but the exclusivity was Bell using its linear content exclusively on its mobile device?

6812 MR. TEMPLE: If they -- we are not worried about Bell. I mean if they think that it's not our issue.

6813 Our issue is I don't want a vertically-integrated company coming to us saying, "I have got such market power. You will sell me only your content and not to others". That's our issue in terms of exclusivity.

6814 I don't want someone to force it on us because that's not how we want to operate. We provide the same content, the same services, the same terms and business deal to everyone. We treat everyone fairly.

6815 THE CHAIRPERSON: Okay. Now, you have a whole shopping basket here of things you want. You want this -- you want information published on such things as penetration levels on affiliation agreements, on renewal terms and audit.

6816 You want standstill in case of dispute.

6817 You want reverse onus and you are also talking about no exclusivity being imposed upon you by the BDUs of your content. You want to be able to put it in.

6818 Of all of those -- and I know you are going to say "I need them all". I understand that. So I'm not even going to ask --

6819 MR. TEMPLE: It's Sophie's Choice.

6820 THE CHAIRPERSON: Yes, it's Sophie's Choice, yes.

--- Laughter

6821 THE CHAIRPERSON: But which one for you is absolutely essential to your survival?

6822 MR. TEMPLE: The two biggest issues are access and packaging and distribution. So you know, right now, today's media problem is making sure that there are safeguards. That was, I think, the first ex ante rule that we mentioned was ensuring that --

6823 THE CHAIRPERSON: Yeah.

6824 MR. TEMPLE: -- we have a hammer. So if we have got a hammer just like everyone else that's number one.

6825 Number two, looking ahead, is access.

6826 THE CHAIRPERSON: Is what?

6827 MR. TEMPLE: Is access to the box.

6828 THE CHAIRPERSON: Access to the box, yeah.

6829 Okay, thank you.

6830 Any of my colleagues have any questions?

--- Pause

6831 THE CHAIRPERSON: Thank you very much.

6832 Like everybody else, I expect to see from you a final version of the code or principles or whatever because I think you -- I read yours very carefully. I thought you did -- you actually had an Appendix B called "Principles for Assessing Undue Preferences and Disadvantages".

6833 MR. TEMPLE: We are working with our colleagues who are going to be appearing shortly and we will have exactly that for you.

6834 THE CHAIRPERSON: Okay, perfect. Thank you.

6835 Madam la Sécretaire, let's do the next one then before we break.

6836 THE SECRETARY: I will now ask Knightscove Media Corp. to come to the presentation table.

--- Pause

6837 THE SECRETARY: Please introduce yourself, and you have 10 minutes for your presentation.

6838 Thank you.

PRESENTATION

6839 MR. ELLIS: Good morning, Mr. Chair, Members of the Commission and Commission staff.

6840 I'm Stephen Ellis, Executive Vice President of Knightscove Media Corporation and past president of Canada's oldest production house, Ellis Entertainment, started by my father, Ralph, in 1964.

6841 On my left is Dale Taylor, President of Knightscove's broadcast division, Knight TV, a career broadcaster with an outstanding programming tenure at the original YTV as Vice-President, Programming and Production.

6842 On my right is Joan Schafer, an associate of the Honourable Jerry Gradstein and a Vice-President Designate of Knightscove Media.

6843 Joan is an original founder of First Choice, now TMN, Canada's first national Pay TV Service. She was also their VP, Original Programming. She is currently President of Red Car Producers -- a boutique film and television production company.

6844 We appear before you today to provide more context for our filing in this proceeding. Knightscove is planning to apply for CRTC digital licences later this year.

6845 It has always been and now more than ever, of vital concern to us that we operate on a level playing field. Knightscove has been a TSX venture listed company since 2006. The company was founded by CEO, Leif Bristow, a film and TV industry veteran, producer and financier. He couldn't be with us this morning.

6846 Knightscove is a public company dedicated to family entertainment. Knight TV operates our video on demand pre-school service, KiDMAZiNG, in the United States. KiDMAZiNG is currently available in 9.5 million American households through Cox Communications, Charter Communications and Dish Network.

6847 Through our other divisions we create original film, TV and new media content and distribute it directly worldwide on multiple platforms.

6848 Knightscove Family Films produced the soon to be released $7 million Canadian feature film "Sophie" following a string of three successful earlier film releases. And Knightscove-Ellis International is the newly acquired TV arm with a 600-title library of wildlife and other documentary content.

6849 KiDMAZiNG Is a major accomplishment in the U.S. marketplace.

6850 Dale?

6851 MR. TAYLOR: Thank you.

6852 KiDMAZing's U.S. distributors are subject to the Communications Act and the FCC's program carriage rules. These regulations restrict U.S. cable operators and multichannel video programming distributors from unreasonably restraining the ability of an unaffiliated programming vendor to compete fairly.

6853 Discriminating against a programming vendor is not permitted on the basis of non-affiliation with respect to its selection for carriage, terms or conditions.

6854 There is also a formal complaints process where the FCC can be called on to adjudicate and ultimately has the power to set the disputed terms and to impose damages.

6855 In the case of the KiDMAZiNG service which has been ranked 17th out of 157 VOD offerings in the U.S., it is this environment that has enabled it to come into existence and to grow under Knightscove's ownership. Although the Canadian VOD framework has not yet been decided by the Commission, we note that the U.S. regime also applies to the equivalent classes of services as in this hearing.

6856 We therefore encourage the CRTC to strengthen the rules for vertically integrated licences to ensure a level playing field, particularly for new entrants. We have experienced a working model in the U.S. that can be adapted for the Canadian reality.

6857 MS SCHAFER: As a future applicant operated by program makers we urge you to make room for new players because new players have always been the new blood. They have brought innovation and choice to the dial. They have also made significant contributions to the broadcasting landscape and to the funding of Canadian production.

6858 Knightscove is a newcomer that cares about what happens to Canadian independents now fighting for their lives. We come from that fight.

6859 And with traction in the U.S. we are already in the market with access to the Knightscove brand by 9.5 million U.S. households.

6860 Back in an another era programming producers, Atlantis and Alliance, entered the broadcasting arena with innovative specialty channels, Showcase, Life Network and more. Now, all these services are in vertically integrated companies.

6861 It's time to open up and encourage another round of creative entrepreneurs.

6862 We not that it's in the public interest to update the ground rules so that we and all newcomers stand a fighting chance to refresh and bring new voices into the system that gave us such wonderful programming diversity in the first place.

6863 MR. ELLIS: We indicated support for safeguards such as reverse onus and hold harmless provisions because they are ex ante style measures that are more likely to prevent problems, be less disruptive and prevent damage than ex post measures -- primarily because their mere existence will incentivize parties to find solutions in order to avoid them being invoked.

6864 At this hearing we particularly agreed with CBC Radio Canada's observations and recommendations on the subject of ex ante versus ex post measures.

6865 We also supported an over-arching principle of predominance of carriage for non-affiliated services.

6866 With respect to Category B services in particular we note that the Commission planned in 2008-100 to reduce the ratio from 5:1 to 3:1 for non-affiliated to affiliated services.

6867 Knightscove has no objection to the shrinking ratio provided that genre protection is opened up and at a minimum, as proposed by Rogers and Astral at this hearing, no longer extends to vertically integrated programming undertakings.

6868 MR. TAYLOR: Genre protection in our view is simply another form of exclusivity, in this case with regard to the subjects and demographics of shows on a programming service, rather than the availability of those shows and services on competing BDUs and platforms.

6869 It is a set of rules that has helped broaden the broadcasting system and diversified some tremendous vertically integrated companies. However, it is difficult to argue today that Category A specialty networks are not profitable enough to sustain competition or that there is a dearth of genre-specific programming available to supply would be competitors.

6870 We see a direct trade-off between encouraging new entrants and increasing the ability of vertically integrated players to distribute affiliated services and that tradeoff is the end of genre protection. The biggest winner in such a relaxation of the rules will be the Canadian viewing public.

6871 MS SCHAFER: Knightscove has recently appointed some well-known broadcast industry names to its board of directors in preparation for our next stage of the company's growth in broadcasting.

6872 Former Senator Jerry Grafstein, co-founder of both CityTV and YTV, has joined as Vice-Chair of the Board; Amanda Ploughman former President and CEO of MediaCom Canada; and Paul Laberge former EVP and General Counsel at Alliance Atlantis have also joined the Knightscove Board. We are on the move.

6873 MR. ELLIS: In summary, Knightscove has experience with an arguably less regulated U.S. marketplace for its preschool VOD service Kidmazing, yet has seen the benefits there of the regulation of vertically integrated companies.

6874 We believe that it is in the public interest to have Canada shift in this direction and away from the policies, such as genre protection, that have played their role in the arrival of our vertically integrated system.

6875 Thank you for your time this morning. We would be pleased to answer any questions.

6876 THE CHAIRPERSON: Thank you.

6877 You obviously learn something at these hearings, and you take me by surprise when you tell me on page 4 that the U.S. system, "They have regulation restricting U.S. cable operators and multi-channel video programming distributors from unreasonably restraining the ability of an unaffiliated programming vendor to compete fairly."

6878 Well, how does that actually work? I mean, I wasn't aware of this. And this is also your words obviously summarizing the program. Give me a situation where you have invoked it or where you know somebody has invoked it. I have trouble envisioning how this works.

6879 MR. ELLIS: Well, you are correct. You know, it is invoked through a process and that is a complaints process where a party that feels wronged, according to those principles, can take their case to the FCC who then effectively act as an arbitrator, but with the additional power of being able to impose penalties.

6880 Now, my understanding, we haven't experienced that end of it because we have benefited to date from expanding carriage in the U.S. and expect to continue to do so.

6881 But my understanding is that is an extremely expensive process and the rules are -- it is expensive and time consuming and that the rules effectively then are, you know, it is ex-post application which means that, you know, damage can be done, service can be interrupted. And we have seen that in other areas within the U.S. system, certainly some pretty public examples of that happening.

6882 THE CHAIRPERSON: The key of what you are citing here is, all I have is "unreasonably restraining the ability of unaffiliated programming to compete fairly." There is a whole bunch of value judgments in there. What is discriminating, what is unreasonable, what is restraining, what is competing fairly? I mean, so it sounds to me more that it is meant that you cannot impose sort of restrictive covenants on somebody from whom you buy programming.

6883 But, as I say, I wanted to have some detail. You don't have it I gather?

6884 MR. ELLIS: Well, it is laid out in fairly specific detail in the FCC Regulations. I would be happy to provide a copy of the web page in which those terms are defined in their regulations.

6885 THE CHAIRPERSON: And the existence of these regulations, although the process may be very costly and lengthy, in your view in effect act as a preventative tool and forces people to act reasonably and fairly?

6886 MR. ELLIS: Well, our U.S. colleague that is based in L.A. that launched the Kidmazing service initially, while concerned about the cost if you get stuck in that position, does feel -- I mean, he was certainly surprised when I explained to him what we were doing here today.

6887 He was surprised and shocked given the degree of vertical integration which arguably exceeds some that exist in the U.S., that we didn't already have similar rules and restrictions.

6888 THE CHAIRPERSON: Okay, thank you.

6889 Candice, I believe you have some questions.

6890 COMMISSIONER MOLNAR: Thank you, Mr. Chair.

6891 Good morning.

6892 Just going through, I want to understand a little bit first about your business model and what you are bringing. You say that you are planning to apply for CRTC digital licences later this year. When you say digital licences, are you talking about Cat. B service licences or are you talking about something different?

6893 MR. ELLIS: Certainly we are talking about Cat. Bs and we are not entirely certain yet whether we are talking about VOD. We just wanted to be general about it at this juncture until we actually come forward with applications.

6894 COMMISSIONER MOLNAR: I want to understand your VOD. Maybe you are not quite certain what you are proposing to bring. I am trying to understand whether you are talking about content for VOD services or in fact bringing forward a platform. What is it you are offering in the U.S.? Are you a licensed VOD?

6895 MR. ELLIS: No. We are a programmed service, essentially. So we are supplying content to cable operators, satellite companies who then offer it in different ways, sometimes as part of subscription packages.

6896 At this stage, because we are under 15 million homes, we are largely offered as bundled on a free basis with a package of services by these channels. And our goal this year is to get over that 15 million household level so that we can start to monetize the service.

6897 COMMISSIONER MOLNAR: Okay. So you are a content provider for VOD operators, VOD licensees in the U.S.?

6898 MR. ELLIS: That is correct.

6899 COMMISSIONER MOLNAR: And that is the model you are looking at here in Canada as well?

6900 MR. ELLIS: Well, if we come forward with a VOD proposal. I mean, that is an area where there is an even lower batting average of success in launching a service than there is with Category B. So, you know, we are certainly looking at our options, but we do have specifically plans to apply for Cat. B services.

6901 COMMISSIONER MOLNAR: I don't want to get too far into what might be in anyway competitive plans or otherwise, but have you had any discussions with VOD licensees here in Canada about the potential of having your content placed on their VOD platforms?

6902 MR. TAYLOR: Knight TV was carried for a period of time. It was dropped by Shaw, so we are strictly States-side at this juncture.

6903 COMMISSIONER MOLNAR: Okay. And then maybe you can help me with what you state on page 5 where you say, "Although the Canadian VOD framework has not yet been decided by the Commission." What, in your view, are the outstanding issues that have not been decided by the Commission related to the VOD framework?

6904 MR. ELLIS: Well, I may be out of date on this, but I was of the impression that there was still an outstanding process that was an initiated as part of 2008-100 that had not been concluded in the outcome decision in terms of policy published by the Commission. So I may be incorrect in that, but that was my understanding.

6905 COMMISSIONER MOLNAR: Okay. So you were just talking about that follow-up VOD proceeding?

6906 MR. ELLIS: Yes.

6907 COMMISSIONER MOLNAR: I want to move to page 6. You say, "It is time to open up and encourage another round of creative entrepreneurs." In my view at least, I think that there is a difference between encouraging through regulation new entrepreneurs and removing barriers, regulatory barriers, to new entrepreneurs entering the system.

6908 So can you tell me, first of all, are there -- you have brought up the issue of genre exclusivity as a potential regulatory barrier -- are there other regulatory barriers that you see that would influence or limit new entry into the system?

6909 MR. ELLIS: I think that the reason we are here this morning is that, well, we can't point to specific regulations that stand in the way of a group like ours coming to apply for channels. There is an enormous barrier that occurs from the moment we might be granted a licence, and that is the barrier to being launched by vertically integrated services.

6910 So I think what we are hopeful of is that out of this hearing comes a set of rules, as the Commission has stated as its goal, to govern the interaction between the parties so that there is a more predictable outcome between the time you are granted a licence by the Commission and your ability to then launch the service in a meaningful way and reach Canadian audiences.

6911 And we have been somewhat concerned to see the number of players that have come forward that are already licensed services, and in many cases already carried services, that are quite concerned about their sustainability and services that are independent of vertically integrated companies, that are clearly very concerned. I mean, this is concerning to us as a future entrant.

6912 So I think it is the issues that you have been seized with in this hearing that we hope, depending on where the Commission lands on these points, will open it up and be more encouraging and welcoming to entrepreneurs that want to enter the system.

6913 COMMISSIONER MOLNAR: Okay. So just help me. Define for me just the list -- because we have the details behind the list already, you know, through the last week and a half -- what is the list of things you need that would enable new entrepreneurs to operate in this vertically integrated system?

6914 MR. ELLIS: Well I think, you know, there have been very many more prescriptive and thorough proposals placed before you. We are kind of taking --

6915 COMMISSIONER MOLNAR: Fair enough. I am just looking at yours. You are looking at entering this year?

6916 MR. ELLIS: Yes.

6917 COMMISSIONER MOLNAR: What is it that is prohibiting you or limiting you or concerning you particularly that you need to enter?

6918 MR. ELLIS: Well certainly, as you indicated, we have mentioned genre protection potentially as an inhibitor for us. Also the step between licensing and getting carried; I think we are talking about issues like, you know, making a deal with the various BDUs.

6919 Currently, there is a very long list of unlaunched Category B services. We don't want to just end up on the end of a list of hundreds of channels that can't get carriage. So, you know, we are talking about safeguards that, if they were to come out of this hearing, would I think effectively put out the welcome mat.

6920 But, you know, we are talking about some fairly abstract concepts, reverse onus, old harmless things like that, the ex-ante style measures which then I think keep the more powerful players, the players with the hammer, as the metaphor that was used earlier, that makes them more cautious about using it if, for instance, more ex-ante style measures were to come of this hearing. That would certainly help I think in fostering an atmosphere more conducive for us to enter.

6921 COMMISSIONER MOLNAR: Okay, thank you. Those are my questions, thank you.

6922 THE CHAIRPERSON: I don't believe there are any other questions. Thank you very much for your submission.

6923 We will take a 10-minute break.

--- Upon recessing at 1102

--- Upon resuming at 1117

6924 THE CHAIRPERSON: Madame le Secrétaire, commençons.

6925 THE SECRETARY: We will now proceed with the presentations by the Independent Broadcast Group, OUT TV Network Inc., Stornoway Communications, and ZoomerMedia Limited who are appearing as a panel to present their interventions.

6926 We will hear each presentation, which will then be followed by questions from the Commissioners to the panel. Each intervener will have 10 minutes for their presentation.

6927 I will now invite the Independent Broadcast Group to begin. Please introduce yourselves, you have 10 minutes.

6928 Thank you.

PRESENTATION

6929 MR. ROBERTS: Thank you.

6930 Good morning, Mr. Chair, Commissioners and Commission Staff. I am Bill Roberts, President of ZoomerMedia Television Division.

6931 Also here today as members of the IBG, our Independent Broadcast Group, are Martha Fusca, President of Stornoway Communications; Slava Levin, Chief Executive Officer of Ethnic Channels Group Ltd. We are joined by Stuart Jack and Sajjad Jafri from Nordicity Group as well as by IBG's legal counsel Joel Fortune.

6932 There are others here today representing individual independent broadcasters who will be introduced later.

6933 But to economize on time, we thought that the IBG would make a general presentation first, setting out our common position on some of the key issue identified by the Commission for this hearing. The different broadcasters will present next, reflecting their individual experiences and concerns.

6934 This hearing is critically important to the independent broadcasting sector and to diversity, innovation, and to competition. We emphasize the last factor, competition. Independent broadcasters represent competition. A market in which there are only a small number of dominant, vertically integrated media conglomerates is not, in our view, a competitive market.

6935 Let's move to the Commission's key issues. What do we believe are the problems and benefits that may arise from vertical integration? First, we should point out that the IBG, or GDI in French, supported Shaw's acquisition of Canwest and Bell's acquisition of CTV. For independent broadcasters, the possibility of some benefits is not the issue. We are not opposed to vertical integration as such and, even if we were, that herd has left the barn.

6936 However, the evidence is compelling regarding the potential harm for vertical integration. Virtually every non-integrated broadcaster and distributor has pointed out the anti-competitive incentives that follow vertical integration. Even Rogers, which is vertically integrated, has pointed to these predatory incentives.

6937 The data of relative penetration levels for vertically integrated and independent services on certain BDUs shows the natural and obviously tendency of BDUs to favour their own programming services.

6938 Many other national jurisdictions have carefully regulated vertical integration in the communications sector, precisely to guard against potential harms.

6939 The actual experiences that you have heard from independent broadcasters such as Alarco and from independent distributors such as Cogeco and the CCSA are concrete examples of the harmful conflicts of interest that arise from vertical integration.

6940 The largest existing independent broadcaster in Canada today, Astral, has stated that it too has concerns about vertical integration. For example, Astral's inability to launch new French-language services in a distribution market dominated by its main programming rival is highly instructive.

6941 The case for harm and potential harm from vertical integration is well supported. Without appropriate regulatory safeguards, the extensive vertical integration we now have will lead to fewer and weaker independent broadcasters. This will result in less diversity of ownership and programming content, less contribution to the economic strength of the cultural sector, and to much less competition.

6942 MS LAFONTAINE: We have looked carefully at the arguments made by some vertically integrated BDUs to support their view that any regulatory measures ensure space for independent broadcasters will hamper the alleged benefits of vertical integration.

6943 The research paper by Berkley Research submitted by Bell seems to be the main source for this argument. We have some serious concerns with this research.

6944 First, it deals mainly with questions surrounding exclusive dealing and new media content or input foreclosure, which is not a primary issue for independent broadcasters. We are more concerned about customer foreclosure, which is the denial or limitation of access to distribution networks.

6945 Second, the report does not adequately address the main problem that independent broadcasters face, discriminatory packing and pricing, in other words tiering issues.

6946 Third, the two empirical studies the report cites to support the efficiency motivations for vertical integration don't actually support that conclusion.

6947 And last, the study does not take into account the actual evidence of anti-competitive conduct arising from the U.S. market, which is a good test case for what we are about to experience in Canada.

6948 IBG/GDI engaged Professor Hal Singer, a noted U.S. Economist experienced in vertical integration issues, to consider the Bell analysis. Professor Singer's comments form the basis for the points that we have made above, and we intend to provide a copy of Professor Singer's rebuttal in our reply.

6949 In the final analysis, however, the economic case made by the vertically integrated companies against regulatory support for independent broadcasters is not borne out. Vertically integrated companies have the capability and incentive to disadvantage smaller independent broadcasters and to harm competition in our market. There is a continued need for appropriate regulation to prevent this from happening.

6950 MS FUSCA: The current ex-ante measures are not up to this task. It is not surprising, because the rules were developed before the large increase in vertical integration brought about by the Shaw and Bell transactions.

6951 The few rules that will come into effect September 1st do not address vertical integration. The access rule for Category A services does not ensure that Category A services will be fairly packaged and marketed as required by the Broadcasting Act. And the three-to-one rule for Category B services does not provide space for independent broadcasters.

6952 Working with others in the independent broadcasting sector IBG/GDI has developed appropriate modifications to these rules. First, for Category A services, independent Category A services should be distributed so that they can achieve the broadcasting objectives for which they have been licensed and meet their conditions of licence.

6953 We suggest simply that a level of 33 percent penetration be adopted as a reasonable minimum floor for independent Category A services.

6954 Independent Category A services that are currently distributed as basic level services should not be moved from the basic service without negotiation and agreement.

6955 If more BDU-owned services are added to basic, then there should be a balance between independent and BDU-owned services.

6956 As regards Category B services, we suggest the 3:1 linkage rule should be modified.

6957 We have proposed a simple 1:1 rule as between BDU-owned and independent services, based on the language of market.

6958 The counterproposal put forth by some BDUs is simply not adequate. Under that rule, as we understand it, Rogers won't have to add another independent Category B service for more than the next 150 services it adds, Shaw can add 48 BDU-owned services, Videotron can add 45, Bell IPTV can add 91 and Bell DTH can add 117, all this before an independent service would need to be launched.

6959 The only way the modified 3:1 rule can be effective is if it is applied only on an ongoing basis, for example, to all new related services added after October 22, 2010, the date this hearing was announced.

6960 Lastly, as a general principle, we endorse the idea of a code of good commercial practices. We understand that a departure from the code could form the basis for an undue preference complaint.

6961 In our view, the key element of any commercial practice is that it has to be based on an actual agreement between the parties and not on terms that are dictated by one party.

6962 Therefore, we have proposed a simple rule that would prevent a BDU from making a unilateral material change to terms of carriage for an independent Category A service without agreement. This commercial norm was identified expressly by the CRTC in its original good commercial practices policy from 2005, but it has not been honoured.

6963 We are especially concerned about preventing unilateral changes to the average penetration level of a service and to the wholesale fee.

6964 These are the few simple ex ante rules that we have proposed. They are targeted as specific potential harms and will have no effect on large vertically integrated companies.

6965 We have explained in our written submission why the CRTC's dispute resolution procedure is not effective as the primary remedy for independent broadcasters. A few up-front rules are far preferable.

6966 Sometimes though, dispute resolution may be the only option. In those cases, a standstill is essential while the dispute runs its course.

6967 We also support greater reliance by the CRTC on mandatory orders at the end of the dispute process, for example, at the end of an expedited hearing.

6968 Bill.

6969 MR. ROBERTS: Thank you, Martha.

6970 We will conclude with a short review of our IBG position on some of the other issues you have asked us to address.

6971 We support a requirement that vertically integrated BDUs file annual reports with the Commission regarding the status of their affiliation agreements and audits and the penetration levels for independent programming services.

6972 We support the imposition of the customer service group concept to govern the dealings between vertically integrated BDUs and unrelated programming services.

6973 Regarding AMPs, in theory, such a power would discourage the large conglomerates from abusing their market power. At the same time, AMPs are not likely to be an effective safeguard unless the CRTC is given express jurisdiction. Otherwise, we will be faced with court cases on the issue for a number of years rather than an actual remedy.

6974 In conclusion, we would like to thank you for considering these comments and I will now turn the floor over to Brad Danks from OUT TV.

PRESENTATION

6975 MR. DANKS: Thank you.

6976 Good morning, Mr. Chairman and Commissioners. I'm Brad Danks, Chief Operating Officer of OUT TV Network.

6977 Our oral presentation will deal with several of the key issues as requested by the Commission. In the interest of time, we will focus only on those items most directly relevant and of most concern to OUT TV, specifically the following:

6978  - the perceived problems with respect to the Canadian broadcasting system resulting from vertical integration;

6979  - the requirement for protection of independent broadcasters or independent distributors;

6980  - the adequacy of the current undue preference and reverse onus regime and the existing dispute resolution mechanisms.

6981 Regarding vertical integration.

6982 The perceived benefit of vertical integration purports to be that the core of the broadcasting system will be managed by Canadian companies with the financial ability to maintain competitive services. This may be the case, but vertical integration also poses some substantial risks for the system by lessening overall competition and innovation.

6983 Vertical integration creates two fundamental problems for independent services such as OUT TV.

6984 The primary problem is that vertical integration puts independent channels into competitive with some of their most important business partners. The vertically integrated BDUs, Bell, Shaw, Rogers and Videotron, represent more than 75 percent of the cable penetration and 100 percent of the DTH penetration in the Canadian marketplace. Without their access and carriage, no programming service can survive.

6985 The problem is clear. Through their role as the BDU they are granted direct access to and are able to market services directly to the consumer. The ownership of their own channels creates the opportunity for marketing their own services, to the disadvantage of others. The opportunity for collusion amongst these BDUs is just as obvious. Corporate law mandates that corporations operate in the best interest of their shareholders, which will necessitate that they take every opportunity to seek advantages for their services. Absent clear rules and guidelines, we must expect preferential treatment and abuse of market power.

6986 The second problem is that vertical integration creates a more uncertain and unstable economic environment for our small business. Operating a television channel requires substantial investments in capital and infrastructure. The uncertain environment will make it difficult to raise capital and risky to make long-term investments in programming, equipment and in attracting talent to the broadcasting industry. The constant threat that vertically integrated companies will abuse their market power adds to the already significant risks of competition in the digital age.

6987 Other advantages for vertically integrated companies include the ability to buy programming for multiple channels, management of CPE expenditures and CMF allotments. While these advantages have been an industry trend for some time, vertical integration tips the scales further as the clear priority of the broadcasting system has swung in favour of vertical integration.

6988 The result will be fewer independent services as channels either go out of business or are driven to sell themselves to the vertically integrated companies. This will lead to a broadcasting system that is less able to meet the policy objectives of the Broadcasting Act and the future economic challenges of the industry.

6989 Clearly, the move to vertical integration is a move towards a less competitive and more tightly controlled broadcasting system. This will mean less diversity, less innovation, less real consumer choice as programming homogenizes.

6990 Therefore, if independent broadcasters are to remain a part of the broadcasting system, there will need to be strengthened regulatory protection and codes of conduct as recommended by the Independent Broadcasting Group and other parties to this proceeding.

6991 In regard to the Category A rule, and OUT TV of course is a Category A channel.

6992 Despite the Commission's stated goal of a growing reliance on market forces, it has continued to support genre exclusivity and guaranteed access to distribution for Category A services. In addition, most interveners at this proceeding seem to agree that Category A services should continue to receive the protections upheld in Broadcasting Public Notice 2008-100.

6993 Important and distinct services likes OUT TV bring diversity, differentiation and uniqueness to the system. We are granted certain benefits but we also have onerous licensing requirements with respect to Canadian content and CPE expenditures to meet, which makes us inherently less competitive.

6994 The Independent Broadcasting Group has suggested as a reasonable number that no Category A should have exposure to less that 33 percent of the subscribers of any one BDU. The 33 percent penetration level was selected as a reasonable number for the kind of distribution that independent discretionary Category A services should expect, at a minimum, from distributors in an environment that is not characterized by cross-ownership of distribution and programming services.

6995 In particular, as indicated in the study prepared by Pelmorex Communications, Bell DTH, in the period of time before it acquired CTVglobemedia and became vertically integrated, achieved an average penetration level of 33 percent for all independent Category A services that were distributed on a discretionary basis.

6996 Moreover, the proposed rule is minimally disruptive to BDU marketing practices. It can simply be done by giving access to their HD channel line-up, or in the case of OUT TV, their premium lifestyle package, or both. For example, Shaw has recently added us to a package that includes the Corus channels, including OWN, Comedy Central and others. We expect that over time this will give us the market penetration with Shaw that we have so long been seeking.

6997 Vertically integrated BDUs will have every ability and incentive to package and market independent Category A services so that they are presented in attractive terms to subscribers. However, they must include independent Category As in these packages instead of placing them into secondary tiers, as so often happens now. Independent services should not have to trade off wholesale rates and other rights or sign long-term uplink arrangements in order to gain these positions.

6998 There is no doubt that all vertically integrated BDUs will easily achieve a penetration level of at least 33 percent for their own Category A services on a going forward basis. Independents should be granted this as well.

6999 With respect to dispute resolution, the best protection from disputes is clear and precise rules that limit discretion in regards to access and packaging. The more discretion permitted, the more potential for unfairness or the appearance of unfairness there is.

7000 Having had a dispute with Shaw go through the CRTC dispute resolution system to the final decision, we know from experience that the current measures are inadequate.

7001 First of all, the process is costly and time-consuming. We have seen in our case, the Super Channel case and the Cave TV case that these cases take six months or longer to resolve. From beginning to end, we could be looking at more than a year of uncertainty and time-consuming frustration. This is an eternity for a small business.

7002 Secondly, the CRTC needs to be able to make effective orders that either mandate changes or the reversal of changes or impose monetary fines to discourage and redress the financial consequences of serious transgressions.

7003 We agree with the following provisions of the Independent Broadcasting Group submission:

7004  - disputes should be determined in accordance with section 52 of the CRTC Rules of Procedure;

7005  - standstill orders;

7006  - reverse onus; and

7007  - mandatory orders.

7008 We would also be in favour of economic consequences. In our case, the financial hardship caused by Shaw and BDUs that followed their lead was one of the causes of the 2006 bankruptcy of OUT TV.

7009 In summary, vertical integration is a fundamental change to the structure of the Canadian broadcasting change. There is no precedent that guides us in these changes and there are many reasons to be concerned about how these changes will impact the broadcasting system.

7010 The primary reason for allowing these changes appears to be the desire for financial stability within the system at a time of economic insecurity and technological disruption throughout the industry. Implicit is the assumption that these corporations are up to the challenge of the future where others have failed before them. Yet, many of the challengers we now collectively face, such as Netflix and Google, have emerged only in recent years and after these vertically integrated companies reached maturity.

7011 If economic history has shown us anything it is that innovation and change come more from the smaller nimble players who are breaking new ground, while the established players are busy defending their turf.

7012 In our case, OUT TV has become a world leader in our product category, exporting content on a global basis on new distribution platforms such as Apple's iTunes. We were the second channel in Canada to have a mobile application and one of the first to broadly use social media.

7013 Innovation is not the exclusive domain of the larger players. In fact, as the Commission has heard from some presentations, including a brilliant presentation from Cogeco on this matter, innovation is also stifled in a heavily consolidated industry.

7014 Our fear is that vertical integration will quickly bring an end to the independent broadcasting sector unless there is a new balance established that creates a more secure regulatory environment for existing services and allows for new entrants.

7015 We should all be concerned that once independent services are gone we may be without them for a generation, as the entrepreneurial spirit and intellectual capital driving them will disappear with them.

7016 Thank you, this concludes my comments.

PRESENTATION

7017 MS FUSCA: Good morning, Mr. Chair, Commissioners and staff. I am Martha Fusca, President and CEO of Stornoway Communications. We own and operate three discretionary digital channels: iChannel, a Category A public and social affairs issues channel, and two Category B channels, bpm:tv Canada's Dance Channel and The Pet Network.

7018 Since we are members of and support the submission and oral presentation of IBG/GDI, we will therefore repeat the important recommendations they made.

7019 We would like to thank the Commission for holding this very important hearing and we hope that you will be guided by that which is increasingly becoming more critical for Canada as a nation, both from a cultural as well as an economic perspective.

7020 You and your very capable staff will have access to the information and deliberation of the best that the industry has to offer from the vertically integrated and non-vertically integrated BDUs, independent broadcasters, unions and guilds.

7021 It will be your task to review what has been submitted and determine the course of our country's future in these exciting and challenging times.

7022 What I share with you today, I do so with the utmost respect and kindest regard regarding our perspective on the vertically integrated industry we have now.

7023 We understand some of the public policy motivations that may favour vertical integration in today's global communications environment.

7024 These motivations include:

7025  - to ensure that we provide all Canadian consumers with products and services that are the best of anywhere in the world;

7026  - that we have Canadian companies that can compete with the exponential growth in new technologies and the services those technologies can deliver; and

7027  - that consumers have access to a comprehensive range of affordable choices.

7028 These are the potential benefits, and I place the emphasis on potential, because the CRTC has a pivotal role to play in securing and realizing these.

7029 I would point out, however, that there is nothing in vertical integration itself that necessarily places our vertically integrated Canadian companies in a better position to compete now on many levels than they were before. For example, until now there has been and continues to be nothing stopping our large companies from competing with each other and internationally in Internet-based or over-the-top media.

7030 Our Canadian companies could have created Netflix or something like it. They didn't.

7031 They might have become a "Research in Motion" type company without more consolidation and vertical integration. They didn't.

7032 There was nothing in the way of CRTC regulations that would have stood in their way. So deregulation was and is not needed. Indeed, regulation will ensure that we have a strong, open competitive environment, and deregulation will result in anticompetitive practices.

7033 It seems, from the perspective of an industry participant, that instead of looking outwards, the focus of these companies has been on dominating more or a rather small market called Canada, often by buying independent broadcasters.

7034 While there may be potential benefits from vertical integration, these benefits are not proven and it is not clear that vertical integration is the answer to having a more competitive and outward-looking Canadian communications system and digital strategy. At best vertically integrated companies may benefit the system and Canadian consumers as part of a market mix. They may be favourably disposed to share with consumers the cost advantages from the synergies they can expect from their vertically integrated operations, although some would doubt that.

7035 We understand that our government and this Commission have found it desirable to rely on the so-called free market as much as possible. In pursuing that objective, we think it is equally important to remind ourselves that a completely open and free market doesn't exist, never did, and in any event is not likely in the public interest.

7036 We have environmental regulations, health and safety laws, banking laws and any number of laws that regulate almost every activity of our market, as do all other capital democracies around the world. That is because it is widely recognized that regulations play a vitally important role in society.

7037 You can see where I am going with this.

7038 In our sector, the Broadcasting Act sets out our public interest objectives. We have decided that we want a broadcasting system that is owned by Canadians, that reflects and serves our needs and interests, and that is diverse in all sense of that word. We regulate our broadcasting market to meet these objectives, and just as importantly we do so for economic reasons.

7039 So whether one is for or against a free market or for less or more regulation is not the issue. The issue is what kind of market serves the interests of all Canadians best and how do we make that market happen.

7040 I am gravely concerned that we are moving towards a market structure that will not serve Canadians well. Specifically, we have four large vertically integrated conglomerates that own both the large broadcasters and also the distribution networks that are the bottleneck in our broadcasting system.

7041 The consolidated market structure that has been created poses a significant risk for Canadians and has pushed small- and medium-sized independent broadcasters to the precipice. We need to ask if it is in the public interest for the mass media audiovisual sector in Canada to be occupied almost exclusively by four large groups, three that are family-owned and one that is owned by the largest telecommunications company.

7042 Without small- and medium-sized independent broadcasters such as Stornoway, we are left with the CBC and educational -- read government -- broadcasters as the only competition and consumer choice to the large media conglomerate. Is this really where we want to go? This is more than a step backwards.

7043 I hope that it is now clear that when we propose that there be regulatory safeguards and ex ante rules for independent broadcasters in our system we are not proposing measures that will stifle competition, as some like to say. On the contrary, we need regulation to foster competition and innovation. This is not simply a theory. This is good free market practice.

7044 Is a market that has more effective players in it -- especially our broadcasting market that is already protected in many ways from foreign competition -- less competitive than a market with fewer effective players? Of course not.

7045 We should be seeking to keep more independent broadcasters in our market and to ensure that notwithstanding the very well-known problems with the Canadian broadcasting marketplace -- our size, our proximity to the U.S., two different language groups -- that independent broadcasters make a meaningful contribution to the Canadian Broadcasting Act, compete with each other, with the large broadcast groups and over-the-top services.

7046 The vision that we are putting forward is a mixed market in which there are some large vertically integrated players, public broadcasters and also smaller independent broadcasters that add to the competitiveness of our market and consumer choice.

7047 The system is not broken but it is certainly in desperate need of rebalancing and the rebalancing will require the Commission to set aside space for independent broadcasters in basic and in the best packages at a fair price commensurate with the requirements relating to the nature of their services.

7048 We recommend that a level of 33 percent penetration be adopted as a reasonable minimum floor for independent Category A services and 1:1 Category B rule as between BDU-owned and independent services based on the language of the market.

7049 In conclusion, our country will be best served by ensuring that we have a fair and open system, one that ensures that independent broadcasters and the creative community are enabled to make their cultural and economic contribution in a world where wealth creation and increasingly the voice heard by our own people is not our own.

7050 The greatest wealth creation and social benefit in the digital economy will not come from governments protecting vertically integrated conglomerates. Instead, it will come from ensuring that the economy is structured such that independent and new entrants have the opportunity to compete and innovate.

7051 You know that this is true. You know what you need to do. I wish you well in this critical endeavour.

7052 Thank you for your time and attention. I would be pleased to answer any questions later.

PRESENTATION

7053 MR. ROBERTS: Thank you, Martha.

7054 Bonjour, Monsieur le Président, Messieurs les Vice-présidents, Membres du Conseil, and Commission staff.

7055 I am Bill Roberts, as you know, President and CEO of ZoomerMedia Limited's Television Division. We are pleased to appear before you today on the last day of this critical vertical integration hearing and we also appreciate the Commission accommodating our scheduling request.

7056 Before I begin, let me introduce our panel:

7057  - to my left is Canadian broadcaster and innovator Moses Znaimer, Founder and Controlling Shareholder of ZML, the new owner of our stable of television services, VisionTV, the Brand New ONE Body Mind Spirit Love Channel, CHNU-TV and CIIT-TV;

7058  - beside Moses is Jane Macnaughton, our CFO;

7059  - to Jane's left, Tony Greco, our Vice-President, Affiliate Relations;

7060  - next to him is Joan Jenkinson, Director of Independent Production at ZoomerMedia Limited;

7061  - to my right is Monique Lafontaine, ZML's VP Regulatory Affairs.

7062 I am also proud to introduce some of our ZML colleagues who are in the hearing room today: McLean Greaves, VP Interactive Content, and Swami Saraswati, Supervisor of our Mosaic programs.

7063 We are also joined by members of the independent production and faith communities who have worked very closely with VisionTV over the years. They include Carlton Jackson, who is here on behalf of "Invasion of Hope," a program currently airing on VisionTV, and Iqbal Mahal, an independent producer of the program "Visions of Punjab," which has aired on VisionTV for the past 20 years. Iqbal is also co-chair of VisionTV's Mosaic Program Management Group.

7064 Let me begin.

7065 Canada now has the highest level of vertical integration in media of any country in the free world. This was confirmed in your clear invocation on June 4, 2011, Mr. Chair, when you re-affirmed that "our communications industry is more vertically integrated than in any other country."

7066 This hearing is the Commission's opportunity to redress the unintended consequences of CRTC 2008-100, and the accelerated vertical integration that happened in its wake. This perfect tsunami of peril for niche and independent broadcasters behooves the Commission to do its duty of sustaining a balanced Canadian broadcasting ecology, one which includes diversity of voices and ownership, as well as independent niche broadcasters.

7067 As the Commission heard over the past week, vertical integration raises serious concerns for nearly all of Canada's industry stakeholders. Indeed, this list includes TELUS, MTS Allstream, Astral, Channel Zero, the CCSA, GlassBOX, Public Mobile, Allarco, Cogeco, the APFTQ, and even Rogers.

7068 If left unchecked, Bell, Rogers, Shaw and Videotron, the Big 4, or future vertically integrated behemoths, will have every opportunity to foreclose independent broadcasters some two short months from now. They will effectively be empowered to: reduce our rates; change our packaging; divert our viewers; poach our most popular programming; and even force us to divest equity interests in our services.

7069 Ex ante rules that have the force of law are essential. A code of conduct is not enough to guarantee true competition in Canadian broadcasting. To do so will heighten regulatory and market uncertainty, increase our litigation costs exponentially, and place a significant burden on the Commission's resources, as noted by The Score, TELUS and Astral.

7070 In its oral and written submissions, Bell said that we have had vertical integration in Canada for a decade, and no anti-competitive behaviour arose during this time.

7071 But it is essential for the Commission to keep in mind that during the past decade, ex ante rules for the access and distribution of independent programming services were in place. So the opportunity for the Big 4 to engage in anti-competitive behaviour was limited, because reasonable, appropriate and clear ex ante rules were there.

7072 What do we propose?

7073 MS LAFONTAINE: We have two simple proposals for the Commission today: (1) the CRTC should refrain from implementing the access rules set out in BPN 2008-100 for the reasons that we have just outlined; and (2) Vision TV, a basic service, should remain on the basic tier, with a CRTC approved minimum wholesale rate.

7074 VisionTV is our flagship, created by the CRTC as an analog service, licensed on a dual status basis in 1987. We are an alternative and niche service that does a superb job of serving its audience. We are the world leader in ecumenical broadcasting, which is intended to raise tolerance and understanding between different cultural and faith groups in our society. VisionTV is also a unique meeting place for Canadians in the 45-plus demographic that have limited viewing options on television.

7075 The number of independent producers aired on VisionTV is unmatched by any other broadcaster in our country. And, more than 86 faith groups produce original, independently produced programs for our service every year.

7076 VisionTV also invests heavily in Canadian programming. Our CPE is 50 percent of the previous year's revenues, by far the highest in the business.

7077 Since inception, VisionTV has spent in the range of $175 million on Canadian acquired and commissioned programming. We are also one of the sole broadcast windows that showcase point of view Canadian documentaries, as well as dramatic programs that feature visible minorities in lead roles.

7078 We are not proposing a new rule. It is simply a request to confirm VisionTV's current distribution status with a few simple adjustments. In effect, we are proposing a standstill for the distribution of the longest serving Canadian independent and alternative programming service.

7079 Happily, Rogers supported this proposal in their oral submission last week, and Bell stated that it will give serious thought to it in its final reply comments. Nearly the entire independent broadcast community also supported the continued distribution of VisionTV on the basic tier.

7080 MR. ZNAIMER: When I first heard about this hearing, I remember thinking "Of course!" Even in the fashionable rush to bigness, the CRTC hasn't forgotten us, the independent alternative and complementary broadcasters, the small business sector from which so much innovation and so many jobs, in fact, spring.

7081 Last week offered the strange spectacle of billion dollar corporations begging for your help to fend off even bigger big guys, or over-the-top foreigners, while insisting, of course, on their untrammelled right to abuse those of us further down the food chain every which way they can.

7082 Regardless, let's deal first with the canard that big is the best way to get innovation. My own experience and career suggests that progress, rather, comes from below.

7083 I am widely credited with being the Father of Diversity in Canadian television. I did it when CityTV went on the air in 1972, and it wasn't until some 15 and 20 years later that it became politically correct and finally mandated by the CRTC. It wasn't CTV, it wasn't Global, it wasn't even the publicly financed CBC that led this hugely important change in Canadian broadcasting, it was the tiny UHF start-up CityTV that did it. I did it.

7084 Long before YouTube, Facebook or Twitter, I attached an automated video booth to the CHUM-City Building at the corner of Queen and John. Today it's called User Generated Content; then it was called Speakers Corner. But when the big guys took over CHUM-City, they shut it down.

7085 And here is an irony for you. When the prospect of specialty channels first appeared on the regulatory horizon, it was our little company that led the charge in support and, eventually, in the number of first wave applications.

7086 In opposition was every one of the major networks, fronted by the Canadian Association of Broadcasters. The big guys, who now revel in their specialty services, were actually opposed to the very concept and tried to stifle it at birth.

7087 By their very nature, large players are risk averse. They simply have too many entrenched interests to defend. In practical terms, it is often easier for them to exploit an available structural advantage over a smaller competitor than to create something radically new.

7088 Finally, I think it's worth mentioning that these very large vertically integrated companies are increasingly run by professional executives who are not necessarily broadcasters, whereas the independent sector is still, primarily, composed of owner/operators who live their passion and risk their capital every day.

7089 But the biggest point that we want to leave you with today involves the Broadcasting Act. Curiously, it has not been much discussed at this hearing, and we think it should be.

7090 The point of the Act has always been to clear space for Canadian and alternative expression in the broadcasting firmament. Indeed, many would say that the regulator was established almost uniquely for this purpose. Without regulation and without the CRTC, there would not be much of a Canadian broadcast presence today. Our market never quite supported it, and our geographic and cultural proximity to the United States has not encouraged it.

7091 There are many sections in the Broadcasting Act that say plainly that Canadian broadcasting policy and regulation must, in every way possible, facilitate the availability of all kinds of Canadian expression. I am sure you know the sections well, but I am referring particularly to section 3(1)(b), (d), (e), (f), (i), (l) and (m).

7092 However, the most important and most explicit of these sections with regard to VisionTV is section 3(1)(r), which is, in my opinion, worth repeating here for the public record:

"It is hereby declared as the broadcasting policy for Canada that

(r) the programming provided by alternative television programming Services should

i) be innovative and complementary to the programming provided for mass audiences,

ii) cater to tastes and interests not adequately provided for by the programming provided for mass audiences, and include programming devoted to culture and the arts,

iii) reflect Canada's regions and multicultural nature,

iv) as far as possible, be acquired rather than produced by those services, and

v) be made available throughout Canada by the most cost-efficient means;..."

7093 VisionTV meets this profile to a "T". We are highly different, we are happily niche, we are entirely complementary and cater to older and spiritually oriented Canadians who are barely served elsewhere. We reflect the regions and the multicultural nature of our country. Most of our programming is independently produced, and all of it is available from coast to coast to coast. And, because we fit 3(1)(r) so perfectly, we think that, under the Act, the Commission has a responsibility to prevent the potentially predatory practices of those on whom we depend for equitable distribution and payment.

7094 Commissioners, we would like to leave you with this question: Had vertical integration come along first, would you still have put through so sweeping a change in the Access Regulations as is represented by BPN 2008-100?

7095 We hope not. We think not. We think that is why, at least in part, you have called this hearing, and we urge you to do the right thing from a content point of view, and the fair thing from a business point of view, by putting a few defences up for your smaller, but no less worthy players.

7096 We are ready for your questions.

7097 THE CHAIRPERSON: Thank you for your various presentations.

7098 Let me start at the end with Zoomer. On page 4 you say, "The CRTC should refrain from implementing the access rules set out in BPN 2008-100." What exactly do you have in mind? Spell that out for me.

7099 MS LAFONTAINE: Mr. Chair, that is the basis of our entire submission. We are proposing various access rules for basic Category A services, digital Category A services, Category B services, and we are proposing that the access rules set out in BPN 2008-100, which are completely counter to what we are proposing, not be put in place on September 1st.

7100 So it's the basic carriage for VisionTV, high penetration for other Category A's, and an obligation on the part of the vertically integrated companies to carry independent Category B services.

7101 There are other elements to our submission, but with respect to 2008-100, that is what we propose as an alternative.

7102 THE CHAIRPERSON: Your rationale being, presumably, that vertical integration came after that, and in light of vertical integration, review 2008-100 and undo some of the decisions you have made.

7103 MR. ROBERTS: That's correct.

7104 THE CHAIRPERSON: I am surprised to see you taking this tack, you and all the others. I expected to hear from you two things. I expected to hear, first of all, that we pick up the idea that the CCSA raised with us, which said that we are in most danger between now and September 1st, because a lot of deals may be being cut right now, and with the impending doom before us, we are going to be forced to sign deals that we don't want, but we have no choice.

7105 That is not an issue for you, is it?

7106 MR. ROBERTS: That is also an issue, Mr. Chair, but we are looking at --

7107 THE CHAIRPERSON: But none of you raised it.

7108 MR. ROBERTS: Well, it is a current issue. I think that most of the BDUs and the vertically integrated are pretty busy with this hearing, in terms of deals being cut. But, for the immediate term, what we have tabled today is consistent with the IBG position, and is consistent with the Pelmorex position.

7109 THE CHAIRPERSON: The second one, if I understand it, is that you are all worried about your Category A position, which right now -- certainly, Zoomer, that guarantees that you will be part of the basic package. You no longer are, you don't know where you are going to be placed, and you think that you may be pushed around.

7110 And the other categories are in the same boat.

7111 I have heard that, but rather than telling us to undo everything, wouldn't it be more logical to say that we should postpone this for a year or so and let's see how 2008 kicks in?

7112 It is also accompanied, at the same time, with digital transition, et cetera, and there are too many things happening at one point in time, and they all interact with each other.

7113 So let's get the biggest issue out of the way, which is the digital migration, and see how that plays out, and these rules, and then let's deal with us a year later or something.

7114 I posed the same question to TV5, and I think they said that that would be an acceptable way of dealing with the issue.

7115 MR. ROBERTS: Let me begin, and then I will turn it over to legal counsel.

7116 If there was a standstill for three to five or seven years, that might be interesting.

7117 But what we are coming forward with -- and I have just a small correction to Brad's comment on 33 percent. In fact, the pre-vertically integrated penetration was 39 percent, I believe, and the 33 percent that we came forward with for Category A's was considered to be modest and conservative.

7118 Monique...

7119 MS LAFONTAINE: Thank you.

7120 A postponement just delays the issue. We are a company that has a new owner, who wants to plan, do strategic planning, invest in programming, move forward, and if we just delay the issue for a year or two, how is that to happen?

7121 We need to have clear rules now for, essentially, the period of the licence term.

7122 THE CHAIRPERSON: Yes, but you want more than clear rules, you want a guarantee. You want a 33 percent penetration rate. We have never imposed penetration rates.

7123 And we have been saying now for four years that the broadcasting system that we have, which is a great success, et cetera, unfortunately is under a lot of stress from the unregulated system, which we all know about, and because of that we have no choice but to loosen the rules and bring in far more economic principles and let the market decide, et cetera.

7124 And here you are basically going in reverse. You are saying: No, guarantee me market share.

7125 MR. ZNAIMER: Mr. Chairman, that was before the vertical integration occurred, and our proposition to you is that, had those things happened in reverse, you would not have done the same sweeping reform as you did at the time.

7126 THE CHAIRPERSON: But my point is, vertical integration or not, we can't ignore the fact that there is an unregulated system which is growing rapidly and there is migration of eyeballs from one system to another. Therefore, creating a protected system in broadcasting, really, is to nobody's advantage.

7127 MR. ZNAIMER: We disagree with that.

7128 THE CHAIRPERSON: I gathered that, that's why I am posing the question.

7129 MR. ZNAIMER: It is the protection that provides for the range of choices, which makes for a genuinely competitive system.

7130 We don't understand how it can support competition to leave in the hands of the majors the power to snuff out competition.

7131 THE CHAIRPERSON: But those are two different issues. That's why we called this hearing, because there are dangers in vertical integration, clearly there are, and we are not blind to them, and we certainly do not want the vertically integrated companies to use their natural incentive. As you and others have eloquently pointed out, they are responsible to their shareholders, and if they have a lever, they should use it in order to maximize their profits, and that will damage the system.

7132 So, what is the proper balance? That's what this hearing is about.

7133 My whole point is, it's not only the broadcasting system, but if you put it in the whole context, there is also the unregulated system. Throughout, that was what was driving us to 2008-100. It was to relax the system, to loosen the rules, so that people cannot count on a guaranteed space, but that there actually has to be a far more competitive drive there to get the eyeballs that you want.

7134 MR. ZNAIMER: We understand the theory, but we don't see that it can be equitably applied across the board. The vertically integrated operators will favour their own systems. They will not apply the same tough judgment to weak systems that they own, as compared to the ones that they don't own. There is abundant evidence for that.

7135 So it is the very fact of the vertical integration happening after your sweeping reform that causes us and any reasonable person to ask you to review that reform; not to throw it out entirely, but to make adjustments in some of the provisions to allow a fair system where competition can actually flourish, not only in terms of the services, but who owns the services.

7136 THE CHAIRPERSON: We are talking about rebalancing, obviously, but some others have said, for instance, that genre protection -- it's a device that we invented, it worked very well, it ensured that we have Canadian genres in those areas, et cetera. That is no longer needed once you have vertical integration, because if you have vertical integration, you own the distribution system, you have the power, you can ensure it. Therefore, you don't need genre protection for vertically integrated companies.

7137 And if somebody like you comes along and competes with them, bonne chance, so to speak.

7138 That I can understand. That makes logic. There is vertical integration, you have an existing concept, which was based on one reality, which has changed. Therefore, you loosen genre protection for VIs.

7139 But, as you are suggesting here, a 33 percent penetration rate guarantee, that strikes me as going -- it's not a question of rebalancing, it is suddenly creating rights to existence, which is sort of the very opposite of a competitive system.

7140 MR. ZNAIMER: Somebody please correct me, but I think that number was arrived at by seeing what the VI companies gave to themselves. Wouldn't that be the nature of equity?

7141 THE CHAIRPERSON: Well, did they give it to themselves or -- that's the supposition. I mean that's the fact, they have that penetration.

7142 MS FUSCA: Mr. Chair, you asked two questions. One was, why didn't we speak about -- or that you didn't hear from us vis-à-vis concerns about what is happening to us between now and September.

7143 THE CHAIRPERSON: Yes.

7144 MS FUSCA: There are two reasons for that. One is because, I guess, some of us are hopeful that the outcome of this may assist us with the issues that we have been facing, not just over the last year or two, but in fact for the last four or five years. That's one reason.

7145 The other reason is because, if you take a look at Stornoway's submissions, I have, for at least the last six years, come to talk to you about MFNs, and you are hearing about them again; ad avails, and you are hearing about them again.

7146 And it's interesting that Bell asked for regulatory stability. It seems to me that this Commission has been very generous to not just Bell, but the big guys, vis-à-vis regulatory stability.

7147 If you read my written submission to this hearing, what I talk about is the regulatory instability caused by this Commission for Stornoway Communications. Almost every other year I have had to try to figure out how I am going to survive.

7148 If we want to talk about the fact that Stornoway continues to have no access to avails, or at a ridiculous price that we can't afford; if we want to talk about getting moved out of a package, and that then the price of that package was increased to the consumer; five independent services were let go; and I lost 92 percent of my revenue from that one BDU.

7149 We could go on with this. It's all there. It's been on paper for years, and it is incredibly frustrating.

7150 The other question that you asked that I would like to respond to is this whole business of over-the-top, which I find ludicrous, the fact that we are even thinking about addressing over-the-top.

7151 I mean, so do we have a free market? Do we want a free market or don't we want a free market? I mean why do we have these big huge guides if they can't compete with over-the-top? What is wrong with them, all right?

7152 So the fact of the matter is that we have to decide what kind of a market we want. There is nothing to preclude. There never has been anything to preclude these people from -- in fact, there is nothing to preclude Stornoway other than the fact that, you know, we can't get an audit. We don't get paid. We get squeezed. We are just being squeezed out of the market.

7153 So I thought that this hearing was actually our opportunity to finally get your attention to say are you or are you not going to do something on our behalf?

7154 I mean, do we want -- and the government. Does this government want you know small and independent businesses, or does it not?

7155 I remember Mr. Harper going on YouTube which is horrible that our own prime minister has to resort to an American site to communicate with his, you know, Canadian people to say, "I need a little help from my friends".

7156 Well, you know, Mr. Chair, I would like him to know that we need a little help from our friends too now.

7157 THE CHAIRPERSON: You have been one of the most loyal customers of this Commission's in every single hearing. So I am very well aware of your views.

7158 Just one thing, I do not share -- let me change that. I do not agree with you that regulatory instability is caused by us.

7159 Regulatory -- we react to what is happening in the market and we took action because we thought we had to. You may agree or disagree with me but let's not forget the fact that there is a reality outside the regulations. That's what I was referring to.

7160 But, anyway, you made your point.

7161 I think, Rita, you have a lot of questions for these two folks?

7162 COMMISSIONER CUGINI: Yes, thank you, Mr. Chair, and good afternoon officially.

7163 I am just going to follow up as well on your request for us to, as you say in your written submission that:

"The CRTC hold off implementing the much more relaxed regulatory framework contemplated in Broadcasting Public Notice 2008-100."

7164 I know you have been here all week and if you haven't been here physically you have certainly been listening to this hearing. And I asked Bell TV specifically the question how far along in their plans are they in implementing the requirements of Broadcasting Public Notice 2008-100?

7165 So my question to you is at this point, essentially 60 days before it is scheduled to be implemented, how easily do you think that can be turned around?

7166 MR. ROBERTS: What would prevent a simple edict from the Commission to push that date out?

7167 COMMISSIONER CUGINI: Have you had discussions with the BDUs concerning the new framework and what impact that may or may not have to your carriage status in the last three years since this public notice has been issued?

7168 MR. GRECO: These conversations have been ongoing. I guess if you took an average of what the response would be from the BDUs: The market is unclear. We are awaiting August 31st, 2011. So we shouldn't do long term contracts. Maybe we should keep our options open. Maybe we shouldn't sign contracts.

7169 We see that as a foreboding. If a BDU is not prepared to sign contracts the Chairman has said maybe we could delay this by one year.

7170 I think the measurement would be if we actually did delay by one year the measure would be at the end of that year, do you independents have contracts? Have you in that year been able to secure contracts, fair contracts? That would be the measurement simply to say -- and to extend it by one year I don't think it would help.

7171 So to answer your question we have had ongoing discussions. By and large, short term contracts, contracts that would be signed for year two but with marketing session discounts and discussions and perhaps painting pictures about what might be the situation after 2011 if you don't sign such contracts.

7172 COMMISSIONER CUGINI: So, as of June 28, you don't know -- if I am reading your answer correctly -- so as of today you don't know whether or not your carriage status will change on September 1st, 2011.

7173 Have I got that correct?

7174 MR. GRECO: Partly. For those that we don't have contracts completed for, of course, that would be the issue.

7175 For those that we have contracts coming into termination the following year, yes, that would be correct as well. We don't know what the status of those would be the year following.

7176 COMMISSIONER CUGINI: And for any of the other services?

7177 MR. DANKS: That would be consistent with our situation. There have been a few BDUs who have wanted to negotiate new agreements.

7178 We have just signed a new one with Videotron for example, but generally they have suspended the contracts and their discussions.

7179 COMMISSIONER CUGINI: And can you tell me whether you are worse off or better off with those BDUs with whom you have signed agreements?

7180 MR. DANKS: With Videotron we are consistent and we are fine. We are well packaged. With the ones that we are worried about, the bigger ones that we are worried about, we would expect that we would be worse off should we get to September.

7181 COMMISSIONER CUGINI: Because, of course, I hope you can understand that when we read this statement that's in your paragraph 43 of your written submission as a group, it causes concern because the reason we submitted the public notice when we did in 2008 was to give the entire industry vertically integrated at the time, independence; everyone the opportunity to adjust.

7182 We gave you more than three years, almost three years to adjust to this new reality that is to be implemented as of September 1st. I know that vertical integration has happened in the meantime.

7183 Again, you have been following these hearings. You know their arguments that partly 2008-100 also played a role in their decision to further entrench vertical integration. So help us balance all of that.

7184 MR. ROBERTS: Commissioner Cugini, we would like to turn to legal counsel and perhaps to Slava Levin with Ethnic Channels Group as well.

7185 MS LAFONTAINE: We can't imagine that it would be very difficult for Bell to continue to carry VisionTV on basic. We are on basic with Bell. We are on basic with all of the vertically integrated companies.

7186 Our subscriber rate -- our monthly subscriber rate is 12 cents. So for $1.44 a year you get VisionTV. All of the Canadians across the country, all of these niche communities, ethnic communities, older citizens that have access to our service get to watch the services from their places of worship on television, information community information to get to see our service.

7187 So I can't imagine -- so the question is how difficult would it be for Bell to implement their plans? What would their plans be? We are on basic. Canadians love us.

7188 So would their plans be to move us potentially or maybe it's just to squeeze us to reduce the rate because they could.

7189 COMMISSIONER CUGINI: Well, that is in part why I asked you the question as to whether or not you had begun negotiations with the BDUs as to exactly what your future is.

7190 MS LAFONTAINE: Well, of course, we have begun the negotiations as Tony has said, and there are some that are waiting to see what is going to happen so that they could then use whatever hammer they want or get to use to increase their bottom line and reduce what we contribute to the system in terms of programming original independent production, programming created by our friends that have come here today. That will all be reduced.

7191 The South Asian community is one of the largest growing ethnic communities in Canada and we serve that community I'm sure like no other broadcaster in this country. Where are they going to turn, new Canadians?

7192 COMMISSIONER CUGINI: Okay. Sorry. Go ahead, Mr. Levin.

7193 MR. LEVIN: I would like to point out a couple of things.

7194 Just listening here, as an independent broadcaster we operate quite a few third-language services and we end up in an MFN crunch. Currently you mentioned the terms "balancing the system". We have MFNs with one of the larger BDUs. Today, I am being forced not to provide my services to another large BDU because of my MFNs that are in place.

7195 So there is not a fairness in the system when the BDUs are talking. They don't have MFNs amongst themselves within their own services, their vertically integrated services. However, we are forced to sign those MFNs. We don't have much of a choice.

7196 I also would like to add one quick point with respect to third-language services buy-throughs.

7197 So if we are talking about extending this September deadline for the new rules to come up, I am in favour of that extension. However, in the same respect there has to be certain issues addressed with the current buy-through that's in effect for third-language services.

7198 Just to use a quick example of things that I face, I distribute probably the number one -- actually, the number one Greek-language service today in North America. And my customers are calling me complaining that it's very expensive to buy because today there is Odyssey service which has a buy-through requirement and its pricing is -- call it $14.99 which is actually what it is.

7199 When you look at the total number that the consumer has to spend, it just becomes very expensive. So when we look at prolonging this, if we are, certain things do still need to be addressed.

7200 I was very happy that the buy-through was going away. Again, I'm not opposed to the buy-through but the buy-through should remain for third-language foreign services, not Canadian services. We are right away at a disadvantage.

7201 I have been patiently waiting and things are not changing.

7202 COMMISSIONER CUGINI: Do you have a recommendation as to what that rule should or shouldn't be?

7203 MR. LEVIN: Absolutely. Buy-through should stay in effect for the analog services. They have a substantial requirement in place.

7204 Two ways to go about it: Regulate a price. It cannot be over a certain amount of dollars since they are widely distributed, not $14.99 as opposed to all my services which are Category B services or Category 2s as it were, or get rid of the buy-through altogether for Category B services, Canadian through language Category B services and leave it strictly for the foreign services.

7205 COMMISSIONER CUGINI: Okay.

7206 MR. LEVIN: Third-language foreign services.

7207 Thank you.

7208 COMMISSIONER CUGINI: I want to move on specifically to the three recommendations that is your Category A rule and B rule and your access.

7209 The Chair has touched upon your request that you get a guaranteed penetration level and other than Vision because of course you carry it on basic.

7210 For the other Category A services that your group represents, and this may be information that has to be filed in confidence, but what I would like to know is if you will be worse off or better off with a guaranteed 33 percent penetration level and by how much.

7211 MR. DANKS: It depends on the service, but I can say in our case, clearly, we would be better off. There is no question about that although we would -- I would say that in many cases -- you know the problem with OUT TV was it was -- it went through five or six years of real tortured packaging and it was left without the advantages when a lot of really -- you know packages were created.

7212 And as new packages are created we tend to come up on the various systems.

7213 So we would be definitely, you know, put ahead. And one of the things I will say is that 33 percent was the number we picked because it was a real stab.

7214 But, you know, generally speaking, what we are really looking for is -- for example, most channels will have or most services -- sorry -- BDU services will have two lifestyle packages. They will have one that they call their premium package and the secondary package, the secondary tier.

7215 They will take that primary lifestyle package and they will promote that as the thing they promote with the CSRs. That will be 120-130 channels.

7216 That will be the thing that the customer service representatives sell. It makes it easy. There is a lot of turnover in staff and that becomes the groove. That lifestyle package will have enormous penetration as a result of that marketing.

7217 The secondary package won't even come up and that's where they throw the other channels that we so often find ourselves in that package. And it's really hard to get out of it.

7218 I mean, to the Chairman's point about freer markets, we have better ratings than many, many services that end up in some of those premium packages but there is no way to get over -- there is no path to improvement. It's there or if you do get where we have got recently because we have demonstrated that we have got real viewers and real ratings on a daily basis.

7219 But then it comes up to these other questions which is, well, now that we want to move you up what are we going to get out of it? We want your wholesale rates down. We want something else.

7220 So it will be something else that you have to agree to that's going to crimp your business as a result.

7221 COMMISSIONER CUGINI: But how do you suggest that the BDUs ensure that penetration though?

7222 MR. DANKS: Well, it may not come down to the percentage in every case. How do they ensure it? They are ensuring it already with their own marketing. I mean it's already the case factually.

7223 But, secondary, if you had a fall-back position where you were in that premium place and you weren't disadvantaged, vis-à-vis their services that may suffice as well.

7224 COMMISSIONER CUGINI: Because I am envisioning, you know, what happens if the penetration of the package in which you are included drops to 30 percent? What happens then?

7225 MR. DANKS: If we are in the best package and we are with -- for example, I mentioned that we were on the new package that Shaw has promoted with the Corus channels and if that was 29 percent I would be happy with that. I mean if they are doing the best and that package is being promoted properly from our perspective, we couldn't ask any more than that.

7226 MS LAFONTAINE: I would like to just jump in here on this rule and just to come back to your question about whether we would be harmed. This is some evidence that the IBG filed but I would just like to walk you through it.

7227 So we have one Category A digital service and it's ONE Body Mind Spirit Love Channel and on Rogers we have 5.11 percent penetration. Yet, Roger's Category A services has 64 percent. So we have got 5. They have got 64.

7228 And then on Shaw's Cable Network we have 2.3 and they have 86.9.

7229 Then on Shaw Direct we have got 22 and they have 68.

7230 Now, granted -- no, we would still be better off so here -- oh, no, we would -- on Bell we actually have 38 percent but I would live with losing that 5 to get the lift on the others, frankly, I mean instead of picking up.

7231 So just -- and one last point is that what we are asking for is to be similarly -- to be placed in a way that is similarly situated to the vertically integrated Category A services.

7232 So if they can give that kind of lift to their services we have no doubt that they can bump these up to 33 percent at least with the right marketing and so on.

7233 MR. ROBERTS: Commissioner Cugini, yes, one would benefit.

7234 But in the context of the entire IBG group and the Cat As involved, if you look at Rogers' Cat A affiliated services their average penetration is about 54 percent and the independents is somewhere hovering around 14, 14.5 percent.

7235 If you look at Shaw's Category A services their penetration level is a very happy 84 percent whereas the independent Cat As are somewhere around 14 percent. So that's the larger context as well.

7236 MS FUSCA: So you don't need for me to repeat these but you asked a really important question that I would like to respond to vis-à-vis, you know, the delay of the decision, the BDUs specialty decision, whatever the number is, dash 100.

7237 From Stornoway's perspective -- and I know that that will be very helpful for some of the services, and as an independent I will be grateful if the Commission were to do that on behalf of those services.

7238 For Stornoway this is not good. We were -- when we appeared at that hearing we made it very clear. In fact, one of the Commissioners said this sounds like, you know, a nightmare/horror story. And that's what we have been living with since then.

7239 We have been very patient. We continue to invest in our company. I continue to come to the Commission hearings and tell you all of this.

7240 So the long and short answer to a long story is, no, it would not at all be helpful to Stornoway. We can't keep being bounced around the way that we are.

7241 And they are allowed, you know, to do that. So that wouldn't be at all helpful to us.

7242 COMMISSIONER CUGINI: Ms Fusca, can you give us an indication as to what impact if implemented the guaranteed 33 percent penetration level would have on the channel?

7243 MS FUSCA: Well, just as with my colleagues it would be outstanding. I don't even know how we got the 14 percent. Somebody must have really outstanding penetration to kind of average it out to 14 because we are at 4 point something.

7244 The other thing is that when you ask about, you know, "Well, like what is going on? Surely this can't be the penetration of this package?" You are told, "We don't know. You can't tell. You can't argue".

7245 Then you are told, "Well, you are being moved because you are really not performing" which is also not true because when you are at free preview we get the ratings.

7246 And they are -- so when our services are made available, widely available to consumers, our ratings skyrocket. It's only when we are dumped back into that, you know, no man's land package that nobody is watching.

7247 COMMISSIONER CUGINI: Other participants in these proceedings have suggested that perhaps genre exclusivity of Category A services owned by vertically integrated companies should be opened up to independent broadcasters.

7248 And I was wondering if I could get your reaction if you have had time to think about that, and is that an opportunity for independent broadcasters to compete with vertically integrated owned Category A services.

7249 MR. ROBERTS: Yes. It does get to be a mouthful.

7250 From the point of view of the IBG and, I believe, also from ZML's perspective, as an independent, genre protection is very, very important for us.

7251 It does protect diversity. It has been a pillar of the Canadian broadcasting system. It provides a wide diversity of programming opportunity for consumers and citizens and you know it's essential.

7252 But in the world of the vertically integrated Cat As I think it's a plausible proposition that genre exclusivity is not necessary.

7253 MR. ZNAIMER: If I might just add, we are motivated to secure what we have before we enter into new adventures --

7254 COMMISSIONER CUGINI: I understand that.

7255 MR. ZNAIMER: That's why we are here. That's the big thing, the big reason we are here.

7256 COMMISSIONER CUGINI: Staying with your proposed rules for Category A services, in paragraph 65 -- again, I'm talking about the group submission -- you say:

"The group proposes that for each related service that a vertically integrated BDU carries on the basic service, the BDU should also carry an independent Category A."

7257 So this is essentially a bit of a Part III of your Category A rule. And this is a 1:1 ratio?

7258 MR. ROBERTS: Yes, it is.

7259 COMMISSIONER CUGINI: Okay. And speaking of 1:1, my segue into the Category B rule, and I'm sure you have heard the various proposals to your Category B rule; you know that the major BDUs have said that the 1:1 is just not feasible.

7260 You know the proposal from Bell and from Shaw and you know that I have asked them to file with us by July 8th what their proposal would mean; that is, their proposed 3:1 rule.

7261 So I am going to give you an opportunity. I know you have addressed it in your oral presentation but what would that mean to you if we implemented their proposal.

7262 MR. ROBERTS: The BDU proposal would not be very helpful to the independent broadcasters. We have proposed a 1:1 and counsel can speak to that.

7263 MS LAFONTAINE: Indeed what we have put forward is the 1:1 rule to ensure that independent Category B services get launched. What the vertically integrated companies are proposing, as Bill was saying, it does absolutely nothing for the independents because they can -- or they have -- so Rogers for example -- excuse me.

7264 Rogers has launched one Cat B service on its own and it has launched about 50 or 60 unaffiliated Cat Bs. So it can just launch a whole whack of its own. Again, as I say, it does nothing for the independent services.

7265 I just want to take a bit of a step back here. Ultimately, what this proposal is, as is the case with the 33 percent, as is the case with our proposal for Vision TV, what we are trying to do here is to ensure consumer choice in the system, that consumers can actually access our services. They can turn their television sets on and have a choice.

7266 MS FUSCA: Yes, and competition, actually having real competition.

7267 How can you have competition if all the power rests in the hands of like three or four companies? There is no competition, right?

7268 And so that's why you need, you know, some form of regulation. That's why other countries in the world you know in any number of sectors will actually ensure that what is in the interests of society whether it's you know in health or environment or, in this instance, broadcasting, that we have a truly competitive marketplace.

7269 So this is what we are asking you to do. Please create a competitive environment. We want a competitive environment.

7270 MR. ROBERTS: It might be opportune at this point to bring Slava Levin at this point into this discussion.

7271 MR. LEVIN: Thanks.

7272 We are talking about the 1:1 rule. In our last hearing we talked about the third language services.

7273 The challenge here is big BDUs have already flexed their muscles when it came to bringing in services on their own and whether they owned them or brought them in on their own, it has shown to me in my neck of the woods and the multicultural space that they prefer to bring their own in or be independent from us, from us independent folks I guess is the best way to put it. If the past is showing what they can do, the present will be exactly the same and the future as well.

7274 In my case I waited literally years to launch channels while the foreign services are being brought in. And now if they can own services, well, what is the guarantee of me being launched at all?

7275 Thank you.

7276 COMMISSIONER CUGINI: Well, one of the reasons I am also asking the question about the one-to-one rule is you in your, again, written submission provided, as you say, an analysis of the channel line-ups of the major BDUs. And I understand that, as you say, that it will have no material impact on the vertically integrated BDUs.

7277 You say that Rogers is in compliance, Videotron will be, Bell DTH, but should add three additional Category Bs in French, Bell IPTV should add 7. So all of this so Bell IPTV can add seven independent Cat. Bs?

7278 MR. ROBERTS: Joel?

7279 MR. FORTUNE: Thank you.

7280 Commissioner, maybe just to give you perspective on the genesis of the rule. The idea was to develop a rule that wouldn't have a negative impact when it was first implemented. For the BDUs the idea is to address the growth of the market. And listening to some of the comments of the BDUs, it wasn't that they said it wasn't feasible, what they said was this will inhibit growth.

7281 And the fact is it won't inhibit growth, what it will do is it will ensure that growth happens in the BDU sector and in the independent sector simultaneously as the opportunities for the distribution of Category B channels increase.

7282 COMMISSIONER CUGINI: And it ensures that that distribution will continue?

7283 MR. FORTUNE: Yes, and on a going-forward basis, that was the genesis of the rule. And really, we worked very hard on developing this rule so that it wouldn't have a negative impact right away. I mean Bell IPTV, for example, is a new digital service, on presumes they are probably launching new channels, they are digital, they probably have the capacity.

7284 The intention was not to have a negative impact right away, but to ensure growth on a going forward basis.

7285 MR. ROBERTS: Again, Commissioner, context. I think, if we have done our number crunching correctly, the three plus one, as proposed by Rogers would have Rogers not having to add another independent for the next almost 150 services that they launch. Shaw would not have to add an independent for almost 50 services and Videotron wouldn't have to add for another 45 services. Bell TV is somewhere up around 90, 91, 92 services. So it really is about, as counsel indicated, it is imbalance.

7286 COMMISSIONER CUGINI: You did elaborate further in your oral submission on your third rule, which is the terms of carriage rule. So I don't have any further questions regarding that rule specifically.

7287 But I guess the general question therefore, are these three rules mutually exclusive? Are they one plus two, plus three is what the independent broadcasters absolutely need in order to first of all survive and then, secondarily, to thrive?

7288 MR. ROBERTS: We want them all.

7289 COMMISSIONER CUGINI: Why am not surprised? I know the Chair will ask you to submit a code of conduct or code of best practices. So I have officially asked you that then, so I am sure you will agree to file that by July 8th.

7290 MS LAFONTAINE: We will. As you saw in our submission, we filed an initial one and we are working on an expanded one.

--- Undertaking

7291 COMMISSIONER CUGINI: Yes.

7292 MS LAFONTAINE: But I do want to make the point that this code of conduct should not replace clear regulations.

7293 COMMISSIONER CUGINI: You have made that point clear. Thank you.

7294 MS LAFONTAINE: Thank you.

7295 COMMISSIONER CUGINI: I am going to move on to just a few odds and ends, some of the things that we have heard from other participants in these proceedings. As you know, Astral has put forward a suggestion that subscriber information should be made available to them because the subscriber of a BDU is a viewer of Astral's programming services.

7296 Is that something that the Independent Broadcasting Group feels is essential, necessary or would be nice to have?

7297 MR. ROBERTS: We would take that under advisement.

7298 COMMISSIONER CUGINI: Okay, thank you.

7299 MR. DANKS: From our perspective, we think it is essential. And I very much agree with what Pelmorex said today, it's -- one of the things, I think, is really not looked at hard enough is that what is the difference when you have that consumer relationship?

7300 When we are entering into BDU agreements now they are trying to carve out the areas in the VOD and mobile and all these areas where they are going to take the data and they are going to do dynamic ad insertion. We don't know anything about the customer. We have customers that we drive to the BDUs, they sign up. But we don't get any of the profile information, any of that.

7301 And that will become increasingly important when you are selling advertising where they are looking more and more at psychographic information, how old is this person, is it male or female, and all of those sort of details. We are cut out of all of that and that is a huge revenue opportunity for us and it is one that they are working very hard to capture and not share.

7302 And I think they have raised privacy concerns in the past, but we are licensed services, we should be able to see that information and know that. And even if it is some standard of psychographic information, it would be a lot better than having no information at all and having locked block between yourself and the consumer.

7303 COMMISSIONER CUGINI: And, Mr. Danks, since you have the microphone, I am going to continue with you. Page 6 of your oral presentation you talk about exporting content on a global basis and on new distribution platforms --

7304 MR. DANKS: Yes.

7305 COMMISSIONER CUGINI: -- such as Apple, iTunes. And it of course burdened me the curiosity to find out from all of you what about this on-demand world, and is there demand from your viewers and from the BDUs for your programming to be available, for example, on VOD, is there demand from both the BDUs and the consumers for your programming to be available on mobile platforms?

7306 Have you engaged in any discussions with the providers of these services to have your programming available?

7307 MR. DANKS: In our case absolutely, yes, we have actually just launched an SVOD service with Rogers. What we have done over the last couple of years is acquire a lot of HD content, content for SVOD, content and digital distribution rights under the assumption that that is where the world is going.

7308 And it has given us a bit of an advantage because we are in a niche where a lot of the carriers are now saying, well, that is very interesting you have that much content in these other areas, that makes you interesting, and it is part of what is helping migrate us into some of the bigger packages and creating the better opportunity.

7309 And we have, for example, a very good relationship with Apple and iTunes. These are rights that we are able to negotiate for at first instance.

7310 One of the challenges was, in fairness, the BDUs are way behind a lot of the over-the-top players in the way they approach things. It has taken us forever to get our SVODs launched and those sort of things. Whereas where you are dealing with an Apple it is almost instantaneous. So that is certainly a challenge.

7311 But we do see that as a revenue source. And of course for us, because we produce so much programming, as you know, we have go such high CPE requirements, we are then able to take those platforms and go into other countries and get a return on the investment, and eventually some of the programs that we produce ourselves are top 10 on iTunes and they also sell in many many countries around the world. So that, again, helps stimulate, you know, our own production.

7312 COMMISSIONER CUGINI: Anyone else?

7313 MR. ROBERTS: Commissioner, from the perspective of ZML perspective there are bits and pieces of that occurring at the moment. Obviously the presence of McLean Greaves here as our person who is responsible for that development of those technologies is critical to ZML as we go forward.

7314 But for our demographic, for our audiences which are 45 plus, which are often new Canadians, many cases largely South-Asian, the main driving interest is good old-fashioned television, linear television, and that is our major focus.

7315 Tony, anything to add?

7316 MR. GRECO: That is pretty much it.

7317 COMMISSIONER CUGINI: All right, well thank you very much.

7318 Stornoway, would you like to add to this?

7319 MS FUSCA: I just wanted to say that actually we have been quite successful with a number of the BDUs on the mobile platform, not so much so on the VOD, but that doesn't really matter I don't think from our perspective. I am only speaking on behalf of Stornoway. Because we are very excited and we are exploiting and exploring our own ways of, you know, delivering our content to Canadians and people everywhere else in the world.

7320 I don't think we need to wait for VOD necessarily. I just don't want to hear them complaining after the fact that, you know, we didn't talk to them about VOD, because we have been trying to do that for three years.

7321 COMMISSIONER CUGINI: Okay. Well, thank you very much. As always, your position is quite clear and loud. Thank you very much.

7322 Those are my questions, Mr. Chair.

7323 THE CHAIRPERSON: Thank you.

7324 On this last point, on the exclusivity. As you know, part of the reason for this hearing was the whole suggestion by Bell that some of their content, they wanted to offer it exclusively on their mobile devices, et cetera. Some people take very strong objection to it, others less so.

7325 Where do you stand? I mean, presumably, if you have a hot seller it could apply to you too. I don't know. You didn't address it in your oral remarks today.

7326 MR. ROBERTS: It is not a big thing for us. Exclusivity, for us, is more important in the linear service world as opposed to the non-linear world.

7327 THE CHAIRPERSON: Okay.

7328 MR. DANKS: We do acquire some content exclusively, but we look at it differently. We really see that, the way it is positioned, as a BDU issue. Whereas when we acquire content exclusively we make it available to every single BDU on everyone of their platforms. And that is our goal, is to continually acquire a broader set of rights, and we just give it to all of them the same.

7329 THE CHAIRPERSON: What about if it is the other way around? If Bell says, I will carry you, let's say you have a channel B, but on condition that I offer you exclusively on my mobile?

7330 MR. DANKS: That could be a problem for us obviously, it would. The other two carriers, TELUS and Rogers, are very important to us and it would probably bring us into some sort of a conflict. So if Bell made that a condition of their contract, it would be problematic for us.

7331 MR. LEVIN: I would like to add to Brad's point. We also acquire content exclusively and, again, give it out to everybody in Canada. When it comes down to mobile devices, exclusivity in our case, we would just -- Bell would hold us -- or Rogers, or anyone of them, would hold us hostage.

7332 We can't offer it to one without offering it to the other one, so it wouldn't work.

7333 THE CHAIRPERSON: Okay. Len, you had a question?

7334 COMMISSIONER KATZ: Thank you, Mr. Chairman. Good afternoon.

7335 I just have one question and it centres around MFNs. We heard last week about how MFNs are becoming less of an issue, but yet I am hearing this week that it is still around and still becoming an issue.

7336 To what extent are MFNs still a major negotiating item in your view?

7337 MR. ROBERTS: I think Tony Greco beat me to the light.

--- Laughter

7338 MR. GRECO: Actually, we don't have a problem with MFNs. What we have a problem with is the morphing of MFNs. So for clarity, when MFNs started the idea would be that there would be a level playing field. If Rogers had a deal that was proposed to them they could sign that knowing that the other party would not have a better deal, because the MFN said you all get the same deal. So that was sort of the concept, providing a level playing field.

7339 It has morphed into an environment of cherry picking. So, for example, an MFN should state all business considerations being equal, and we can live with that, and you would define those considerations, maybe the term, the fees and the packaging.

7340 In the current environment you have a vertically integrated company saying, well, they got that rate, I want that rate. And you would respond, well, they got that rate for signing a five or six or seven-year deal, are you prepared to do that? No, I want to sign a one-year, but I want that rate because I have an MFN.

7341 And so to get to the point, the MFN is not the problem, it is the definition of that MFN, content, BDUs are taking out that all business considerations being equal and leaving an environment where it is open and free to cherry pick that. So again, we don't have a problem with it so long as the concept of all things being equal is included in that clause.

7342 MR. ROBERTS: Vice-Chair, I believe Stornoway and then counsel have comments.

7343 MS FUSCA: Yes, I have a fundamental problem with MFNs, always have had. From my perspective, it is very anti-competitive, isn't it? I mean, shouldn't you be free to make whatever deal you want with whomever you want? And the idea that you have a bigger player forcing you to give everybody the same deal, I mean, I think sort of screws up the notion of competition.

7344 The other issue I think we heard from MTS last week, and they were incredibly concerned about MFNs. And they were incredibly concerned because the BDU is going to do a little MFN deal with their broadcasting unit and then of course the rest of the BDUs have to live with that. So, I mean, if we are really into this whole free market, like let's start taking it seriously and get rid of the MFN.

7345 MS LAFONTAINE: I would just like to add that, as my colleague Tony says, they are a part of doing business for Zoomer. We do have a concern about the MFNs entered into as between the programming and distribution arms of the vertically integrated companies, as Martha was alluding to there.

7346 And we are very happy to hear Paul Robertson from Shaw said that they would not try to enforce these types of MFN clauses. Delighted to hear that Rogers is moving away entirely from MFN clauses. And we would like all of the others to follow Mr. Robertson's proposal.

7347 COMMISSIONER KATZ: Mr. Danks, I think you were going to say something as well?

7348 MR. DANKS: No, that is fine, that answers my question.

7349 COMMISSIONER KATZ: Mr. Levin, I think you raised it as well as an issue earlier?

7350 MR. LEVIN: Yes, I was. I am currently under constraints with an MFN and I am unable to launch a whole bunch of services on another provider because the other provider happens to be offering me a little less rate. And if I accept their rate, therefore I have to provide it to the other provider. So it is causing some grief there.

7351 COMMISSIONER KATZ: Thank you.

7352 THE CHAIRPERSON: I gather your general feeling on MFN is that they are there to level the playing field between uneven partners. Here we are talking about vertical integration and we have four giants, they don't need an MFN, and they can use it against you if they want to and apparently they are doing that.

7353 MR. LEVIN: Yes.

7354 THE CHAIRPERSON: Okay, I think those are our questions. Mr. Moses, let me tell you, I found it very refreshing from you to say it's a cunard that big gets in the way of innovation. I think all economic theory proves exactly that, that innovation appears at the margin, not at big concentrated companies.

7355 What we are obviously trying to do is find the balance here, you know, and see what has to be done in light of this unprecedented vertical integration. And so it will be a mixture of all of those things that have come before it.

7356 But I think a key part to get at least some way for us to find out or express how we expect the industry to behave is a code or the principle or recourse, so whatever you can do to bring forward a revised version would be appreciated.

7357 Thank you. Those are our questions. We will take a lunch break now and we will resume at 2:00. Thank you.

--- Upon recessing at 1253

--- Upon resuming at 1405

7358 LE PRÉSIDENT : O.K., commençons, Madame la Secrétaire.

7359 THE SECRETARY: We will now proceed with the presentations by Novus Entertainment Inc. and Westman Communications Group, who are appearing as a panel to present their interventions.

7360 We will hear each presentation, which will then be followed by questions from the Commissioners to the panel. Each intervener will have 10 minutes for their presentation.

7361 I would now invite Westman Communications Group to begin. Please introduce yourself.

7362 Thank you.

PRESENTATION

7363 MR. BAXTER: Good afternoon. My name is Dave Baxter. I am President and CEO of Westman Communications Group.

7364 I am here today because Westman is deeply concerned about the market power imbalance resulting from vertical integration in the industry. We believe it will have a very negative impact on the Canadian broadcast system unless there are regulatory safeguards established and they are effectively enforced when anticompetitive behaviour occurs.

7365 Westman is a cooperative owned by its 25,000 customers. We operate in 36 communities in southwestern Manitoba. Our services include television, Internet and phone. We are very proud of the competitive services we provide to our customers. We are also proud of the contributions we make to the communities we serve. This includes operating 20 community channels.

7366 In 2010, our staff and over 400 volunteers produced over 4,800 hours of original programming, 700 hours of which were live. We also produced over 100 mobile productions.

7367 There is no longer a local TV broadcaster in our region. We are the only supplier of local programming in these communities.

7368 Westman makes substantial investments in technology to bring new services to our customers. We lack economies of scale, but we strive to overcome this through innovation and perseverance.

7369 We were first to deploy high-speed Internet in Manitoba and one of the early adopters in Canada of digital cable TV, and since 2007 we offer video on demand. In Brandon, over 90 percent of our customers have converted to digital.

7370 With substantial investments in our fibre cable plant infrastructure as well as electronics and server technology in our head-end, we now offer a 50mbs Internet service.

7371 By investing in our own telephone switch, like the largest cable companies, we also offer a competitive fully featured phone service. Planned future investments include IP technology and wireless.

7372 Westman is not afraid of competition. Westman already operates in a very competitive market with both DTH and telephone company competitors in TV. We are achieving competitiveness by leveraging technology to overcome our economies of scale challenges.

7373 As we look to the future though, we are concerned about our ability to compete when faced with ever larger, vertically integrated programming suppliers. Such ownership structures by their nature encourage anticompetitive behaviour. The net effect of their increasing market power will be to lower margins and profitability of non-vertically integrated distributors.

7374 For Westman, the result will be less ability to fund future technology investments and hampering our ability to afford the level of local programming our communities expect. In reality, our very existence is threatened.

7375 A recent example of the outcome of market power imbalance is the launch of Sportsnet ONE. It was first launched by Rogers Cable before there was an opportunity for other distributors to carry it. When made available to other BDUs, their pricing and high penetration packaging requirements were onerous. With Flames and Oilers hockey games only available on Sportsnet ONE, it was being demanded by our sports fan customers.

7376 After observing fellow CCSA member Access Communications' experience two years earlier with Rogers Sportsnet, following the Commission's dispute resolution decision, we decided to be pragmatic. We accepted their conditions.

7377 As a result, our signal costs increased significantly but we had limited ability to increase our cable rates to recover these increased costs.

7378 The consequences of programmer service withdrawal has been exacerbated by vertical integration because their distribution division stands to gain by attracting our customers in the event of a loss of service.

7379 They also gain if we accept onerous terms which ultimately squeeze our margins if we can't pass the cost increase on to our customers. If we pass through an unattractive rate increase to our customers, we become less competitive. Again, the vertically integrated distributor benefits.

7380 We are currently in negotiations with Bell Media for 29 signals, including TSN. Huge increases are being proposed. It also appears that video on demand, broadband and mobile rights are not included. Contract termination notices have been issued by Bell for its programming services.

7381 It is very doubtful that the proposed signal rate increases can be passed on to our customers, which will result in reduced margins. If we do not agree to Bell's terms, we stand to have their signals withdrawn.

7382 In effect, because of vertical integration, our DTH competitor can reduce our margins, cause our distribution services to be less competitive, or alternatively, take our customers while their programming is withdrawn from us.

7383 If I can give you a sense of the kind of offer, as I understand it, that has been proposed, the 29 signals are tied together. It's an agree-to-all-29-signals terms or nothing. We are going to be required to package the same way for five years or the contract can be terminated. If we lose 5 percent of our customers, they can terminate the service. And a good catchall is if we do anything to harm their economic interests, they can terminate their service.

7384 I've heard a lot of comments about the need for innovation in the industry. That doesn't sound like innovation to me.

7385 Westman supports the Canadian Cable Systems Alliance proposal to have a standstill provision which would not allow a vertically integrated programmer to withdraw any of its services while the Commission is reviewing a dispute. This safeguard not only ensures that our customers continue receiving services but also removes the threat of withdrawal, which, by itself, causes market power imbalance.

7386 And I would advocate as well that that is a measure that should not await the outcome of the hearing. That is something, in light of the kind of negotiations we are going to be in with Bell, that we have a standstill provision now.

7387 Vertically integrated companies by their nature have no incentive not to self-deal. Any assurances that they will charge their distribution division the same rates as other unrelated distributors achieves nothing. It is the same suit, just a different pocket.

7388 We are also concerned about programming being exclusively available to vertically integrated entities or being distributed ahead of other BDUs, whether by TV, broadband or wireless.

7389 Undue preference must be closely regulated so that vertically integrated programmers' distribution arms cannot have exclusive distribution rights or be able to distribute their programming before it is available to other unrelated distributors. There should be a reverse onus on the vertically integrated programmer to demonstrate that there has not been an undue preference.

7390 When settling disputes, the Commission has to be able to review all aspects of the commercial arrangement. We shouldn't be faced with the same result as Access's Sportsnet dispute where Rogers simply used another lever at its disposal to achieve the result it wanted, which effectively nullified the Commission's ruling.

7391 The dispute resolution process will need to be strengthened. We can expect there to be more disputes requiring the process and it is important that we have timely resolution of disputes.

7392 In conclusion, Westman plays an important role in the more rural areas it serves. We ask that the Commission establish regulatory safeguards that will create a market environment that facilitates our ability as an independent BDU to compete. This will enable us to continue contributing to the Canadian broadcast system and the communities we serve.

7393 Thank you for the opportunity to speak.

7394 THE SECRETARY: Thank you.

7395 We will now hear the presentation of Novus Entertainment Inc.

7396 Please introduce yourself and you may begin.

PRESENTATION

7397 MS ROBERTSON: Commissioners, ladies and gentlemen, my name is Donna Robertson. I am the Co-President and Chief Legal Officer of Novus Entertainment Inc.

7398 Novus is an independent Class 1 BDU serving residents in multi-dwelling units in Metro Vancouver. Novus was established in 1996 but is still relatively small in size and certainly very much smaller than its two incumbent competitors, TELUS and Shaw.

7399 Novus' all fibre optic network has allowed it to offer an Ethernet Internet service that has made the company the darling of the techie crowd. Novus is about to roll out its 300-Meg service to its Internet customers, giving it a real competitive edge in the Internet market in Metro Vancouver and providing customers with better choices for their Internet service.

7400 The network also provides a base for a better digital phone service and video service as Novus' Internet service and video service run on separate parts of the network, thus avoiding congestion.

7401 Novus employs over 45 dedicated people and broadcasts a community channel that is innovative and original. We partner with film and broadcast schools and community services in Metro Vancouver to provide training and access to equipment to create local and relevant programming.

7402 One of our community channel weekly programs was nominated for a Leo Award this year.

7403 Novus is a major sponsor of the B.C. Chapter of the Documentary Organization of Canada and has provided a platform for many charitable organizations such as Peace it Together, which brings Palestinian and Israeli students together in a film program.

7404 Novus is also pursuing through its membership in the Canadian Cable Systems Alliance TV anywhere technology to allow its customers to enjoy programming on various platforms.

7405 In addition, Novus is exploring new technologies with other companies that are developing innovative signal delivery systems and convergence of cable television signals and Internet services.

7406 Novus wholeheartedly agrees with the remarks made earlier in these proceedings by Rogers Communications Inc. and TELUS, both of whom oppose exclusives on any device. Programmers should be prepared to offer the digital rights to their content on equitable terms to all service providers.

7407 We also noted that BCE stated that any ban on exclusivity was preposterous. In response to that assertion, Novus would like to point out that when it was first granted its BDU licence, a condition of its licence was that it was precluded from signing exclusive agreements with developers for provision of its services.

7408 The Commission was concerned that because of Novus' affiliation with one developer Novus would be able to prevent competitors from providing their services to certain developments. Accordingly, the Commission ensured fair competition and choice of service providers to customers by banning exclusive access agreements.

7409 There are very few independent facilities-based competitors in urban areas in Canada and we submit that companies like ours provide a competitive dimension to communications that the incumbent telcos and cable companies facing off against each other do not.

7410 As I have said to some of you previously, we like to think of ourselves as the bubbles in the champagne in our marketplace, but make no mistake, we struggle to remain competitive on the broadcast side, and our rate of growth has been severely impacted by the demands of the programmers.

7411 In its written submission of April 27th, 2011, Novus recounted some of its experience with programmers. These were just a few examples of what is an overriding problem, the inequality of bargaining positions that has always prevailed between new entrant independent BDUs and the programmers, and which will now be intensified and present real competitive challenges with greater vertical integration.

7412 One of the most common aspects of programming negotiations has to do with the linking of price per subscriber to the number of subscribers. That is, if a BDU has fewer subscribers, it pays a higher price per subscriber for the programming.

7413 For example, a programming service will have a rate card which provides if a BDU has fewer than 20,000 subscribers, the service will cost 55 cents per subscriber per month. If the BDU has 20,000 to 50,000 subscribers, the rate will be 50 cents per subscriber per month, and so on.

7414 I have argued against this practice as I have never been provided with any economic rationale for it. It is simply a convention that has been put in place by the programmers to exact the most money possible from each system.

7415 It does not cost any more to transport a signal to an independent's system. It does not cost any more to administer a contract. It does not cost any more to collect fees. Notwithstanding that, the practice persists due to the inequality of bargaining positions.

7416 It is a perfect formula to ensure that the large will get larger and the new entrant will eventually be eliminated.

7417 The formula is also used for signal transport agreements, and again, there does not seem to be any economic rationale.

7418 The practice is particularly galling when the programmer and signal provider is also your competitor, which is Novus' case vis-à-vis Shaw.

7419 As a new entrant, Novus must compete by providing better customer service and better pricing. It takes compelling pricing to overcome human inertia and provide an incentive to customers to leave one service provider and try a new one.

7420 No one will ever know about our superior customer service unless they become a customer first, and so we must be able to compete on price. That is incredibly difficult when we discern that our larger competitors pay significantly less for their programming.

7421 Novus would like to see programming rate tables which provide "economies of scale" to their larger vertically integrated competitors eliminated. This practice is an undue preference and provides a perfect formula for abuse of dominance. We intend to argue vigorously against it in all future negotiations.

7422 Another issue that needs to be addressed is that of packaging. No integrated BDU or DTH service should be given greater latitude for packaging requirements than an independent BDU.

7423 Many programmers insist on retaining services on the analog tiers and demand completely unrealistic packaging requirements and penetration rates for digital services that are virtually impossible to meet. These requirements are, again, trying to exact the highest possible payment from an independent system.

7424 An example of this is where the programmer insists that an independent system put a digital service in its digital basic service, as we are being forced to do with Sportsnet ONE, so that it reaches all of the service provider's digital customers, while the larger competitive BDU is allowed to package the same service in other ways. So that large BDU is not having to impose the service on every digital customer like the smaller competitor is forced to do, often to customers' displeasure and at greater cost to the smaller BDU.

7425 The larger BDU, because of its larger customer base, is given greater flexibility. The smaller BDU must pay, again, a higher price in order to bring the service onto its system. Again, this is a sure-fire formula to allow the large vertically integrated entity to grow even larger and to eliminate the independent competitor.

7426 We are all independent BDUs and programmers and large vertically integrated communications companies facing a whole new host of competitors with the arrival of the over-the-top services.

7427 The Globe and Mail quotes the Commission's Chair in its edition of Tuesday, June 14, 2011, as saying that "The emergence of these services is obviously a huge issue" and further that "vertically integrated companies are in the best position to take on the over-top service providers."

7428 I respectfully disagree, Mr. Chairman. The vertically integrated companies are large and bureaucratic. It is going to be nimble and innovative companies that will be in the best position to provide better services to their customers and that will provide technological breakthroughs, but only if they are not eliminated from the marketplace by abuse of dominance.

7429 The Commission should not allow these mammoth broadcasting companies to suffocate competition and make it impossible for independent companies and new entrants to survive.

7430 Notwithstanding the Commission's encouragement for migration of analog services to digital and the call for greater flexibility in packaging, the integrated service providers continue to insist on maintaining unrealistic pricing and packaging models and imposing them on independent service providers and their customers.

7431 With their practices, they virtually drive customers to the over-the-top services.

7432 We are not afraid of any type of competition, and we are not afraid of the over-the-top service providers, but we need the flexibility to be able to compete with them properly.

7433 Independent BDUs and programmers are a vital component of the Canadian broadcasting system, and we are not looking to the vertically integrated companies to protect the system.

7434 We appreciate that the Commission has the very difficult task of striking a balance between maintaining fair and equitable practices in the Canadian broadcasting system, and doing so without imposing yet greater regulatory burdens.

7435 We have noted the Commission's position in Broadcasting Public Notice CRTC 2008-100, where, in commercial relationships -- affiliation agreements -- the Commission stated that it did not want to impose specific terms in agreements, and that parties may avail themselves of the Commission's dispute resolution process.

7436 Also in that notice the Commission pointed to the fact that most allegations to date regarding undue preference have been filed by programming undertakings against BDUs. We expect this to be completely reversed in the future, as independent BDUs face off against their vertically integrated competitors, who now control the vast majority of programming assets.

7437 The competitive landscape has changed dramatically since 2008. There is now a serious imbalance of power in the Canadian broadcasting industry, and because of that there must be a framework that responds to that imbalance.

7438 Accordingly, Novus wishes to urge the Commission to adopt the proposals of the CCSA to:

7439 Support a timely dispute resolution and enforcement system, which would include a standstill provision that would provide for the continuation of programming services, regardless of category, during a dispute between a vertically integrated company and an independent company;

7440 A reverse onus provision that would apply to the vertically integrated enterprises, which reverse onus should require them to demonstrate the absence of undue preference or disadvantage;

7441 The existing undue preference and undue disadvantage provisions, which would continue to apply to all types of undertakings and content, and which would be broadly interpreted as necessary to ensure effective competition;

7442 The Commission's use of its powers of inquiry to reach beyond an affiliation agreement, to understand the larger commercial bargains and implications involved;

7443 Insulation from any arbitration costs for small BDUS;

7444 And, the compelling of vertically integrated companies to offer terms for programming services, both standalone and in bundles.

7445 As for ex ante rules, we agree with the CCSA that there should be a prohibition against exclusivity of content, including temporary exclusivity that gives a vertically integrated enterprise a head start. Independent distributors should have access to new channels on all platforms at the same time as the integrated enterprise offers the service.

7446 Second, there should also be a prohibition against content pricing and packaging models and signal transport agreements that inherently discriminate against independent distributors and their customers.

7447 Thank you for attention and consideration of our position.

7448 THE CHAIRPERSON: Thank you for two very well-reasoned submissions.

7449 I can't help but -- you are quoting me from the Globe and Mail, and undoubtedly that's what the Globe and Mail said.

7450 Just for your information, what I did say in Banff was that the industry reaction to the paradigm shift has been the basis for consultation, and they feel that that way they are in the best position to take on OTT and others.

7451 I did not express a value judgment on that issue, because we have this hearing and it would be wrong for me to do anything like that.

7452 MS ROBERTSON: Thank you for clarifying that, Mr. Chairman, and I actually did hear you contradict that statement earlier on in the hearing this afternoon.

7453 THE CHAIRPERSON: I found it interesting in paragraph 9 you mention that you think that economies of scale are practised, which, as you quite rightly point out, has absolutely no economic basis and amounts to undue preference.

7454 Do I understand from that that if another vertically integrated BDU tried to impose it on you, you would bring that before us?

7455 MS ROBERTSON: I would.

7456 THE CHAIRPERSON: Both you and Westman raise the same issue, which the CCSA brought up, that, in effect, you need something akin to an immediate standstill right now, I gather, because you are feeling that various agreements, particularly that TSN is being renegotiated now, are sort of being imposed upon you, in the absence of any new rules that may or may not come out of this hearing.

7457 Did I understand that correctly?

7458 MS ROBERTSON: Yes. Not just TSN, we have been presented with a package of 29 services.

7459 My understanding is that these services are all linked. It's an all-or-nothing package. We are not going to be provided the opportunity to negotiate these agreements one-by-one, it is going to be a complete package deal.

7460 MR. BAXTER: Our concern is that, in the interim, while the Commission is deliberating, there could be pressure to agree to terms, so we would like that temporary relief while there are negotiations happening that signals can't be turned off.

7461 THE CHAIRPERSON: So if I agreed with you -- and let's deal with it -- then what you basically have said -- I guess what you expect us to do is, more or less, rule from the bench and say that there is a moratorium on affiliation agreements between now and the time that the decision is issued, or something like that.

7462 MR. BAXTER: I don't think it's a moratorium on contract negotiations or entering into contracts, it is that signals can't be withdrawn in the meantime.

7463 THE CHAIRPERSON: No, but the standstill part. That's really where --

7464 I mean, clearly, in both of your presentations, the standstill is of vital importance, because, for example, if there is a program on exercise that is withdrawn, or in the case that there is a program service that the BDU withdraws, that could, obviously, have a fatal effect and finish the negotiations there.

7465 Just to make sure that I understand, your immediate request is that you would like a standstill on the withdrawal of signals until such time as the CRTC has issued the decision on the present hearing.

7466 Is that the idea?

7467 MR. BAXTER: That's correct.

7468 THE CHAIRPERSON: Rita, I believe that you have a lot of questions.

7469 COMMISSIONER CUGINI: Thank you.

7470 I don't have a lot of questions, because, as you know, we did go through the CCSA's proposal quite extensively when they appeared before us, and I know that you support that. So I am going to concentrate on the examples that you have provided us today.

7471 Of those 29 services that Bell Media is now insisting be packaged together, how many of them are you currently carrying?

7472 MR. BAXTER: We are probably carrying all of them, I would say. If we are not, I would say it's one or two that we are not.

7473 And about 16 of them, I believe, are Category A.

7474 COMMISSIONER CUGINI: And Novus, is it the same with you?

7475 MS ROBERTSON: I think that we would be in exactly the same position. I would think that we carry almost all of them.

7476 COMMISSIONER CUGINI: And their packaging and, I guess, tiering demands, how do they differ from the agreements that you currently have in place with those services?

7477 MR. BAXTER: It doesn't necessarily differ. What I pointed out is that it is our understanding that they want the world to stay the same, as far as their packaging, as it exists today, for the next five years.

7478 Our concern is that the future is going to demand flexibility in how we package our services, and we have a great deal of difficulty accepting those terms in the face of over-the-top competition and other forms of competition, and different formats of competition, whether it's broadband or wireless competition. We will need the flexibility to package things to be competitive.

7479 To commit to leaving our packaging the same would be very difficult for us.

7480 MS ROBERTSON: My understanding is that they want a five-year agreement, and in that agreement we are not permitted to move any of those services from the position that they have as of today.

7481 And we have requested movement of a couple of those services from our analog tiers onto digital, and have been refused.

7482 So that is, I think, their position right now. They really want to be able to maintain the world as it is.

7483 COMMISSIONER CUGINI: Going forward, do you want to see this Commission absolutely prohibiting tied selling?

7484 MR. BAXTER: Yes. It certainly results in market power imbalance, so we are very much against tied selling. We need the flexibility to carry signals in a variety of different packaging and, related to that, we would like to have signals offered to us on both a standalone basis and on a package basis.

7485 COMMISSIONER CUGINI: In previous hearings -- maybe in one previous hearing -- I remember having the conversation about U.S. services, and the carriage of U.S. services in the Canadian market on cable channels, and how they, too, insist on packaging requirements and high penetration tiers.

7486 So, as a Commission, how do we create one set of rules that are much more restrictive for Canadian services and, at the same time, allow U.S. services to engage in that behaviour with distributors; not just the vertically integrated BDUs, but you as well?

7487 How do we strike that balance?

7488 MS ROBERTSON: I am not sure that this Commission doesn't have a great deal of moral suasion with some of those American services and --

7489 COMMISSIONER CUGINI: Trust me; if you don't, we don't.

--- Laughter

7490 MS ROBERTSON: Well, you might have a better chance. You can try.

7491 MR. BAXTER: I don't think we are asking the Commission to specify certain packaging restrictions or say that packaging at certain levels is allowed or not allowed -- not that specificity. I think it's a matter that there should be, I guess, more flexibility.

7492 They will provide it, and part of the dispute resolution process then would be to look at, you know, as part of that broader commercial arrangement -- the point I made earlier is to look at what are all the BDUs -- what are the carriage requirements.

7493 For example, is that vertically integrated BDU, in fact, carrying it in the same package that is being enforced on us.

7494 We are not asking for specific rules to say that this packaging is okay and that packaging isn't. We would like to be offered it on a standalone basis and on a package basis, and some flexibility going forward to make changes as the market requires.

7495 COMMISSIONER CUGINI: And that perhaps a strengthened dispute resolution mechanism that we could put in place, together with reverse onus, may help to resolve those issues, should they arise.

7496 Is that your position?

7497 MR. BAXTER: Yes.

7498 COMMISSIONER CUGINI: Thank you very much. I told you that I didn't have a lot of questions.

7499 That's all, Mr. Chairman.

7500 THE CHAIRPERSON: Len?

7501 COMMISSIONER KATZ: Good afternoon. I have just one question, and it is to Ms Robertson.

7502 What is the smallest package that you offer to your customers in Vancouver?

7503 MS ROBERTSON: A basic, and we still offer a basic analog service, and we offer it for $29.95, on a standalone basis.

7504 COMMISSIONER KATZ: How many channels are included in that $29.95?

7505 MS ROBERTSON: About 33.

7506 COMMISSIONER KATZ: How does that compare to TELUS and Shaw?

7507 MS ROBERTSON: Shaw has two basic packages right now. They have rolled out a new one, which includes House and Garden and History, which we are just looking at. It seems to have about 15, 20 services in it, and their other basic service has about 28 services in it, their old basic service.

7508 COMMISSIONER KATZ: So you don't offer a skinnier basic than they do.

7509 MS ROBERTSON: No. In fact, ours is more comprehensive. We try to compete on the basis of a lower price and more programming on our basic service.

7510 COMMISSIONER KATZ: Have you found customers in need of a cheaper service with fewer channels?

7511 MS ROBERTSON: I know you are asking about the skinny basic, and we have actually looked at that. We think it might provide an interesting option. We have worked with a box manufacturer that provides a less expensive set-top box that could be used for the service.

7512 So we are looking at it, but I think only as an option. I don't think there is a great demand for it, so I wouldn't like to see it imposed as a mandatory basic service, but I think that there might be an option.

7513 COMMISSIONER KATZ: Thank you.

7514 THE CHAIRPERSON: Candice?

7515 COMMISSIONER MOLNAR: Thank you.

7516 I wanted to ask Westman about paragraph 9. You spoke about the fact that it appears that VOD, broadband and mobile rights are not included in the new negotiations going on, and you are not in mobile right now, so I am going to focus -- I know that you have a VOD offering.

7517 Is that something that you have been successful in negotiating in the past?

7518 MR. BAXTER: No, not so far at all. It is something that we would like to have in our negotiations going forward.

7519 We would like to be able to offer our programming to our customers in whichever format they choose, whether that's broadband or video-on-demand.

7520 We don't offer mobile right now, but that's something that we would like for the future.

7521 I guess, when we are talking about the negotiations with Bell, we don't offer mobile right now, but we are talking about a five-year agreement, and a lot of things can change in five years, and we may be offering a mobile service -- and we certainly intend to -- long before that.

7522 COMMISSIONER MOLNAR: Have you been successful acquiring VOD rights to other linear programming?

7523 MR. BAXTER: Yes, we have done very well with video-on-demand rights. The programmers have been a lot more receptive to video-on-demand.

7524 In essence, we would like to be able to acquire the rights once, for whichever format we want to distribute it in, whether that's linear television or whether it's video-on-demand or broadband or mobile.

7525 COMMISSIONER MOLNAR: I am just trying to understand. VOD is obviously an important element of the subscriber's choice and of their use and enjoyment of the BDU's services, and I am just trying to understand what is going on here with the VOD rights, whether this is something unique in these negotiations or whether it's something that you have experienced across others, and what impact this is having on the subscribers in your serving territory, or potentially could have in the future.

7526 MR. BAXTER: Initially, video-on-demand rights were harder to achieve, and over the past few years, increasingly, programmers have been receptive to giving us those rights.

7527 Our customers really enjoy it. They get a high-quality picture and user-friendly experiences from accessing video-on-demand.

7528 And a lot of our linear services, like movie services, we also have those rights available to us on an on-demand basis.

7529 It's very customer friendly. We have to be in a position where we are offering our customers what they want, when they want it, and in whatever format they want. The more we cater to what our customers want, the more successful we will be.

7530 COMMISSIONER MOLNER: Thank you.

7531 THE CHAIRPERSON: Before I let you go, Novus, you say that we should compel vertically integrated companies to offer terms of programming services, both standalone and in bundles.

7532 MS ROBERTSON: Yes.

7533 THE CHAIRPERSON: But you are not willing to offer the same thing to your customers.

7534 MS ROBERTSON: Yes, we are.

7535 THE CHAIRPERSON: No, but you just told me that you are against a skinny basic.

7536 MS ROBERTSON: No --

7537 THE CHAIRPERSON: The basic package, which is what you must carry, OTAs --

7538 MS ROBERTSON: Yes.

7539 THE CHAIRPERSON: -- 9(1)(h)'s, et cetera, everything else the customer should be able to pick, but you are not offering them that choice, as I understand it.

7540 MS ROBERTSON: We are not offering a skinny basic right now. Is that what you are asking, Mr. Chairman?

7541 THE CHAIRPERSON: But isn't your basic, the way you described it to my colleague right now --

7542 MS ROBERTSON: Yes.

7543 THE CHAIRPERSON: It is clearly the OTA stations and the 9(1)(h)'s --

7544 MS ROBERTSON: Yes.

7545 THE CHAIRPERSON: -- and, presumably, something else that you put in there that you feel makes you attractive to your customers.

7546 MS ROBERTSON: Yes, and one of those services is TSN, which is very popular in our basic package, and if Bell has its way, with the price increases that it is demanding, we will have to raise our prices dramatically.

7547 THE CHAIRPERSON: Yes, but I am on a different track. I am just saying that you want to have maximum flexibility to structure the packages, as you want, to your customers. Why shouldn't your customer have the same right?

7548 I can understand that there are certain rules that say you must carry, which is OTAs and 9(1)(h)'s and educational channels, but everything else, shouldn't the customer have the same offer -- choice to pick what he wants, the same way that you want to have available to offer it -- that you demand to get from the programmers, so you can structure it into bundles or standalone, as you see fit?

7549 MS ROBERTSON: We would like to have that opportunity, to have as much flexibility -- to provide our customers with as much choice as possible.

7550 THE CHAIRPERSON: I understand that, but that also means that you should give -- as a quid pro quo, it seems to me that you should minimize what you force on your customers to buy, which is the basic package.

7551 MS ROBERTSON: As I said, we are looking at the option, and we have actually been working with a software developer to develop a special box to be able to offer it.

7552 THE CHAIRPERSON: Okay. Look at the last page of your submission, at the last sub-paragraph of paragraph 14: "...the compelling of vertically integrated companies to offer terms for programming services, both standalone and in bundles."

7553 If I said, "Fine, you can have that," quid pro quo, skinny basic?

7554 MS ROBERTSON: Yes.

7555 THE CHAIRPERSON: Because that means that it has logic. You treat your customers the way you want to be treated by the BDUs.

7556 Would that be acceptable to you?

7557 MS ROBERTSON: I think it would be an option that we would definitely like to have, and probably that many customers would like to have, as well.

7558 THE CHAIRPERSON: Westman, are you of the same view?

7559 MR. BAXTER: I think we have among the highest digital penetration rates in the country in Brandon. There is less than 10 percent that have our larger basic now. I don't think I have ever heard any customers ask for a smaller basic. It seems like we are going past that. Certainly --

7560 THE CHAIRPERSON: No, that wasn't the question I asked you. I made a proposition to Novus, and she said that, basically, yes, she could live with it. Could you live with it?

7561 MR. BAXTER: I just don't think it is something that customers are wanting.

7562 Should we give them the option? We could.

7563 THE CHAIRPERSON: Yes. Obviously, if they don't want to buy it, they won't buy it.

7564 MR. BAXTER: I am not sure that it's good for the Canadian broadcast system to encourage customers that are happy with the packages they have to downgrade, but it could be an option.

7565 THE CHAIRPERSON: Okay. Thank you. Those are our questions.

7566 Madam Secretary, let's go on to the next intervenor, please.

7567 THE SECRETARY: Thank you.

7568 I would now ask the Public Interest Advocacy Centre to come to the presentation table.

--- Pause

7569 THE SECRETARY: Please introduce yourselves for the record. You will have ten minutes for your presentation.

PRESENTATION

7570 MR. JANIGAN: Good afternoon, Mr. Chair and Commission members of the hearing panel. My name is Michael Janigan, and I am accompanied by Janet Lo, legal counsel at PIAC.

7571 We are pleased to have an opportunity to present on what the Public Interest Advocacy Centre has identified as some key concerns that engage the interests of ordinary consumers when the issue of vertical integration in the telecommunications and broadcasting industries is raised.

7572 First, we would note that this issue is likely somewhat more nuanced than some of the more forceful advocates on both sides of the issue might wish to acknowledge. For one thing, while the recent mega merger of NBC and Comcast has served to make media conglomerates look like the norm, there is also global evidence that other unsuccessful mergers, most notably that of Time Warner earlier in the last decade, have cooled the ardour of potentially merging players.

7573 The data seems to show that industry consolidation occurred in two distinct periods, one between 1996 and 2000, and the other between 2003 and 2007 with a considerable diminution thereafter.

7574 In the other camp some of the cheerleaders for the hands off policy cite the kind of benefits that large, vertically integrated stakeholders can bring in terms of efficiency while neglecting to note that such benefits are similar to those claimed by the incumbent monopoly telephone companies in their initial tussles to avoid industry restructuring over 20 years ago.

7575 Recent work by distinguished communications scholars such as Eli Noam has cast doubt upon the effectiveness of the vertical integration strategy and the benefits so derived that are supposed to act as the deodorant for potential problems of consolidation and market dominance.

7576 Consumers have a traditional interest in value for money which if we were dealing with more easily substituted products and services, might make the potential of efficiency gains from vertical integration more compelling.

7577 There is also a trenchant concern that in fact it engages more than simply the consumer elites that vertical integration might also stifle the diversity of voices in innovation such that the quality of the received services is degrade. The Writer's Guild of America noted with reference to an earlier period of industry consolidation:

"It may seem paradoxical and improbable that the burgeoning number of delivery channels has not increased the quality of programming or expanded the number and diversity of voices writing and producing entertainment and news and information in America that it has had in the opposite effect.

7578 It is, in our view, no coincidence that this erosion of quality and creativity has closely paralleled the increasing domination of the airwaves by a few behemoths, a trend that began when the Financial Interests and Syndication Rules disappeared and exhibitors and distributors of programs were allowed to produce, control and own in large part or in whole the programs they broadcast."

7579 While there is certainly a market for new products and services, there has been something of a disconnect between the price tag for service offerings and the rhetoric describing the competition that supposedly exists to discipline the providers.

7580 There thus seems to be needed at a minimum an enhancement of the regulatory scrutiny associated with the consolidation of the different functions of the communications industry.

7581 Put on a very simple level, proponents of vertical integration argue that having economic units that are still dealing with their own various capacities, creation, production and distribution can deliver more efficiency benefits than market transactions accomplishing the same purpose.

7582 This is a proposition which, for the most part, was discarded in the restructuring of the telecommunications industry and seems to have had, at the very least, limitations in relation to issues such as masking eternal inefficiencies by self-dealing and reduced access by competitors to key upstream and downstream market components.

7583 The Noam work previously cited seems to show that digitization strengthens economies of scale, amplifying the effects of concentration.

7584 On the other hand, evidence in support of benefits associated with economies of scope, seems hard to find.

7585 Coupled with the failures of mergers based upon assumptions of such economies in this century there appears to be a considerable challenge to the claims of proponents of vertical integration.

7586 The inefficiency of corporate restructuring by industry stakeholders might be of little concern if the market provided discipline that punished such inefficiencies and rewarded efficient competitors. There is some doubt whether this is likely to occur given the levels of industry concentration and the relentless upward spike of prices for broadcast distribution services.

7587 It is also perhaps useful to review some salient statistics about where we are in terms of levels of ownership and concentration of key communications of media in Canada.

7588 The International Media Concentration Research Project, led by Professor Eli Noam, collects data for every sector of the media across 40 countries.

7589 Using a standardized methodology the project examines the data for trends and their drivers. The Canadian data shows that between the four players of Bell, Shaw, Rogers and QMI, they hold overwhelming market power and concentrated -- and constitute a highly concentrated market.

7590 Between them these four players control 86 percent of cable and satellite distribution, 70 percent of wireless revenues, 63 percent of the wired telephone market, 54 percent of internet service provider revenues, 42 percent of radio, 40 percent of the television universe, 19 percent of the newspaper and magazine markets and 61 percent of total revenues from all of the media sectors combined.

7591 The question arises whether the revenues from highly concentrated markets will be used to aggressively provide new investments necessary for Canada's digital future or simply in the absence of competition used to fatten shareholder return.

7592 If, in fact, we simply created the capacity for a small number of industry stakeholders to be insulated from market discipline by their size, we are unlikely to recoup much in the way of positive public benefits. This is hardly an unreasonable apprehension.

7593 Peter Chernink, former president of News Corporation, once said:

"You need to have enough market dominance that people are forced to deal with you. There are great arguments about whether content is king or distribution is king. At the end of the day scale is king. If you can spread your costs over a large base you can outbid your competitors for programming and other assets that you want to buy."

7594 Whatever the merit of this wisdom as a strategy for media corporations, it is unlikely to be in the public interest. We are uncertain that the current thresholds associated with market share measurements provide sufficient protection for its implementation.

7595 PIAC believes that consumer choice must prevail. To this end, PIAC supports barrier-free arrangements as may be commercially practical in the form of a clear code of conduct with ex ante rules to provide consumers with better assurance of value and choice. This requires stringent limitations on exclusivity.

7596 We agree with TELUS and MTS Allstream there can be no excuses for any format or platform. A requirement for distribution of programming on a non-exclusive basis enhances consumer2 choice and competition.

7597 PIAC believes that clarity and certainty are in the public interests and requests that the same rules with respect to exclusivity on linear platforms and video on demand services clearly apply in principle to the new medium.

7598 Where vertical integration results in anticompetitive behaviour and negatively impacts consumer interests, a mechanism is needed to deal swiftly with the complaints of undue preference.

7599 PIAC supports TELUS' proposal for a reverse onus for undue preference applications.

7600 PIAC welcomes the consumer discussion about the role of "skinny basic" television service. PIAC has previously provided comments to the same effect regarding the delivery of affordable programming services in Broadcasting Notice of Public Hearing 2007-10.

7601 Since 1997 Canadians have seen substantial price hikes well beyond any reasonable inflationary measure in their basic package of cable television services as a result of the lifting of basic rates control.

7602 Consumers today are paying for a basic package crammed with extra channels that imposes an obligation to buy and pay for those channels often owned by the BDUs themselves whether the consumers want them or not, under the excuse by BDUs that it the consumer is buying and receiving value.

7603 Value as translated by the BDUs in the form of cramming is not a policy objective of the Broadcasting Act. It should be up to consumers what additional channels or services they want to add to their bare bones affordable basic service package.

7604 A skinny basic service provided at a cost-based rate and subject to a price gap ceiling in a similar fashion as basic service and telephony, would reduce rent seeking by unproductive components of big BDUs and level the playing field with their creative production and distribution competitors.

7605 It would also meet the requirement for affordable rates as required under section 3(l)(t)ii) under the Broadcasting Act and ease residual problems associated with the transition from analog to digital.

7606 The potential dangers associated with certain strategies of vertical integration militate for more rigorous oversight. This would include limitations on the size and cost of basic service, codes of conduct and an expansion of the Commission inquiry into vertical integration beyond market share.

7607 We would be pleased to respond to the questions of the hearing panel.

7608 THE CHAIRPERSON: Thank you for your presentation.

7609 You took me somewhat by surprise on the last page when you were talking about skinny basic which is basically an endorsement and then you come up with a price cap ceiling in a similar fashion as basic service and telephone. I mean is that really necessary?

7610 Isn't the fact that we are having more and more offerings first of all in between the various BDUs but then also in the unregulated world of internet and mobile, et cetera we have plenty of alternatives.

7611 Do we need to go to such an old-fashioned, intrusive tool as price caps?

7612 MR. JANIGAN: Well, a couple of things alarm me when we start talking about skinny basic service, and the BDUs address it.

7613 Number one; is they say they can only provide it at the same cost as their basic service is being provided now, which strikes me as somewhat odd.

7614 And, secondly, I have to ask myself what will make the cost of that basic service package correspond to the expectations of consumers? I would think that it will be the interests of the BDUs to try to price that as high as possible in which case what is going to bring them -- what is going to bring the cost down?

7615 It's not likely there is going to be competition. It will only be, in my respectful opinion, as some kind of price ceiling.

7616 And this is hardly unploughed ground but the Commission set basic service rates up until the turn of the last century. It would not be tremendously difficult to try to proxy an appropriate rate -- place a ceiling upon it and effectively can be in the same position of basic service and telephony.

7617 THE CHAIRPERSON: The mere fact that there is not a place in Canada where you won't have at least the choice of two if not three providers in terms of BDUs plus the internet, et cetera and increasingly having the whole country covered with mobile services, do you really think is necessary to put a price cap in? I mean to me it just strikes as yesterday's rule for yesterday's world.

7618 MR. JANIGAN: They are not likely to be competing on the cost of basic service though, Mr. Chair.

7619 This is not something that, you know, they are likely to say, "All right. We are going to offer a lower priced basic service than the other BDU". It's not in their interests to do so. It's a circumstance where it has to be available.

7620 It has to be available because it's not going to be something that they are going to want to offer in a general sense. It's going to be something that the Commission will insist that they offer.

7621 Frankly, I can't see them offering it at a rate that approaches a competitive rate or a cost-based rate.

7622 THE CHAIRPERSON: Okay.

7623 Tom, you have some questions?

7624 COMMISSIONER PENTEFOUNTAS: Hi, good afternoon.

7625 I don't want to take up too much of your time. A lot of these issues have been touched upon in the last 10 days.

7626 A very interesting piece though. You introduced me to, I guess, it would be Professor Reardon, the economist, and Mark Cooper. I read your piece and now Eli Noam.

7627 A nice piece and you are going back and forth to the American and the Canadian model. They are slightly different. There are certain safeguards here that may not have been in place in the States.

7628 The other thing is that you -- you know, people talk about convergence and mergers and it has almost become sort of the bogeyman amongst some people during the hearing. And I understand that.

7629 And you did mention -- I don't know if it was in this document or your previous document -- the Warner merger and that was successful and others have not been successful.

7630 And Noam talks about the fact that there are failures in mergers and then you come right back with the American author who talks about scale being king.

7631 I mean, do mergers in and of themselves create inefficiencies?

7632 MR. JANIGAN: They might, and the problem here is that if they are inefficient -- if, for example, the vertical integration or consolidation is inefficient, if the player is a dominant player in the market, he may not end up being punished for the inefficiencies because of his ability to pass on those costs in the marketplace.

7633 So we have got sort of a double -- you know, a double circumstance here. You have got market dominance and you have got the vertical integration.

7634 If, in fact, the mergers don't result in the efficiencies that they think they are they may still have the ability to charge for services that will mask those inefficiencies.

7635 COMMISSIONER PENTEFOUNTAS: Interesting.

7636 You know, there is also an argument that can be made because in your previous document from April you spoke about the fact:

"...concentration can exacerbate the effects of recent potential future mergers with likely adverse consequence to the production of programming of new Canadian content."

7637 And some might argue that at least one of the deals from a couple years back may have contributed to create an environment where we have got more Canadian content because we kept one particular broadcaster alive and they are contributing to the Canadian system given that they have revenues that are tied to Canadian productions.

7638 Wouldn't that be a case?

7639 MR. JANIGAN: Yes. I mean, I think -- I don't think you can make a completely 100 percent generalization across the board that in all the circumstances vertical integration or consolidation is contrary to the public interest.

7640 I think you have to look at it carefully in relation to what kind of efficiencies or what kind of inefficiencies and what kind of detriment might exist to the system.

7641 In this case because we have the requirement for access to Canadian content and the requirement to encourage the development of Canadian content, we have to be much more attentive to potential foreclosure of different elements along the way and set up rules to prevent that occurring in relation to the issue of vertical integration.

7642 COMMISSIONER PENTEFOUNTAS: Yeah, but we have some broadcasters who are committed to and obliged to put a certain percentage of the revenue in that. That is a decision that still hasn't come out as yet.

7643 But there is a contribution from broadcasters to Canadian content, is there not?

7644 MR. JANIGAN: Well, certainly there is, yes.

7645 COMMISSIONER PENTEFOUNTAS: Yeah. In this case there is an advantage to the Canadian system. Mergers and vertical integration has been profitable as in regards to Canadian content and Canadian productions.

7646 MR. JANIGAN: I am still not in a position to make that judgment across the board.

7647 COMMISSIONER PENTEFOUNTAS: Well, you are in a position to make blanket statements about it being wrong on everything and the root of all evil.

7648 MR. JANIGAN: I don't think I said that. I said that the vertical integration presents particular challenges that require the existence of rules and monitoring by the Commission to ensure that the objectives of the Broadcasting Act are met.

7649 COMMISSIONER PENTEFOUNTAS: Thank you, sir.

7650 MR. JANIGAN: Thank you.

7651 THE CHAIRPERSON: Okay.

7652 Len...?

7653 COMMISSIONER KATZ: Thank you, and good afternoon.

7654 I have got two questions. You make a statement on, I guess, your second -- your fourth page. You provided a group of statistics where you identify that the four key players, Bell, Shaw, Rogers and QMI have overwhelming market power and you have got a group of statistics there.

7655 MR. JANIGAN: Yes.

7656 COMMISSIONER KATZ: But the reality is it is four players. You are not alleging that any one of these players can extract market power on their own. There are four of them there.

7657 MR. JANIGAN: I think that in the circumstances of the industry it is possible for any of those four players to exert market power, notwithstanding the fact that there are four of them.

7658 I think it is primarily a result of the circumstances of the Canadian market.

7659 My conclusions are sort of based on the observations of the way those companies have behaved in relation to the price of various services.

7660 COMMISSIONER KATZ: My guess is you won't find any country in the world where there are four players that only have 70 percent of the wireless market, for example.

7661 I mean these industries are very concentrated. They are very capital-intensive. And so we are not any different to anywhere else in that regard.

7662 When I heard you speak, and I read this over, it suggests to me that these four players are sort of controlling the market and especially in market power individually to influence the marketplace which unless one alleges that there is collusion going on, isn't the case.

7663 MR. JANIGAN: Well, I would certainly not suggest that in each one of these markets that individual players can exert market dominance. But I think there are circumstances within those individual markets that concentration of one form or another has resulted in difficulties from a competitive standpoint.

7664 COMMISSIONER KATZ: I would also like to get your views on tied buying and tied selling.

7665 Under what conditions would they actually serve the public interest?

7666 MR. JANIGAN: Well, primarily tied selling has been used to attempt to ensure take-up of Canadian content and Canadian-based services in a way which it has been used to encourage the development of Canadian programming.

7667 In our view, and this is responsive to our position with respect to basic service, we think that effectively the most important thing from the standpoint of the Canadian consumer is just to be able to access a Canadian basic service that reflects those elements of the broadcasting system that the Commission deems that a consumer should be receiving all across Canada.

7668 After that has taken place we think that Canadians should be free to choose whatever content they wish to receive by way of the broadcasting services so that tied selling and tied -- the receipt of these services should not be put in a bundled fashion.

7669 COMMISSIONER KATZ: Okay, thank you.

7670 Those are my questions.

7671 THE CHAIRPERSON: Okay. Those are our questions for you. Thank you very much.

7672 If you have any view on the code that we have all been talking about, I would welcome it.

7673 MR. JANIGAN: Thank you very much, Mr. Chairman.

7674 THE CHAIRPERSON: Let's have a very short break because some of our colleagues have to take a plane.

--- Upon recessing at 1508

--- Upon resuming at 1513

7675 THE CHAIRPERSON: Let's go.

7676 THE SECRETARY: We will now proceed with the presentations by GlassBOX Television and The Fight Network who are appearing as a panel to present their interventions.

7677 We will hear each presentation, which will then be followed by questions from the Commissioners to the panel. Each intervener will have 10 minutes for their presentation.

7678 I will now invite GlassBOX Television to begin.

7679 MR: MacMILLAN: I am afraid to say that Raja Khanna slipped out and is back in about 30 seconds.

7680 THE SECRETARY: We can start with The Fight Network.

PRESENTATION

7681 MR. ASPER: Well, first of all I am glad -- I see you have a fancy new speakers here, congratulations, it sounds fantastic.

7682 Mr. Chairman, Members of the Commission and Commission Staff, my name is Leonard Asper and I am the CEO of Fight Media Inc., the parent company of The Fight Network, an independent Category B licensee.

7683 In principle, we have no opposition to broadcast distribution undertakings, BDUs, owning programming services. This is a common business strategy across many industries. Wherever vertical integration occurs though, there is almost always regulation to address the potential for anti-competitive practices by vertically integrated companies based on both experience and probability.

7684 Given the particularities of the broadcasting industry and the fact of the Broadcasting Act, the existing competition law is not the appropriate vehicle on which to rely. More specific, but not necessarily more regulation, is necessary. And by almost all parties to this hearing's admission, it is acceptable.

7685 In general, we support the submission made by the independent broadcast group to this hearing process. My comments are generally confined to Category B services and The Fight Network specifically.

7686 The most important element of the regulatory framework is section 3 of the Broadcast Act, one of the key provision of which states that there should be a diversity of voices within the system. In responding to the Commission's request for oral submissions to address the fives questions and then the five corollary issues, we don't take the position with respect to the exclusivity of content distribution, since that is really a matter between competing BDUs. So therefore, I will focus on questions 1 and then 3 to 5.

7687 Under the heading the perceived problems and benefits of vertical integration, this can be answered in a very open-ended manner. I will simply say that vertical integration creates strong Canadian companies that contribute to the system and serve the consumer, it is a good thing. There is no prima facie policy objective that should prevent this. That said, the benefits are really quite general while the problems are quite specific and identifiable.

7688 There are obvious economic reasons for a BDU to favour its own service over an independent service. That manifests itself in the packaging, pricing and marketing of services at the very least. Why pay somebody else a subscription fee when you can pay it to yourself and the money never leaves the house? Why put someone else's services in two million homes when you can relegate it to the low-penetration tiers and put your own services in the high-penetration tiers packaged with popular foreign services? And again, pay yourself instead of a third party.

7689 And finally, why not promote your own services to generate audience and, therefore, higher ad revenues? Are these just theories? No, I can say from experience. Not only have I seen it as a CEO of Fight Network, but virtually every independent has been up here and can cite examples of how they have been treated while watching a BDU's own services receive much more favourable treatment.

7690 And the size of the independent is irrelevant. It happened to Canwest, it happened to CTV, CHUM and Astral in recent years; while the larger groups can afford a hiccup, to the smaller groups it can mean life or death. And why does this matter?

7691 Because as many of the written filings demonstrate, the independent sector is not healthy, will never be healthy unless action is taken. And without the independent sector there would be no diversity, we will be left with four principal companies in the system, which could someday be three or even two.

7692 As independent broadcasters disappear, producers will suffer because there will be an enormous imbalance in bargaining power between the BDU-owned broadcast groups and the independent producers. But almost more importantly, many of the younger and less experienced producers will be adversely impacted because the independent channels are often the place where they get their start and build their portfolios from which they can then obtain work from the larger broadcasters.

7693 There is in effect a smaller ecosystem below that of the large players in the industry that would disappear, which would have public policy implications from a diversity standpoint and economic effects from the loss of production currently being done by independents.

7694 Under the heading requirements for protection of independent broadcasters, I think it is clear, therefore, that the protection is required and desirable if indeed the Commission is to serve effectively as the vanguard for implementation of the Broadcasting Act.

7695 As you will note, Commissioners, I have been before you many times in the last 15 years citing the need to expand and grow as the stated purpose for seeking approval of various acquisitions or requests for change in policy. Similarly, CHUM grew by acquisition, as did CTV.

7696 At all times we accepted the regulatory bargain, which is the acknowledgement that three principal players come together to serve the Canadian consumer; BDUs, programming services and producers. And that any policy decision must ensure that a proper balance be kept between the three in order to achieve both the industrial and the cultural policies set out by Parliament and the CRTC as its instrument.

7697 Put another way, companies that want to grow must take a little water with their wine in order to serve the greater good. Given the enormous opportunities that vertical integration permits, what we in the independent broadcasters, as a group, propose is very little water compared to the volume of wine in the glass.

7698 Under the heading the adequacy of the current ex-ante regulatory measures, let's put this into a little context. BDUs have been the beneficiaries of significant deregulation. The Commission went from prohibiting ownership by BDUs of programming services to allowing it. They ended rate regulation, ended packaging and linkage rules and lowered the ratio of related to unrelated services.

7699 And let's not forget that years ago BDUs were relieved of obligations to pay benefits and the cable industry had its capital expenditures subsidized while all BDUs are totally protected against foreign competition, unlike producers and broadcasters who compete against some of the biggest companies in the world.

7700 It was interesting to hear representatives of BDUs in this process state that even fewer rules are needed, because if the independent channels provided good programming, they would receive carriage and good placement. That is rarely so if the BDU has a competing service or simply wants to reduce costs. And today that scenario is increasingly the case.

7701 BDUs today are applying for services that are remarkably similar to existing Category B channels. If and when these services are launched they will undoubtedly receive some combination of all or all of better packaging, pricing and marketing than existing unrelated Category B services.

7702 The chicken and the egg here that goes on behind the scenes is that BDUs will claim a service of programming is inferior. Their modus operandi is to first relegate it to a lower-penetrated tier, thereby impacting the revenue of the channel, which then forces cuts to the program spending for that service.

7703 It is then that the BDU will cite the quality of the programming or low audience numbers or BDUs sometimes move a service out of a higher penetrated package to a lower one resulting in lower subscriber numbers. They then use the fact of the lower subscriber numbers that fall below minimum levels in a contract to renegotiate the other provisions of the contract.

7704 One move by a BDU in particular cost The Fight Network $400,000 in subscriber fees which went right to the bottom line. And since you have the statistics, Commissioners, you know what a $400,000 hit to the bottom line will do to an independent Category B and its ability to commission high-quality programming.

7705 If and when BDUs launch competing services to Category B services they will also clearly be able to outspend the Category Bs on programming, poach their existing inventory and use content from their other channels to compete against the unrelated service.

7706 And one of the other dynamics that has affected the Category B sector is the deregulation of sports as a category, receiving genre protection. BDUs pay high licence fees to their own sports services and then to the other BDU sports services, which they have to carry in order to get carriage for their own channels on the other BDUs. This is impacting their costs and they are looking to find the money by moving independents into lower penetrated tiers so they can pay them less.

7707 So the cost to the system of having services like TSN2 and Sportsnet One are far-reaching and this will become more pronounced as TVA Sports and RDS2 and Shaw's sports channel are launched. They have the capacity to buy all the programming, all the rights, to the most popular programming. Their BDU owners will cut deals with each other to launch each other's channels and then will then take it out on the Category B sector and, to some extent, the Category A sector as well.

7708 So the deregulation of sports has created a transfer of wealth from one group of channels, the independents, to the vertically integrated companies.

7709 So it seems clear to me that one obvious fix to the problem is to apply the one-to-one rule proposed by the Independent Broadcast Group. I don't believe the three-to-one rule is adequate because it will still leave many Category B broadcasters out in the cold, particularly because there is no genre protection.

7710 The one-to-one rule is effective because it would allow BDUs to grow while also creating room for others.

7711 While other proposals also have some merit, I believe that if the Commission chooses the right rules it will need far less rules.

7712 One other rule worth considering though is to provide genre protection for Category B services but only as against BDUs and foreign services. To the extent there is already encroachment by existing BDU-owned services, that could be grandfathered, but no new services could compete with existing Category Bs.

7713 Since genre protection is well-defined and has been the subject of adjudication as to how it is defined, it is therefore easy to implement.

7714 With respect to dispute resolution, the tactics deployed by large companies in order to stave off demands of much smaller companies are all well-known, outlast and outspend. We see this now in the behaviour by some BDUs in response to subscriber counts and in the audits in claims of undue preference.

7715 We recommend that coupled with a robust and objective ex-ante regime there be more compressed and strict timelines in the event the disputes still arise. Since BDUs can always outlast and outspend an independent broadcaster the process must be streamlined and cost-effective in order to be accessible.

7716 With respect to the good business practices code, we believe a short relatively objective set of rules in this respect would be helpful in reducing the dispute resolution caseload.

7717 Three specific provisions we would like to see in addition to those proposed by the Independent Broadcast Group are the 60-day notice provision being expanded to include changes within a package as well as the movement from or to a package. The elimination of the MFN clauses and the elimination of equalization fees that BDUs charge for uplink services paid to other BDUs.

7718 Commissioners, a plethora of suggestions are before you in the process. I say that the more clear the rules, the greater the business certainty. With certainty, companies can attract the capital they need to grow and they will deploy the capital they have. Since the system's health depends on that capital being deployed on programming, technology, equipment, and people, the more certainty you bring the better it will be.

7719 When you couple that need for certainty with the legal and policy requirements and objectives as they relate to diversity, we think that the clear rules to protect independent broadcasters that do not significantly impact the grown imperative of the vertically integrated companies will have the most positive effect.

7720 Thank concludes my remarks and I look forward to answering any questions you may have.

7721 THE SECRETARY: Thank you.

7722 We will now hear the presentation of GlassBOX Television. Please introduce yourself, and you have 10 minutes.

PRESENTATION

7723 MR. KHANNA: Good afternoon, Mr. Chairman, Members of the Commission, Madam Secretary, congratulations on making it to the very last remarks of this hearing. We hope we are going to make it worth your while.

7724 I am accompanied today by Michael MacMillan, our Executive Chairman to my left. My name is Raja Khanna, I am the CEO of GlassBOX Television.

7725 GlassBOX is one of a handful of independent broadcasters licensed by the CRTC to provide Canadian English-language Category A and B specialty services. We share the view of our colleagues, that the outcome of this hearing will be critical for our chances of success in the increasingly competitive broadcasting landscape in Canada.

7726 At the same time, we also believe that we bring a somewhat unique perspective to bear on the issues before you for several reasons.

7727 First, GlassBOX is a relatively new entrant to the Canadian broadcasting system. We do not have the advantage of some of the other independents whose brands have been clearly established for many years, if not decades in some cases. We are at the beginning of our growth curve and we now find ourselves faced with a changing landscape, including a significant increase in vertical integration and the arrival of over-the-top services.

7728 Second, we have a unique blend of expertise at GlassBOX that we believe will help not just our company, but also the entire Canadian broadcasting system to grow in an innovative and forward-looking manner.

7729 My own background is in digital media, more than a decade ago I founded Snap Media, a social media web content company. And more recently, I co-founded QuickPlay Media, a mobile content deliver company that might be categorized as an over-the-top service.

7730 Michael has a long history in the broadcast and production business as co-founder and CEO for 29 years at Atlantis Communications and Alliance Atlantis Communications. Operating from his offices around the world he was engaged in building strong stable programming services that have made significant contributions to the Canadian broadcasting system, such as HDTV, History, Showcase and The Food Network. His company provided the opportunity to showcase Canadian programming internationally.

7731 Now together at GlassBOX, a company with deep roots in the new media sector, we believe that this combination of skills and knowledge will help us use technology and social media in ways that will support the Canadian broadcasting system and not destroy it they way some fear from the internet. And in fact, it may even increase our ability to export Canadian talent to the rest of the world.

7732 We have experience in transitioning a service from online to broadcast. As we did with our Category B service, AUX, and we are aware of the export potential for the Canadian talent pool in comedy such as showcased by Bite TV. This export potential was vividly illustrated for you yesterday by Stingray, another independent broadcaster that has focused on growth and innovation.

7733 So, Mr. Chairman, what does this all have to do with the series of questions you have asked us to answer about vertical integration in the broadcast sector?

7734 First, we believe that the Canadian broadcasting system needs strong and vibrant Canadian companies. Only strong and vibrant companies will be able to meet the challenges of the new broadcasting landscape where we compete with foreign over-the-top services and struggle with new media business models. Only strong and vibrant companies will be able to make the sorts of contributions to the creation and distribution of Canadian content that lie at the heart of the Commission's broadcasting policies.

7735 And we believe that an important role for the CRTC to play is to encourage the continued emergence of strong and innovative Canadian companies and not to assume, as some have done so in their presentations, that the portrait is complete with the existing players. We hope to grow up to be a strong and vibrant company our selves.

7736 Second, we believe that like any other ecosystem, the broadcast sector requires diversity in order to flourish and innovate. Canada will clearly need to be innovative if we are going to compete in an increasingly international market, retain the high value jobs and opportunities that currently exist in the Canadian communications sector and respond to the challenges like OTT providers.

7737 Small, technological savvy and entrepreneurial companies like GlassBOX are particularly well-positioned to make that type of contribution.

7738 Vertical integration can help to strengthen companies providing both scale and scope that can contribute to success in our industry. We agree that this can represent a real benefit to the system. However, to the extent that vertically integrated undertakings become the norm in the broadcasting sector, this can also create financial incentives that will increase the likelihood that such undertakings will choose to distribute each other's services, not just their own, to the detriment of independent broadcasters.

7739 In the case of an innovative but newly established entrant like GlassBOX, we believe that the potential for harm, while perhaps not intentional, is quite real and significant. If the impact of vertical integration is to strangle the emergence of the next generation of strong and vibrant Canadian companies, we believe that the Canadian broadcasting system will be ill-served.

7740 Not only will the diversity of voices in the Canadian market be diminished, but an alternative source of innovation not tethered to legacy assets and legacy business models will also disappear.

7741 The fact that there is a competitive broadcast distribution market driving prices down for consumers is not the answer. From the perspective of a small new entrant, in the upstream market there is no competitive supply. If we are to survive we need carriage on basically all the vertically integrated BDUs.

7742 We can't shop around like consumers in the downstream market. And even those consumers can suffer harm, since they are interested not just in price, but also in having access to diverse programming and a new and unique set of Canadian perspectives.

7743 In these circumstances we believe that special measures are necessary to protect independent broadcasters and to foster the growth and strengthening of a diverse range of Canadian companies.

7744 The current rules against self-dealing that were developed well before the Bell and Shaw transactions simply don't reflect the changes in the broadcasting ecosystem that will incent those vertically integrated undertakings to distribute not just their own services but those of any other vertically integrated company and to relegate independent broadcasters to low-penetration tiers and unattractive packages, or to no carriage at all for new services.

7745 You have heard several different suggestions for addressing the likelihood that this will occur with respect to the access terms and conditions for Category A services.

7746 A growing company like GlassBOX that is still in the process of establishing its brands in the market is particularly vulnerable to harm from such actions. Clearly, our recent acquisition of the Category A service, Travel + Escape, is now taking place in a much more challenging set of circumstances than we originally anticipated.

7747 In our written brief we attempted to address the changes in financial incentives by developing a rule that responded to several criteria. It would be relatively easy to administer, it would provide, the BDUs with enough flexibility to respond to the market, it would maintain the diversity provided by the half dozen or so independent Category A licences, and it would reflect the potential for their growth.

7748 In our view, a rule that seeks to maintain current conditions is a good starting point, but ignores the fact that a number of independent Category A services would have a greater opportunity for growth but for the increase in vertical integration.

7749 We have proposed an ex-ante rule that will provide for a minimum level of penetration to reflect this new economic reality. While some aspects of it, such as the specific level of penetration or the transitional provisions may need to be tweaked, we believe it represents the best balance.

7750 With respect to Category B services, we certainly recognize that a number of interveners have been quick to embrace and modify the three-to-one rule that secures a slot for independent broadcasters.

7751 Mr. Chairman, we believe that this proposal, unfortunately, fails to capture the new economic reality of the broadcasting sector where vertically integrated BDUs will have significant economic incentives to distribute each other's services to the detriment of independent broadcasters.

7752 The simply economic truth is that two vertically integrated BDUs would benefit from agreeing to distribute each other's services on the best possible terms and conditions, thus guaranteeing preferential treatment for their own services to the detriment of the independent services.

7753 The three-to-one rule in its current or modified form does not address this shift and we believe our initial proposal is a more adequate response, since it recognizes the alignment of interest of all those in the family of vertically integrated companies together.

7754 Finally, Mr. Chairman, we believe it is important not to lose sight of the fact that carriage is just a first step, packaging too, and perhaps more importantly, provides for fertile ground for undue preferences.

7755 In answering your question about the need for special measures to protect independent broadcasters, we have also been responding to your inquiry about the adequacy of existing substantive measures, such as the current three-to-one rule. However, part and parcel of successful changes to your policy are the related procedures for enforcement.

7756 I would like to add a few comments at this stage on our perspective concerning the current approach to dispute resolution.

7757 Like our colleagues, we do not believe that disputes between independent broadcasters and integrated BDUs can be dealt with effectively using the current dispute resolution service. It is unrealistic to assume that small independent broadcasters can afford the time and costs associated with the current process, particularly given the risk of retaliation by the gatekeeper.

7758 The two parties to such a dispute are simply not on the same footing and any suggestion that the players face symmetrical conditions is not credible.

7759 Basically, Mr. Chairman, we do not want to start a fight that we can't afford to lose. For that reason, we believe that at least two type of changes are required. First, the process should be expedited with shortened timeframes to deal with prima facie examples of unjust preferences and a built-in mechanism for a section 12 order so that a second hearing is not required.

7760 Second, in order to improve compliance we suggest that some of the existing rules, such as the notice requirements, should now be incorporated into regulations rather than policies so that the road to enforcement is clearer.

7761 In addition, we support extending the reverse onus to vertically integrated programming services, introducing a standstill provision and adding a prohibition against sharing confidential information. We will provide further details on these in our final reply comments.

7762 While we believe that some of your rules should be translated into regulation, we also agree that a code of good business practice would be a welcome addition, providing further certainty and a starting point to more efficient enforcement of your policies.

7763 We believe that the statement of principles that we filed with our brief represents a first step in this direction and we would be pleased to elaborate on it further during the reply phase of this hearing, as others will be doing.

7764 Mr. Chairman, we believe that you have had great success to date in balancing the many objectives of the Broadcasting Act and hope you will continue to provide a framework that recognizes the need for a diverse broadcasting ecosystem in Canada.

7765 Thank you for your attention and we would be pleased to answer any of your questions.

7766 THE CHAIRPERSON: Thank you for those two presentations.

7767 Mr. Asper, what are equalization rates? You mentioned them as something that is being imposed upon you. I have never heard of them, so explain to me what the BDUs are doing here.

7768 MR. ASPER: Well, imagine if you took a taxi to the airport and the taxi said, it's $10 but you have to pay two other taxis $10 as well. That's what it is. For an uplink fee -- so you have to pay $30.

7769 So an equalization fee is -- if we use one BDU's uplink services, other BDUs impose equalization fees that say we have to pay them the same amount even though we're not using their services.

7770 So it costs us $800,000 to uplink our service. We pay one player $330,000 to use their service and we pay another $500,000 to others even though we don't use their service.

7771 THE CHAIRPERSON: Have you ever tried to take this issue to the Competition Bureau?

7772 MR. ASPER: No, I haven't. It's a good point. It's on my agenda.

7773 No, but it's clearly -- we're trying to negotiate our way out of it, especially as we go to HD. Now that we're going to HD, let's see if we can revisit these things. But I mean I --

7774 THE CHAIRPERSON: Competition law was born out of the activities by Mr. Rockefeller who made railroads pay him for the oil that they carried for other companies as well as for him, which is exactly what you are talking about.

7775 MR. ASPER: Well, we will have lunch and we can discuss the precedents.

7776 It is a strange practice in the industry.

7777 THE CHAIRPERSON: I have never heard of it. I am glad you brought it to our attention.

7778 Mr. Khanna, in paragraph 14 there is a whole host of remedies that you want, including a prohibition against sharing confidential information.

7779 Is this within the vertically integrated companies, sharing between the BDU and the programming arm? Is that what you are talking about?

7780 MR. KHANNA: Yes, that's what we are talking about. We are developing that idea together with our other independent colleagues.

7781 THE CHAIRPERSON: Some people have suggested the creation of a customer service group within the vertically integrated companies. Is that what you have in mind?

7782 MR. KHANNA: I don't think I can comment fully on it yet. We're still working on a response. You will see it in our July reply.

7783 THE CHAIRPERSON: Okay.

7784 Len, I believe you have some questions.

7785 COMMISSIONER KATZ: Yes, thank you, Mr. Chairman.

7786 Good afternoon. Both your companies have a very distinct demographic. It's the younger audience that you're both appealing to, at least initially anyways, and what we keep hearing is the younger audiences treat the services of linear broadcasting, if they watch them at all, very differently.

7787 Now, in the case of GlassBOX, you started on the Internet actually in a social media environment and migrated to linear broadcasting.

7788 So I guess my question is: Why did you do that if your initial audience was motivated to use broadband access and access over the Internet? Was it just the size of the audience that you wanted to reach or is it something beyond that that you see that we don't get?

7789 MR. KHANNA: You know, I think the rumours of the death of linear television are greatly exaggerated. You know, if we are trying to build a media company, it's no longer relevant to define ourselves as a new media or a digital media or old media. We are just a media company and if we want to reach our target demographics, it is a total myth to say they are not watching linear television. They are watching linear television.

7790 When we look at some of our digital media competitors who don't have television assets, don't have the linear assets or the linear VOD assets, we think they're -- we know that they're missing a whole segment of their target audience. Why would they do that?

7791 That's why we chose -- we realized early on that to fully service our customers we needed to be on every platform, available in every format through every technology, and that absolutely includes linear television.

7792 Even the idea of linear television, of course, is changing and innovative products coming out from some of these large vertically integrated BDUs are starting to make my TV set look more like the Internet.

7793 All of these things will merge and to say we're not going to access our customer in their living room on that big screen didn't make any sense. And today if you want to be on that big screen in that living room, you have to go through those four gatekeepers.

7794 MR. ASPER: Commissioner, I concur completely. I think that the structure of a media company today is -- you know, you're building a media brand and the hub of that wheel, if you can describe it as such, is the linear program service.

7795 I mean people have tried to start websites and things like that. They aren't very profitable, most of them. In Google, that works, but a typical content-based website is still at the fringes. The cost per thousand one sells advertising for on those sites is much lower than on linear television because there's clearly a higher engagement factor by the audience on a linear television channel.

7796 So the way to build a media company in today's world is you start with a linear television channel. You have obviously a Web interface. You have a mobile interface. You have other ways to reach -- you know, you might start a magazine as well.

7797 There's lots of ways to extend that brand, but without the credibility of being on a TV system in a living room, I don't think -- you're not really building a media company. You could be building a very small reach website, but that's where you start the business, is on TV, on linear. And then, as I say, there's video on demand, there are pay-per-view options.

7798 But in our case, a sports channel, you know, the reason I liked the channel as an investor was because the place people still watch TV, one of the places is live sports, and Fight Network, you know, the first thing we did when I acquired the channel was we increased the amount of live sports and that's where people are going to watch.

7799 Yes, they might -- if they're travelling they will watch it on their phone too, but still people want to be in their living room.

7800 COMMISSIONER KATZ: Again, you can both see where this question is coming from.

7801 Would a skinny basic help the take-up of your products and services to the general consumer base or would it not make a difference one way or the other?

7802 MR. ASPER: I will go first this time. I guess we will alternate.

7803 I don't see it having much effect because I think we're -- I mean, again, it guess it comes down to package. If we were in the next best package after skinny basic or the first choice, but in our case we get stuck on Sports Pack 42 or some very poorly penetrated or high up package.

7804 So if there were a skinny basic and then there were a second choice like a next level basic, you know, without some of these better rules we wouldn't be in those packages anyway.

7805 I think if you combine the skinny basic with the 1:1 rule and a code of practices that said that Rogers or Shaw couldn't treat unrelated BDUs differently than they treated related BDUs, I think then it would make a difference.

7806 You heard somebody earlier, I guess from Novus, say it's no coincidence that suddenly Shaw has put Home and Garden and History, their channels, onto basic now. So if there were rules that said there's a tied move into next level basic, that would benefit us.

7807 MR. KHANNA: I think the specific issue of skinny basic, we don't really have a feeling of how it could affect us either way.

7808 I think the key is what Leonard is saying, is that we want to be treated on a level playing field along with, you know, in the case of Cat As, how they treat their own Cat As, where there is already a massive discrepancy in penetration and we see that just getting worse.

7809 COMMISSIONER KATZ: My last question deals with information.

7810 We heard last week from Astral, we heard this morning from Pelmorex that they would like to have access to the information on their viewers, their audience as well.

7811 In the case of GlassBOX, you actually started from the Internet side where you actually had all that information, and as you migrated across to the linear broadcasting side, I'm assuming you lost that access, I don't know, but just to get your views, do you think that access actually belongs to you because you have built that viewership, that audience, and they are your audience?

7812 MR. KHANNA: You know, obviously, more information is better, but there is a point at which there is also information overload, and out of context it may not make a lot of sense. I have no desire to be sent a database of, you know, thousands of lines of undecipherable data from set-top boxes.

7813 I think one of the challenges is going to be to find some sort of industry standards in terms of how that information is presented.

7814 But what a wonderful goldmine of data for all of us to improve our services and help the BDUs, frankly, better market our services to increase the success of their overall offering if we had that type of data.

7815 So in general, we support the idea but how we get there is going to be, I think --

7816 COMMISSIONER KATZ: What we are hearing is they are mining the data that relates to their products and services and not to others to the same extent.

7817 MR. KHANNA: Yes, and I have heard, you know, that. I have also heard from some BDUs that, well, the data for one channel doesn't make any sense on its own because, you know, you have to see it in the context of the other.

7818 So I don't -- GlassBOX doesn't have a specific proposal for how that would work.

7819 I think, you know, somebody told me, well, what happens when you leave your PVR on but your TV is off, you know, does that count as you watching that channel for 18 hours?

7820 You know, there's weird little questions like that that I think as a technology guy with a technology background I can see the problems, but as a business guy, I absolutely would love to mine some of that information.

7821 MR. ASPER: Commissioner, just if I could answer the question. I'm sorry.

7822 I take a slightly different position. I would love that information. I don't think we need every piece of information, but two basic ones are who are our subscribers.

7823 If I knew who the millions of subscribers were and I could market to them -- you know, obviously bearing in mind privacy legislation, they would have to -- you know, there would be some permission they would have to give, but to know who they are and to market to them would be, you know, I think helpful for everybody because it would increase viewership, it might increase penetration.

7824 And so that and some of the demographic information obviously would help to go to advertisers and say, hey, this is how many people 18-34 who do this and that, who like fitness or whatever, are watching the channel and this is when they are watching the channel.

7825 Because the problem with Nielsen is it's very general and it's also -- as you get to the smaller networks, the sample size and the digital measurement is so small.

7826 We had a show, for example, a fight where the undercard was -- you know, got a rating of 10,000 people, and the next, the main event, which was a very popular part of the show obviously, got a zero, because probably the six people with the boxes that extrapolated to the 10,000 number, you know, may have turned it off. We're still getting our website bombarded with people who are watching the show, so we know it wasn't zero.

7827 But you get very, very imprecise and volatile numbers, a lot of volatility in the numbers on the pure Nielsen ratings. And then you go to meet with a BDU and they say, well, more people are watching your channel or less people. They have way better information than Nielsen provides the broadcasters.

7828 So it would be nice to have more symmetry so at least when you're having a discussion with a BDU saying, you know, nobody is watching your channel -- you know, I can have ratings that show they're up nationally, where a BDU can say they're down, and you have no way of resolving that difference without symmetrical information.

7829 COMMISSIONER KATZ: Thank you.

7830 THE CHAIRPERSON: Okay, I think those are all our questions. Thank you very much.

7831 MR. KHANNA: Can I add a couple of things?

7832 THE CHAIRPERSON: Yes.

7833 MR. KHANNA: You didn't ask us the tough questions about the 33 percent rule we're proposing. We just wanted to comment on that a little bit and may I will say one or two things and Mikey can jump in.

7834 We do think -- you know, we heard you earlier today, Mr. Chairman, talking about, you know, this is moving away from the idea of free market. What's important to us is that there's -- is not the word "free," is that there is the word "market," that there is a market at all and we're trying to find, like you are, the simplest tools that you could use to help balance this equation.

7835 In the case of independent Category As these are channels you have already said are important enough to be carried, they are important enough to be granted that access.

7836 What we are saying is, you know, this is a way for you to bolster and support the independent community to create some of that balance and by doing so you are supporting channels that already carry, in our case, a 53 percent CPE requirement. So you are also benefiting the Canadian content diversity as well as diversity of programming undertakings.

7837 The other thing I will say is some of these Category A services -- by the way, there's only four Canadian English-language independent Category A services that aren't already well beyond the 33 percent. It's only four channels we are talking about, so I don't think we are talking about a massive change here.

7838 But these are some very successful channels, relatively speaking, and we are therefore, we believe, the most vulnerable to the effects of vertical integration and the anticompetitive potential.

7839 So we think it's simple to administer and we think it's a great tool for you to use.

7840 MR. MacMILLAN: If I could just make one other point that I though might come up.

7841 Mr. Chairman, you asked somebody else earlier today if it was not perhaps possible that the channels owned by the vertically integrated BDUs just happen to be all the good channels, and I think, as I've experienced over the years, the history of Canadian broadcasting certainly since 1984, since the introduction of specialty channels in Canada, has shown that innovation absolutely has come most reliably from small players, from those at the edges.

7842 As Moses Znaimer mentioned this morning, the introduction of specialty and pay was resisted by the incumbents at the time. Think about the creation of Much and Vision and TSN in 1984, then 1993 with Showcase -- you know the whole list of them, but innovation and creativity has come most reliably from small players and that's what we think we can bring as a species to the ecology and wouldn't it be a shame if the greatest and most reliable source of creativity and innovation were as a species wiped out.

7843 THE CHAIRPERSON: I trust you heard me also when I said to Mr. Znaimer, agreed with him it's a cunard that you have to be large and dominant in order to be innovative, you know. So I think we are in agreement on that point.

7844 Okay, thank you very much. I think those are all our questions.

7845 Madam Secretary, are there any more announcements?

7846 THE SECRETARY: I would just like to indicate for the record that the interveners who did not appear and were listed in the agenda as appearing interveners will remain on the public file as non-appearing interventions.

7847 This completes the agenda of this public hearing. Thank you, Mr. Chairman.

7848 THE CHAIRPERSON: Okay. I would just like to take this opportunity to thank staff for having prepared us for this very difficult hearing in an excellent way. I think everybody on the panel felt well prepared for this hearing.

7849 And thank you to the translators for staying with us and as always making sure that whatever we say is available in both languages.

7850 That concludes the hearing.

7851 Thank you.

--- Whereupon the hearing concluded at 1553

REPORTERS

Johanne Morin

Carmen Delisle

Monique Mahoney

Jean Desaulniers

Susan Villeneuve

Karen Paré

Date modified:

2011-06-28