ARCHIVÉ - Transcription, Audience du 14 avril 2011
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abrégée de CTVglobemedia Inc.
TRANSCRIPTION DES AUDIENCES DEVANT LE CONSEIL DE LA RADIODIFFUSION ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUJET:
Afin d'étudier les demandes de renouvellement de licences par groupe de propriété pour les groupes de télévision de langue anglaise décrites dans l'Avis de consultation de radiodiffusion CRTC 2010-952, 2010-952-1, 2010-952-2 et 2010 952-3
TENUE À:
Salon Outaouais
Centre des conférences
140, Promenade du Portage
Gatineau (Québec)
Transcription
Afin de rencontrer les exigences de la Loi sur les langues officielles, les procès-verbaux pour le Conseil seront bilingues en ce qui a trait à la page couverture, la liste des membres et du personnel du CRTC participant à l'audience publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu textuel des délibérations et, en tant que tel, est enregistrée et transcrite dans l'une ou l'autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l'audience publique.
Conseil de la radiodiffusion et des télécommunications canadiennes
Transcription abrégée de CTVglobemedia Inc.
Afin d'étudier les demandes de renouvellement de licences par groupe de propriété pour les groupes de télévision de langue anglaise décrites dans l'Avis de consultation de radiodiffusion CRTC 2010-952, 2010-952-1, 2010-952-2 et 2010 952-3
DEVANT:
Konrad von FinckensteinPrésident
Leonard KatzConseiller
Rita CuginiConseillère
Suzanne LamarreConseillère
Peter MenziesConseiller
Tom PentefountasConseiller
Stephen SimpsonConseiller
AUSSI PRÉSENTS:
Jade RoySecretaire
Joshua DoughertyConseiller juridique
Valérie DionneConseiller juridique
Sheehan CarterCoordonnateur de l'audience
TENUE À:
Salon Outaouais
Centre des conférences
140 Promenade du Portage
Gatineau (Québec)
14 April 2011
- iv -
TABLE DES MATIÈRES
PAGE / PARA
PHASE III
RÉPLIQUE PAR:
CTVglobemedia Inc. (Cont.)208 / 1524
- v -
ENGAGEMENTS
PAGE / PARA
Engagement249 / 1824
Engagement275 / 2008
Gatineau (Québec)
--- L'audience débute à huis clos le jeudi 14 avril 2011 à 1110
1522 THE CHAIRPERSON: Okay, Madam Secretary, let's just confirm that there is only Bell or Commission people in the room and we are off the Internet.
1523 THE SECRETARY: Exactly. We are now ready to proceed with the in camera session.
1524 THE CHAIRPERSON: Okay. Why don't you walk us first through the numbers that you filed in confidence and then I will turn it over to my colleague.
1525 Go ahead.
1526 MR. CRULL: Okay. Yes, thank you. Thank you very much, Mr. Chair.
1527 First for this discussion I think there is something important for me to convey. I don't want for a second to mistake or have the Commission mistake my business side passion for a lack of creative side passion.
--- Rires
1528 MR. CRULL: There are two different definitely hats that you have to look at a lot of this and they both are immensely important and so you are going to hear a lot of passion for the numbers and it doesn't detract from a passion.
1529 THE CHAIRPERSON: Look, you don't have to worry about that. This is not a discussion about passion --
1530 MR. CRULL: Very good.
1531 THE CHAIRPERSON: -- it's about numbers and we all know it's very difficult to make money on Canadian content, it's much easier to make it on foreign content. Take that as a given.
1532 MR. CRULL: Okay, okay. Very good.
1533 So we had a chance to reflect first on the Commission's charts that have been handed out where you took something that was distributed earlier in the week for the industry and then tailored it to our own numbers which were provided and I would like to make a couple of observations first that I think are important.
1534 THE CHAIRPERSON: Please identify what document your are looking at.
1535 MR. CRULL: I'm looking at the Commission's documents on the pink sheets. That's it exactly.
1536 THE CHAIRPERSON: Okay. Thank you.
1537 MR. CRULL: And I think at the first page, you know, just highlights exactly I think what we all know on conventional PBITs versus specialty PBITs and we don't look at anything other than to look at for us to 2 percent revenue CAGR. I will refer back to that in a minute on a forward-looking basis.
1538 If you go, Chairman and Commissioners, to the second page I think there are some very important points that I take away from this data, the first being that clearly the new 30 percent and 5 percent policy is placing new burden on the industry. It was illustrated in your prior chart for the industry and it's highlighted here when you look at the orange line, 28.2, 28.3. Without Olympics it's just under ########## and then ########## and then jumping to 30. So there is clearly a trend line, a trajectory change and I'm going to show that in absolute dollars for the Bell Media in just a minute.
1539 The second takeaway, if you look at the CAGR on the forward-looking columns, it has foreign programming CAGR growth at 1.5 spend and a 3 percent CAGR on Canadian programming. That exceeds our revenue growth and so I think that -- and furthermore, in the year 2012, the first year of our new licence, it's the first time in history that Canadian programming spend in absolute dollars is going to be bigger than foreign programming spend in absolute dollars.
1540 Now, I ask the Commission to look at the Olympic year, as we have said many times, that the Vancouver Olympics is a tremendously unique anomaly, so outside of that 2012. So taken together that Canadian program spend CAGR is faster than revenue is, I think, a highlight of the burden that this new policy is placing on us.
1541 THE CHAIRPERSON: I have to ask you a question here --
1542 MR. CRULL: Please.
1543 THE CHAIRPERSON: -- which I just don't understand.
1544 2008 is a recession year, 2009 was sort of mixed. Last year obviously you had the Olympics that's why it goes up, but why are you going in 2011 ##########? Wouldn't you at least go to 28.2, which is what you spend and it's the height of the recession.
1545 I just don't understand why this dramatic dip here.
1546 MR. CRULL: I believe that it's because if you adjust at ########## for the Olympics there is a bit of a hangover affect.
1547 Maybe Clare can help me a little bit, but adjusting that for the Olympics actually brings it up when we take all non-Olympic comparisons out.
1548 MS BROWN: So when you consider our CPE percentages, if you look at our revenues excluding Olympics we are in the ##########.
1549 MR. CRULL: And I think the reason is because, Mr. Chairman -- and maybe this is obvious to everybody -- the calculation is looking at 2011 spend divided by 2010 revenue. So that's making that ##########.
1550 THE CHAIRPERSON: If you exclude Olympics it's ########## you said?
1551 MR. CRULL: That's correct.
1552 THE CHAIRPERSON: Okay.
1553 MR. BIBIC: One just needs to look at the absolute dollars. In '08 it's 353; in '09 352, in ##########. It's the denominator that's -- the revenue denominator that's affecting the percentage.
1554 THE CHAIRPERSON: Okay.
1555 MR. BIBIC: But there's no lesser spending in absolute terms.
1556 THE CHAIRPERSON: Thank you.
1557 MR. CRULL: So again, I think it's highly notable -- and if we look at the prior periods revenue CAGR for Bell Media was slightly positive at ########## in the prior four years and yet Canadian programming was ##########.
1558 So we have a real trajectory shift that the policy is creating and, you know, we applaud that that is clearly the intent of the policy, but I think that the Commission didn't set out to cause financial hardships certainly on us and that's not the intent.
1559 So first we say the policy as we have submitted our numbers is clearly causing both a trajectory change and also a bit of a financial burden. For that I will ask you to go to the slides that we handed out. There are two that are stapled together that start with "Bell Media CPE Spend". It looks like this.
1560 THE CHAIRPERSON: Right. Yes.
1561 MR. CRULL: We looked with interest at the filings of one of our competitors, another one of the large ownership groups, and I would submit to you -- and I will just speak frankly in camera -- that the claims that Rogers is making that they are somehow unique just don't hold up.
1562 They are a large conventional broadcaster and we are a large conventional broadcaster; they are implementing a policy that in fact changes the curve on Canadian spending; we are implementing a policy that in fact changes the curve on Canadian spending.
1563 If you look at our Canadian programming stand here in '09, '10 and '11, you can see the average is about $351 million and then you can see under the new policy that clearly there is a significant increase in the slope, not unlike what you would see Rogers and Shaw illustrating.
1564 Now, there is an important element that I would ask Commission to consider. The forward-looking spend projections in dollars are highly sensitive to your revenue growth projection and a revenue growth projection is a guess of what you think you will deliver and what your business will deliver. Two out of the three large ownership groups are clustered at exactly a 2 percent CAGR going forward. We think that that's very realistic and that's what we based our projection of CPE spend on.
1565 One of the ownership groups is a significant outlier at 8 percent and I would just ask the Commission when considering the claims of the magnitude that the Commission pressure test the revenue outlook.
1566 This incremental spend generates over the five-year periods of the licence $265 million more Canadian programming spend than our historical average over the period of licence.
1567 So I say this just to say that I think that the Commission with 65 percent of my revenue conventional, which is highlighted on the next page -- and the Commission has pointed out that conventional operates at about a 3 percent PBIT and specialty operates at about a 33 percent PBIT, so I know I don't deserve or get any sympathy, but it's a big challenge to run this company to create returns for our investors and for those that are backing us and placing that additional $265 million of Canadian programming is clearly something that actually -- I think what I'm saying to the Commission in my appearance, we believe we have fully reflected the intent of the Commission's policy and we ask it be not adjusted and not differentiated and not raised above the 30 and the 5 and let us get on about tackling this challenge.
1568 My competitor also brought forward a hypothetical comparison of Company A, B, C and D. When I looked at it I felt that it was a little misleading, because there are three large ownership groups that are in fact clustered that tend to be more heavily conventional than they are specialty and there is one that is -- you know, Company A is Corus, which is quite an outlier.
1569 We took the 2009 actual mix -- it's the last year that is on record -- and Bell Media was at 65 percent conventional and 35 percent specialty.
1570 Now, you will look at the filings of the various applicants and roll it forward. Bell Media only changes to 64 percent in 2011, so there are not tectonic changes. Using 2009 I think clearly illustrates.
1571 What Rogers would have led you to believe is that they are so unique by comparing Company C and Company D and saying there is a 30 percent difference, there is a 30 percent difference from Company C to Company D, when in fact there is a 16 percent difference. When in fact I would say that you don't make policy for every individual company, you make policy for the industry and the large ownership groups are actually clustered in a more heavily conventional than specialty mix.
1572 Just while I guess I'm on a bit of the comparison, I have followed the appearances of all of the intervenors as well as the applicants closely and in Rogers transcript they also claimed that the increase is immaterial on Bell of going to a 30 percent CPE. I hope that you will look at that $265 million and also the fact that for the first time CPE is growing faster than revenue. It's erroneous to call it immaterial and it's unfortunately misleading.
1573 The last thing I would say is, the point that we have made many times is by forgiving one of the large ownership groups and allowing them to have even a ramp-up -- I mean I can't imagine a different number ultimately, but even a ramp-up to the same number would just funnel more money to American programming, which is in fact the opposite of what the Commission intends.
1574 In their appearance Rogers stated as much, which I would -- you know, it's in paragraph fifteen forty-one of their opening statements and interaction where they said allowing us this lower number would allow us to build stronger U.S. programming schedule. We just think by the economics of the business that that is a very inappropriate advantage to give one player.
1575 The last point I will make and that I will be quiet and listen to your questions, is we take very seriously the financial success of our Canadian programming and a lot of smart people have tried for many years to crack that code of both being commercially successful as well as financially successful, but I show you the facts.
1576 I walked through these numbers in our last hearing and this chart I'm referring to is "Bell Media Canadian Programming Business Model" with the coloured bar charts. It has the backup data attached to it, which we can review, but at a high level what it shows, as we said -- and this is using broadcast year 2010, excluding Olympics.
1577 ###############################################################################################################################################################################################################################################################################################################################################################################
1578 Really I think we should consider what percent of my programming and production expense, how much that I'm spending on my product am I spending on Canadian. ############################################################################################################################################################################################################################
1579 I wish that weren't the case. You know, it's absolutely my leadership team's goal to change that during this new policy period.
1580 But it is the facts and it is the reason why I have such passion around the numbers, because I do believe that differentiating would be unduly punishing one company and that the new policy is putting a financial burden on a difficult business.
1581 Thank you.
1582 THE CHAIRPERSON: You have been talking about CPE solely.
1583 What about PNI?
1584 MR. CRULL: I think the same -- yes.
1585 So PNI, if we put the page -- the same theories or really all of the same storylines apply. If you flip behind my coloured bar chart you will see the makeup of our Canadian programming profitability. I believe this was just filed with the Commission.
1586 So in broadcast year 2010 you can see the categories of news, drama and all other Canadian that add up to the ########### -- I'm sorry, the ########## of Canadian programming expenditures for all of the license services.
1587 ####################. So it highlights the difficulty of PNI there in that drama.
1588 Now, there are some PNIs in "All Other Canadian" --
1589 THE CHAIRPERSON: I'm sorry, but where is it, 11 drama on the sheet?
1590 MR. CRULL: Yes. If you look at the "Drama" box and you scan down to the bottom --
1591 THE CHAIRPERSON: Okay, yes. Thank you
1592 MR. CRULL: ####################.
1593 Now, the other categories of PNI would be the awards shows. We can be specific if you like about the profit challenges of the "Juno Awards", but that would be captured in "All Other Canadian".
1594 "eTalk" and "Marilyn Denis" or other variety programs of interest that we produce -- those are Canadian, I'm sorry, those aren't PNI.
1595 The last point I will make about this drama --
1596 THE CHAIRPERSON: Hang on. What happened to documentaries?
1597 MR. CRULL: Yes. I believe that would be in "All Other Canadian".
1598 THE CHAIRPERSON: Okay.
1599 MR. CRULL: I don't believe -- we didn't intentionally leave out the profitability of any category. I think that on one hand it's very difficult sometimes to get the data on profitability, I would ask Clare if --
1600 MS BROWN: Sorry. We actually prepared this chart in response to a request from staff to isolate the profitability on the drama programming from the rest of the Canadian programming.
1601 PNI programs would be included in our "All Other". To the extent that they sit on our conventional network it's quite easy for us to identify profitability; to the extent that we have them on our specialty services -- and this would apply to all of the data here -- you have to go through an exercise of trying to allocate your advertising and affiliate revenues to each of the individual titles on your system.
1602 THE CHAIRPERSON: My point is, you are trying to tell me that PNI is difficult to do and in effect producers in aggregate had a loss of 11 percent in drama. What is the loss -- unless I know what the loss is in documentaries or in award shows I don't know to what extent by having those included do I make your life worse or better? I have no idea.
1603 MS BROWN: So two of the largest items that would be in PNI --
1604 THE CHAIRPERSON: There are only three in PNI.
1605 MS BROWN: We can provide them, but certainly they attract the same type of margin.
1606 ###################################################################################################################################################
1607 MR. CRULL: I think, Mr. Chairman, it's fair to say -- and we are happy to provide, I think we provided this chart in response to a format. We are happy to provide as much data -- I don't think it changes the dialogue to say -- it's hard to make money on Canadian programming and on programs of national interest it's a little harder. I mean when we do submit the data you are not going to see -- these are negative numbers and they are negative vote.
1608 The reason that I draw my conclusion that PNI is slightly harder, the drama category -- we have a hit on our hands that is a once in a decade hit with "Flashpoint" commercially and "Flashpoint" is actually propping up.
1609 I think that Vice-Chair Pentefountas has asked and acquired appropriately: Help me understand why in an hour when you sell advertising -- and you have a show that draws a little bit over 1 million viewers, you should get the same amount of advertising for that and because of the various financing mechanisms in the industry the cost of a "Flashpoint", you know, on a relative basis isn't dramatically out of whack for the broadcaster versus a U.S. program.
1610 There are several differences, though, that make it very different and one of them that really stands out is you have to produce a lot of mediocre shows or a lot of failures to get a "Flashpoint". On both sides of the border you have to. The failures from the U.S., the way the financing works, when they cancel a show after three weeks we stop paying for it. We have to sign up for Canadian programs for seasons and keep paying.
1611 So this is just one of the differences that that causes.
1612 THE CHAIRPERSON: I understand. I understand that.
1613 Let me be quite frank, you are creating a huge problem here and you haven't answered my question.
1614 We issued this policy, we said a 5 percent minimum on PNI, we only have one number which is your drama number that you gave us. Now we widen that category to give you flexibility, to also put in award shows and documentaries, both of which we know are less expensive to produce than drama -- drama you and everybody have told me is the most expensive one to produce -- and we will settle on the final number after this hearing.
1615 So now coming back and saying the number is 5, which it was for drama already, you set up the thing, you create this big expectation and you come back and say: No, it's going to stay at 5 percent, which by definition means since you now have two extra categories in that will be less drama than before, which surely can't have been the purpose of this policy.
1616 MR. BIBIC: Well, Mr. Chairman, what we can do is we can refile this type of sheet with the operating margin and we can have news, PNI, non-PNI Canadian and then you will be able to see the relative profitability or lack of profitability from one category to the next. The three buckets --
1617 THE CHAIRPERSON: I'm not questioning your lack of profitability. You didn't listen to what I said.
1618 I said we established drama at 5 percent, we said PNI will be set as being drama and these other two categories, so how can you then come back with the same number you had before? I just don't get it and neither will anybody else out there.
1619 MR. CRULL: Mr. Chairman, I am genuinely perplexed by this.
1620 A lot of work went into setting a policy 18 months ago and it set a minimum of 30 and a minimum of 5.
1621 THE CHAIRPERSON: Yes.
1622 MR. CRULL: And the intent was to generate more money going towards Canadian production.
1623 I have illustrated a significant step up, an unprecedented -- and I can't underscore enough the operational challenge that is in front of us in a business that produces 3 percent PBITs to implement an additional $250 million of Canadian spending.
1624 Now, we can quibble about PNIs and this and that. We implemented your policy of 5 percent. Did you expect us -- because our average of the last three years in the last year was 5.2, did you expect us to come in with a higher number than 5?
1625 And by the way, it's a commitment of a minimum 5. We can't be so precise. Some years it's going to be 5.3, 5.4, 5.5, some years it will be 5.
1626 THE CHAIRPERSON: Let's not exchange outrage here. That doesn't get us anywhere.
1627 I don't know what to say except to repeat what we have said, we said we set the minimum based on drama, now that there are two other categories in I don't get it why the number would stay fixed. I just don't get it.
1628 Anyway, let me think of how to rephrase it. In the meantime I will turn it over to you, Len.
1629 COMMISSIONER KATZ: Let me try to help the issue.
1630 MR. BIBIC: Okay.
1631 COMMISSIONER KATZ: You filed something this morning and it's actually not in confidence I don't think, it was a table. It was a letter dated April 13 and it's a table showing expenditures on Canadian drama for 2008 to 2010 as a percent of total spending on PNI.
1632 If we can all turn to that page?
1633 THE CHAIRPERSON: Is that before or after the pink?
1634 COMMISSIONER KATZ: It's before the pink. It's just before the pink.
1635 MR. BIBIC: Vice-Chair, which page are you referring to?
1636 COMMISSIONER KATZ: It's a table 2008-2010 and it's titled "Bell Media Group License Renewal Spent for PNI Categories" and you have "Programs of National Interest", "Category 2B" and "Award Shows" and "Category 7" and "Total PNI". So it basically reflects the fact that Category 2B and award shows is about 30 percent of the total PNI for the last three years. Let me wait until you find it.
1637 So it basically reflects the fact that Category 2B, which is docs and award shows is 30 percent of the total.
1638 Let me first ask whether this data was gathered under the new definition of what is in Category 7 or the old definition of what was in Category 7 -- 2B?
1639 MR. KEVIN GOLDSTEIN: The data was put forward with the new definition of Category 2B. The definition for Category 7 hasn't changed.
1640 COMMISSIONER KATZ: Okay.
1641 MR. KEVIN GOLDSTEIN: So it's the new definition.
1642 These numbers reflect the Commission's determinations last November in terms of what would be the definition of the categories that qualify as PNI going forward.
1643 COMMISSIONER KATZ: So the reality programming which isn't qualified under the funding CMF is not included anywhere in here?
1644 MR. KEVIN GOLDSTEIN: That's correct.
1645 COMMISSIONER KATZ: Okay. So let me ask the first question: Why did Category 7 drop from 2008 to 2009 by about $20 million or 30 percent?
1646 MS BROWN: We had a number of items that occurred in 2008 that explain actually the spike. Because if you look backwards to 2007 and 2006 actually, which I know are not on this chart, we are running more around the levels that we have been previously running.
1647 So the bump up in 2008 was driven by two items. We had a number of pilots come forward in that year, we actually had four pilots that came forward that were in the number that year. It was also the first year that we were operating the "A" Network and the CTV Network together and we had a number of overlapping programs that we ended up burning through that year as we brought our programming strategies together. So 2008 does represent a spike.
1648 COMMISSIONER KATZ: Okay. So you brought it back down for 2009-2010.
1649 But yet, if I remember correctly, in 2008 your PNI was 5.9 percent and in 2009 it was 5.8 percent.
1650 Is that right?
1651 MR. BIBIC: 2009 5.8 percent.
1652 MS BROWN: Right. Sorry, Commissioner Katz, did you say -- so for 2008 --
1653 COMMISSIONER KATZ: Right.
1654 MS BROWN: -- 7.45 percent, including these higher Category 7 numbers?
1655 COMMISSIONER KATZ: 7.45 percent.
1656 MS BROWN: Yes. I think these were the numbers that we went through last time.
1657 COMMISSIONER KATZ: Okay. So the $91 million total PNI equates to 7.45 percent?
1658 MS BROWN: In 2008.
1659 COMMISSIONER KATZ: Yes. 2009 what would that number be, the $7 million?
1660 MS BROWN: 5.8.
1661 COMMISSIONER KATZ: 5.8. In 2010?
1662 MS BROWN: 5.9.
1663 COMMISSIONER KATZ: 5.9.
1664 MR. CRULL: And 5.2 for 2011.
1665 COMMISSIONER KATZ: Do you have a 2011 forecast?
1666 MR. BIBIC: 5.2.
1667 COMMISSIONER KATZ: Do you have it broken down between --
1668 MR. BIBIC: Yes.
1669 COMMISSIONER KATZ: -- Category 2B and Category 7?
1670 MR. BIBIC: So here is the key thing which I think response to the Chairman's last question.
1671 So it's 5.2 for 2011, #####################. So it's not that drama is at 5 and then if you layer on documentaries, et cetera, you get to a number higher than 5; the overall is 5.2.
1672 COMMISSIONER KATZ: ######################################################
1673 MR. BIBIC: #################.
1674 Right, Clare?
1675 COMMISSIONER KATZ: ###########
1676 MS BROWN: ##############################################################################################################
1677 COMMISSIONER KATZ: Okay. So --
1678 THE CHAIRPERSON: Give me the total number for 2B and award shows and then the percentage.
1679 COMMISSIONER KATZ: #############.
1680 THE CHAIRPERSON: What?
1681 COMMISSIONER KATZ: So you then taking our policy --
1682 THE CHAIRPERSON: You are quick, I'm not. I'm slow, okay.
1683 COMMISSIONER KATZ: Oh, sorry.
1684 THE CHAIRPERSON: So can I get those numbers slow?
1685 Give me the total and the percentage for Category 2B and award shows. The dollars first of all.
1686 MS BROWN: ######################################################.
1687 THE CHAIRPERSON: Yes.
1688 MS BROWN: #################.
1689 THE CHAIRPERSON: Yes.
1690 MS BROWN: ##################.
1691 THE CHAIRPERSON: ############.
1692 MR. BIBIC: ################.
1693 MS BROWN: ##############.
1694 THE CHAIRPERSON: Yes.
1695 What is the percentage of Category B and award shows?
1696 MR. BIBIC: Okay. #####################################################.
1697 COMMISSIONER CUGINI: Those are percentages of the 5.2?
1698 MR. BIBIC: No, no, sorry. They add up to the 5.2, which is the overall, yes.
1699 COMMISSIONER CUGINI: ##############################################################################################################
1700 MR. BIBIC: Oh, I see.
1701 MS BROWN: ##############################################################################################################
1702 COMMISSIONER KATZ: ##############################################################################################################
1703 MR. CRULL: You are giving us way too much credit. I mean it's a natural flow of programming that we think merits getting into the marketplace. ##########################################################################################################################################################################################################################
1704 COMMISSIONER KATZ: I'm not looking at 2B, I'm looking at Category 7 which has gone down from 72.6 percent to 68.8, to 70, I guess it went back up again in 2010, #################################.
1705 MR. CRULL: But as a percent of revenues it has bounced around those similarly. It's not -- it's not tremendously out of trend.
1706 COMMISSIONER KATZ: #####################################################################################################################################################################
1707 MR. CRULL: Yes. I don't know if there is an Olympic impact in that a little bit.
1708 I think one thing that strikes me though, Vice-Chair, wasn't a big intent of the policy, and even the expansion of PNI, to give us flexibility. So I think that as now where again we are -- man, we are talking about over $2 billion in Canadian spending over this license period and we keep drilling down into what I consider to be finer and finer applications of the policy that was meant to give us flexibility.
1709 COMMISSIONER KATZ: All I'm trying to do right now is just get the facts. I'm not accusing anybody of anything, I'm just trying to get the data on the table.
1710 MS BROWN: So actually this sort of goes to the point of how hard it is to hit 5 or 6 precisely. I think we talked last week when we were here about you start the year with a certain slate that you have planned and things happen that are unanticipated during the year and some of those unanticipated things this year really have hurt us in Category 7.
1711 So I think to Kevin's point, it's not that we planned it that way, it's just that it happened that way.
1712 MR. CRULL: Let me let Corrie expand on that point.
1713 MS COE: #####################################################################################################################################################################
1714#############################################################################################################################################################################################################################
1715 ##########################################################################################################################################################################################################
1716 So it is illustrative to Clare's point of how one show can make a huge difference in your spend. And you do all you can to try and prevent that and protect it from happening. It doesn't happen frequently, but it does happen.
1717 THE CHAIRPERSON: This has been very helpful. 7.5 in 2008; 5.8 in 2009; 5.9 in 2010; 5.2 in 2011, all of them are above 5, you know. They are on a declining basis. We create this policy, we said we will give you flexibility, the heart of Canadian content are these three categories, spend it however much you want. And you come back with a target which takes it even a level lower, which is what I don't understand because by your own admission --
1718 MR. CRULL: Mr. Chair, if you would --
1719 THE CHAIRPERSON: -- drama would not have been 5.2 even in 2011 alone and we allowed you to add the other ones in, but not at the extent of overall establishing a downward trend.
1720 MR. CRULL: You are setting a policy that has, by definition, a minimum. When you pick a minimum, you pick a floor. If you would like to set a policy -- our average over the last three years is 5.6 with a low of 5.2. If you would like to set a policy for us that says 5.5, plus or minus .5 and you let us adhere, plus or minus .5 for the whole term of the license.
1721 You know, that's really what we are saying that we are going to kind of do. That's really the way in practicality it operationally works out. But the policy has a minimum and it's a minimum of 5 and that's what we submit. I don't see that as being different from the 5.6 that we have averaged over the last three years, and I can't help myself from pointing out the PNI increase. I know of no other business that has a guaranteed revenue increase for five years of 28 percent. I know of none anywhere, and that's what we are providing to those who produce Programs of National Interest.
1722 COMMISSIONER KATZ: Am I correct --
1723 THE CHAIRPERSON: Can I just finish what you just said?
1724 Do I understand that you would be prepared to accept a higher minimum if there was a flex?
1725 MR. CRULL: I am going to get kicked under the table by everybody, but I think I am pointing out that the reason --
1726 THE CHAIRPERSON: No, I am just taking up what you told me a moment ago.
1727 MR. CRULL: Yes, what I am pointing out is that the way we interpret a minimum is that we won't go below 5.
1728 So, as long as you give me flexibility plus or minus, and the minus goes down to the 5 percent minimum, then I am just fine. That's the way we intend to implement this policy, as we have submitted it.
1729 THE CHAIRPERSON: And you catch up in the next year?
1730 MR. CRULL: No, no, no. I am saying, over the entire period, if it's plus or minus -- sometimes it will be 5.3, 5.4, sometimes it will be 5.0, and I don't want to be punished when it's 5.0, and I don't want to be punished if it's 5.0 for five years, because practically --
1731 I think that Ms Coe pointed out how practically difficult it is to be that precise.
1732 THE CHAIRPERSON: Nobody underestimates the difficulty of being precise, that I understand.
1733 Okay, Len, back to you. Sorry.
1734 COMMISSIONER KATZ: Thank you.
1735 Am I correct that in 2009, when you say that your total is 5.8 percent for PNI -- if I look up at Category 7, it was 68.8 percent, which is roughly 70 percent. Can I take 70 percent of the 5.8, which is 4.1, and say that you spent 4.1 percent on Category 7 drama in 2009?
1736 Is that a correct mathematical calculation?
1737 Therefore, in 2010, it's 70 percent of 5.9, which is 4.2?
1738 So you have never actually hit 5 percent in the last three years on pure Category 7 drama.
1739 MS BROWN: Yes, that's correct.
1740 COMMISSIONER KATZ: And it was only with docs and the award shows that you got it above 5.
1741 MS BROWN: Yes, that's correct.
1742 COMMISSIONER KATZ: Were you here yesterday when Mr. Brunton of Insight Productions was here? Did you hear him at all -- anybody?
1743 No.
1744 MS BROWN: We missed something.
1745 COMMISSIONER KATZ: You should read the transcripts.
1746 He talked very prominently about PNI, but also about reality programming and other things that he does. He spoke very highly of you folks, and he spoke very highly of the other broadcasters, as well. He seems to be someone who sort of goes where the money is. If there is an audience somewhere, he will do it. He didn't seem to be as focused on just doing drama.
1747 He talked about Canada Sings, which is a new program that he is trying to get on. I am not sure if it's with you or with somebody else, but he seemed to be very high on it, as well, talking about these types of issues -- that are purely Canadian, speak to Canadians, and should be done, as well.
1748 I was wondering whether you had any thoughts as to how our policy might help or hinder his entrepreneurial spirit in what he is trying to do.
1749 MR. CRULL: I think that we would concur that we think the categories of Programs of National Interest, some of the Canadian talent shows and things of that sort -- Canadian Idol -- you are thinking Dance Canada -- and it sounds like he is working on others -- have a place in the category.
1750 And those programs are popular with audiences today. They may not be popular with audiences in three, four or five years.
1751 But right now, I think, as you say, going where the audience is and the money is, that's what John is doing, and that's what happens for us, as well.
1752 It boils down to flexibility.
1753 COMMISSIONER KATZ: Could I take you to the pink pages, the confidential data for CTV/GM?
1754 When we look at the total CTV/GM revenues -- and it doesn't matter what year it is -- when you invest in a Canadian program that goes into the conventional television slot, presumably the expenses to that show are allocated to the conventional category.
1755 MS BROWN: Yes, and if we share it across multiple networks, then we share the costs across multiple networks.
1756 COMMISSIONER KATZ: Okay, that's what I want to understand. When you put on a program and it's for conventional, and then a year later or six months later you decide to run it on Bravo or Showcase, or whatever you own in the way of specialty programming, the revenues from that would go into the specialty category. How do you deal with the cost allocation?
1757 How do you apportion the costs when the costs are borne one time, and now you are putting it on various programs?
1758 MS BROWN: The figures that we report in our CPE are consistent with our amortization methodology, so they are not necessarily the cash flow that went out with respect to the program.
1759 We make an assessment for each program, about its useful life, how many times we will run it, and we actually amortize the cost over multiple periods.
1760 And the policies actually vary between our conventional networks and our specialty networks, because programs tend to get used on a more stripped or repeated type of basis on specialty, where we will take sort of a time-based approach, typically speaking -- I mean, there are obviously event-based exceptions -- as opposed to conventional, where, with each airing, a certain cost will attach.
1761 We try to be very cognizant of keeping the money in the right place, because it's important to us, also, for measuring the overall performance of the business.
1762 COMMISSIONER KATZ: How do you allocate the costs for the purpose of this sheet? Where are 100 percent of the costs of Flashpoint, and where is all of the revenue that comes out of it?
1763 MS BROWN: Flashpoint is quite straightforward because it only airs on the CTV conventional network. All of the amortization and all of the revenue is in our conventional numbers.
1764 COMMISSIONER KATZ: Okay. Pick one that actually airs on one of your specialties.
1765 MS BROWN: etalk, for example, is a program where we share the costs with our E! network and our conventional network. In that case, they are on, approximately, a 50:50 basis, because of the amount of airtime that it gets in both places, where it repeats several times over the course of the day on E!
1766 I am not trying to make it more complex, but there is not one answer that fits all programs. We actually do have to look at shared content on a case-by-case basis.
1767 MR. CRULL: I think the Commission should take comfort that the allocation methodology is something that is obviously scrutinized intensely, for two reasons, because of managing the business and wanting to really understand where costs are. So what you are seeing in our allocation is exactly what we use for financial reporting and business decision-making.
1768 But, also, some of our properties have other owners. We share Discovery, which, as a matter of fact, has another owner.
1769 So there is auditing of the financials and things of that sort that ensure the costs are allocated reflective of the airings.
1770 COMMISSIONER KATZ: You are telling us that the so-called long tail, where you own 100 percent of the programming -- forget about Discovery, where you share it -- you are comfortable that we can make a rational decision with the data in front of us, that has been allocated fairly and equitably, if this long tail goes out for two or three or four years? You have allocated the revenues in the right proportion to the expenses, which are one-time expenses that were done three years ago?
1771 MR. KING: Let me answer that.
1772 When you talk about shows that are repeating two or three years later, the revenues that they are generating on specialty channels are very minor. They are typically ROS, or run-of-schedule advertising, so it would be an incredibly tiny portion.
1773 Having said that, we do capture it, but --
1774 I use Corner Gas as an example. It does repeat still, to this day, on --
1775 COMMISSIONER KATZ: What program?
1776 MR. KING: Corner Gas, which ended its run, I guess, three years ago now. It's still running in a strip on the Comedy Network, but it is not generating significant weekly advertising.
1777 It is captured, but it is very tiny.
1778 MR. CRULL: It would be reflective, I think -- Vice-Chair Katz, this would be exactly reflective of that.
1779 COMMISSIONER KATZ: Okay. When one looks at the first page on revenues, it is pretty clear that 2012 over 2011 conventional -- the revenues are growing at twice the specialty.
1780 ###################################################################################################################################################
1781 Why would conventional in that year grow by twice the growth in specialty?
1782 MR. CRULL: You have the Olympics in 2012 on conventional in our outlook, so --
1783 COMMISSIONER KATZ: 2012?
1784 MR. CRULL: Yes, London.
1785 I don't know, Clare, if you know the part of that 868 that would be Olympic.
1786 MS BROWN: ##############################################################################################################
1787 COMMISSIONER KATZ: So then every second year you have an Olympics. You do summer/winter, summer/winter?
1788 MS BROWN: No.
1789 MR. CRULL: I don't believe that in `14 and `16 we do, only `10 Vancouver and `12 London.
1790 COMMISSIONER KATZ: In your remarks this morning, in paragraph 20, you say: "While it is in fact 30% of our revenues, it actually represents nearly half of our programming and production expenses."
1791 And that is what this coloured chart, I guess, reflects.
1792 So if I take that statement and reverse it, 70 percent of your revenues come from the other half of the programming and production, which is the foreign and the non-Canadian?
1793 MS BROWN: The 30 percent number that we are talking about there, we are saying that we have to devote 30 percent of our revenues to Canadian programming.
1794 The approximate split between our Canadian programming and our foreign programming is more like 40 percent Canadian and 60 percent foreign, but that includes an allocation of our sub-fees. There is some debate on the best methodology to do that.
1795 And that would include, obviously, just for the licences in this group, not including our sports services.
1796 COMMISSIONER KATZ: Okay. To understand your business model, the page that has your CPE and your FPE, your foreign, if I look at the forecast years 2012 to 2016, virtually 50 percent of your expenditures are on foreign and 50 percent are on CPE.
1797 The foreign is actually 49, 48, 48, 48 and 47. I have calculated it.
1798 So half of your expenditures are foreign and half are Canadian, which is a change from what it has been in the past, where it has been more foreign and less Canadian.
1799 MR. CRULL: That's correct.
1800 COMMISSIONER KATZ: And you are saying that, with that cross-over of more foreign and less Canadian, you can still hold your PBIT, on the first page, in those years at 30 percent for specialty?
1801 Because it is flat across the board for specialty, and it's anywhere from 12 to 15 percent overall.
1802 MS BROWN: Yes.
1803 MR. CRULL: That's the plan, yes.
1804 I understand the question. That is the plan.
1805 I think that is the crux of the difficulty of absorbing an increased mix of Canadian spend, which we know brings a lower margin, and finding a way to hold margins.
1806 COMMISSIONER KATZ: So 30 percent of your expenditures are Canadian programming, 30 percent would be foreign programming, if it's 50:50, roughly, and 40 percent would be overhead and fixed costs?
1807 MR. CRULL: No, no. I'm sorry, I think that the 28 percent, or the 30 percent, that is simply dividing -- in fact, the application of the CPE is 30 percent of revenues.
1808 So that is simply dividing the Canadian expense by our revenue.
1809 COMMISSIONER KATZ: Right.
1810 MR. CRULL: And I do believe that you draw a fair conclusion when you conclude that it is 50:50; that 70 percent of our revenue does come from foreign, despite it being 50 percent of our programming expense.
1811 I think that you are drawing the correct conclusion.
1812 Hence, the challenge that I point out of this policy increasing that burden; and, yes, it is absolutely the plan to hold margins on specialty.
1813 ###################################################################################################################################################
1814 I can tell you that when you have forward-looking financials, the one thing you can be certain of is that reality will differ. I can't continue to operate a business in conventional that has negative operating income. So we are going to try not to have even those 3 percent PBITs occur in conventional.
1815 COMMISSIONER KATZ: That's what I was getting to. You have very low PBITs across the board.
1816 Are these your forecasts for your business?
1817 MR. CRULL: Yes.
1818 COMMISSIONER KATZ: These would have gone to the Board of Directors of BCE?
1819 MR. CRULL: Yes.
1820 COMMISSIONER KATZ: Those are my questions, Mr. Chairman.
1821 THE CHAIRPERSON: I would like to go back to the issue of recapture. I get very little comfort when somebody says that there is small commercial value and we do some recapture.
1822 Can you not file with us what you actually do with regard to two programs?
1823 Take Corner Gas and take another one that you do and show me exactly what you do and how you do it.
1824 Thank you.
Engagement
1825 THE CHAIRPERSON: Suzanne...
1826 COMMISSIONER LAMARRE: Thank you, Mr. Chair.
1827 Olympics -- I have a few questions to ask, and they are based on the discomfort I have when I hear you repeat over and over again that we should not consider Olympic revenues when we calculate forward CPE obligations.
1828 There are four reasons why I feel this discomfort. I will outline them, and then you can answer them.
1829 MR. CRULL: Just in case -- before we spend that energy, we absolutely plan on and have submitted that we will apply the Canadian Programming Expenditure, our 30 percent obligation, on future Olympic revenue.
1830 So that is what our solution is.
1831 COMMISSIONER LAMARRE: Okay. So we will save energy, and I didn't have to read what you submitted yesterday or this morning.
1832 But, then, why are you concerned about the 2010 Olympics?
1833 As I read the policy, the way it is written -- and, quite frankly, I was part of the panel that adopted the policy. The way I understood it, also, was that we would take into account the previous year's revenues.
1834 So for 2011-2012, the Olympics do not factor in.
1835 So if you would just drop this issue about trying to get an average over the last three years, you wouldn't have a problem at all.
1836 MR. CRULL: I think that we often raise the Olympics because, in fact, if you look at the Commission's chart, our whole point has been that the Vancouver Games are a particular anomaly when drawing a conclusion about history.
1837 COMMISSIONER LAMARRE: About the history. Okay. That's fair enough.
1838 But, quite frankly, you talk about it as an anomaly. If you asked me, it's becoming a habit.
1839 MR. CRULL: Oh, 2010, I promise you -- I promise you on my career -- that is an anomaly and it will not be a habit.
1840 COMMISSIONER LAMARRE: Well, it was in Canada, so I will grant you that. Even though they will be the summer Olympics in 2012, maybe you won't get as much of an audience. Maybe you won't get as good ratings and as much revenue. Okay, we will see about that.
1841 So you will not request that future Olympics be left out --
1842 MR. BIBIC: No.
1843 COMMISSIONER LAMARRE: -- because, obviously, you are going to want those expenses to be taken into account in your CPE calculation.
1844 MR. BIBIC: Commissioner Lamarre, may I just make a last point on the Olympics?
1845 Clearly, all of the projections going forward, and how we have calculated the formula, include Olympic revenues for 2012 London.
1846 The point we are making -- and I have been having a hard time squaring the circle on this, but the Commission's paragraph 50 said "Minimum 30 percent." Fine. Peace. We step up to 30 percent.
1847 But it also says, in the very same paragraph: The Commission does not intend to impose, at this time, additional obligations on the groups beyond their recent historical expenditures.
1848 All we are trying to show on this pink sheet is that CPE, as a whole, in 2008 was 28 percent, in 2009 was 28 percent, and in 2010 it's not 40. Of course, with the Olympics it is 40; without the Olympics we are trying to show a normalized -- the average -- it's 29 percent.
1849 So there is a step up in the obligations being imposed.
1850 We are not quibbling or quarrelling with it, we just want the Commission to appreciate that there will be, with this policy, an additional obligation on us, contrary to paragraph 50, and you can't square that with a minimum 30 percent.
1851 But, fine, we are stepping up to the 30 percent. That's the point.
1852 COMMISSIONER LAMARRE: Okay. Fair enough.
1853 I think you would agree, also, when you look at the 2010 figures, that you can't just remove the Olympics, the revenues from the Olympics, to try to make the equivalent percentage, because during those two and a half weeks, as you are airing the Olympics, you are not airing your regular schedule, which would generate revenues in lieu of the Olympics.
1854 MR. CRULL: That's a very good point. When we normalize without the Olympics, we assume that regular schedule.
1855 It's a very good point, and we do normalize including that.
1856 COMMISSIONER LAMARRE: Okay. So good luck in London. Thank you.
--- Rires
1857 THE CHAIRPERSON: Tom...
1858 COMMISSIONER PENTEFOUNTAS: Thank you.
1859 ###################################################################################################################################################
1860 MR. CRULL: That's a great question.
1861 There is a confluence of factors. There is definitely an advertising revenue rebound that we are feeling, and it's most profound this year, much more than in 2010.
1862 There is also, this year -- we mentioned at our last hearing that there was a significant accomplishment in renegotiating and lowering the cost of our U.S. programming. So there is a bit of a one-time step trajectory.
1863 In fact, when I look at the next two quarters, we are going against the broadcast year 2011, so it's starting to slow down already. ##############################################################################################################
1864 COMMISSIONER PENTEFOUNTAS: That is not going to carry over into the following years.
1865 MR. CRULL: It's not repeatable. It will carry over. In fact --
1866 COMMISSIONER PENTEFOUNTAS: It's like recession pricing, and it is going to go away?
1867 MR. CRULL: Yes. You almost need recessions, as I have learned, in your negotiations with these guys to reset the bar.
1868 In our early negotiations for the 2012 broadcast year, so far -- #####################################################################################################################################################################
1869 COMMISSIONER PENTEFOUNTAS: We will see what we can do about some more recessions to keep your PBITs up.
--- Rires
1870 COMMISSIONER PENTEFOUNTAS: Insight yesterday -- I have forgotten his name -- Brunton.
1871 Yes, you did miss something. He came in and he spoke about the shows that he has done with you. He didn't pitch you guys, he pitched Shaw, but getting back to the Juno costs, #####################################################
1872 What is it going to take to make money on Junos?
1873 MR. CRULL: #####################################################################################################################################################################
1874 COMMISSIONER PENTEFOUNTAS: #####################################################################################################################################################################
1875 MS BROWN: ##############################################################################################################
1876 COMMISSIONER PENTEFOUNTAS: And the revenues you had on 2.4 million viewers?
1877 MR. KING: ####################
1878 COMMISSIONER PENTEFOUNTAS: #######################
1879 MR. KING: #######################################################
1880 COMMISSIONER PENTEFOUNTAS: Come again? I lost the numbers there.
1881 MR. KING: ##############################################################################################################
1882 COMMISSIONER PENTEFOUNTAS: ##############################################################################################################
1883 MR. KING: That's right.
1884 COMMISSIONER PENTEFOUNTAS: You would have to do, what, 3.5 million viewers to break even, by that calculation?
1885 MR. KING: I guess that's simple math -- yes, I guess so.
1886 I think it's a combination of what Kevin said -- and we renewed it. It's an important show for us, so we renewed it. One of my first tasks in my new role was to renew it.
1887 We have four years to get the revenue up and try to get the costs down somewhat. So I think it is going to be a combination of both.
1888 But the good news is, we will go out to the market with a higher rating than we have had in the past, so that should close the gap somewhat.
1889 But the Toronto 40th Anniversary was a very special one, and had an unbelievable amount of super stars. It's in this city next year, and repeating that will be difficult.
1890 COMMISSIONER PENTEFOUNTAS: You based your numbers on the 1.6 million viewers that you had last year --
1891 MR. KING: Correct.
1892 COMMISSIONER PENTEFOUNTAS: Was it in Newfoundland?
1893 MR. KING: Yes.
1894 You typically sell on last year's ratings, so --
1895 COMMISSIONER PENTEFOUNTAS: And there is no adjustment done --
1896 MR. KING: No, that's the way the advertising works. If it's a higher rating than we thought, they give us a bonus. If it's less, you actually owe them money.
1897 MR. BRACE: Quite often, with these types of shows -- or with shows -- if they are repeatable, if they have some shelf life, of course, you can accumulate revenue against the cost. With the Junos we do get some repeatability, but it's a very small window, as you can appreciate.
1898 COMMISSIONER PENTEFOUNTAS: You are obviously not participating in the revenues created by exposing all of these bands and artists, right?
1899 MR. KING: No.
1900 COMMISSIONER PENTEFOUNTAS: You are good corporate citizens. Congratulations.
1901 THE CHAIRPERSON: Peter...
1902 COMMISSIONER MENZIES: Just a curiosity. Whose rule is it that stops you from cancelling a show when it's a failure?
1903 MR. KING: It's not a rule, it's just a practicality. If we did, we would be worse off.
1904 Let's say that we commissioned 13 episodes of a drama, and we spent the money to do so, so the money is kind of spent. If we don't air that, we are now in danger of not making our Canadian content exhibition, so we have to run it.
1905 And we have sold it to advertisers and things like that, so we do have to do it.
1906 The U.S. -- it's just a question of scale. If they have a 13-episode show and they cancel after three episodes and they just never run it, they just move on with another show that is already developed and is sitting on the shelf as what they call a mid-season replacement, or another show.
1907 We just don't have that luxury in Canada of having another show ready to plug in.
1908 So it's not a rule, it's just a practicality of how it happens.
1909 COMMISSIONER MENZIES: Good. Thank you.
1910 Well, not good, but...
--- Rires
1911 THE CHAIRPERSON: Let me come back to PNI.
1912 You have filed with me this sheet here, which says: "Bell Media Group Licence Renewal Spend --"
1913 It's white, it's not protected, et cetera.
1914 ###################################################################################################################################################and the overall total is 5.2.
1915 Now, you went on with Commissioner Katz for so long, and they are complicated numbers. I only pretend to follow half, but I know the bottom line is that you didn't spend 5 percent on drama, and that's what you are trying to demonstrate. I got that.
1916 I am slow on numbers, but at least that part I got.
1917 We have fixed 5 percent as a minimum in our policy because we only had drama data. You are telling me now that part of our drama data was wrong, or we didn't calculate it properly.
1918 We created this new category, this piece called PNI, which consists of three. As a result of this, in 2008 it was 7.5. In 2009 it was 5.8. In 2010 it was 5.9, and in 2011 5.2.
1919 And now, as a glorious result of the new policy, if I accept the Bell proposal, it will be 5 percent from hereon in. We have a declining slope.
1920 We give you the flexibility of spending as much as you want on documentary and on drama or on awards shows, as your business sense tells you. We give you that flexibility and, as a result, what we get is an overall lessening of those three categories than there was in the previous four years.
1921 I don't understand how --
1922 MR. BIBIC: Mr. Chairman, I disagree with that bouncing ball.
1923 The problem with the decision -- paragraph 75 -- is that it uses the wrong baseline to set that minimum. That's why the point about drama being less than 5 percent is key.
1924 It says in paragraph 75: "Analyzing past expenditures for drama only, the Commission has determined that group expenditures of at least 5% of gross revenues...is appropriate." Then we will get the most up-to-date numbers and we will set the real percentage in the hearing.
1925 THE CHAIRPERSON: Wonderful, but --
1926 MR. BIBIC: But, Mr. Chairman, if you look at our past expenditures on drama, they are: 3.99, 4.13, 2.97. So where did 5 percent come from?
1927 Where did the minimum --
1928 THE CHAIRPERSON: I just said that we got drama wrong. I don't dispute that point. But the total of the three categories is not 5, for the last four years, no matter what mathematics you apply, and yet you want me to lower all three to 5. That's the point that I am trying to make.
1929 MR. BIBIC: I see. But here is what we are saying. We are saying that we are stepping up to the 30 percent, even though it is imposing an additional burden, number one.
1930 Two, we recognize that PNI is important and a meaningful category, and we will step up to a minimum of 5 percent, which is not all that far off from what we have done historically, recognizing that we will never be able to hit that bull's eye, but we promise never to go below.
1931 So I think, in actual fact, what Kevin was saying is, the way it will work out is that we will be hovering around the numbers that we have done in the past, and it won't go down.
1932 We will retain the flexibility to spend the right amounts of money on other types of Canadian programming, many of which are actually making more money, or are less unprofitable, and overall the objectives are met and we get the right amount of flexibility.
1933 That's what we are asking. In the circumstances, 5 percent is the right number.
1934 THE CHAIRPERSON: When you were here on Monday, I asked: Where is the quid pro quo?
1935 You are getting the flexibility. The 30 percent -- your historical numbers show you at 29 and change. And, I agree, you have accepted that. That's fine.
1936 We clearly pointed out that PNI is at the heart of this, and I cannot, for the life of me -- maybe we got drama wrong, but the three categories --
1937 We now have the numbers that we didn't have when we made the policy. If I had had these numbers, the policy -- let's say that I would have taken an average of the last three years: 5.9, 5.8 and 5.7. It works out to something like 6 and change. You know, we probably would have said 6 percent or something. I don't know, we would have to go through each group.
1938 But to come out now with a number that is lower than any previous year just doesn't make sense. It's not saleable.
1939 I don't know how else I can explain it.
1940 MR. BIBIC: Okay. Let me try it another way.
1941 We spent a certain percentage of revenues on Canadian programming in different categories of Canadian programming in the past with a different regulatory framework.
1942 THE CHAIRPERSON: Yes.
1943 MR. BIBIC: Now, the Commission is opposing a different regulatory framework with more flexibility, yet is going to hold, by your logic, sir, will hold us to exactly the same amount of money that we spent in the past under a different framework.
1944 THE CHAIRPERSON: No, no. Well, you are the one who had read back to me paragraph 75, and what we are clearly trying to do is not to impose something -- we certainly nowhere said that we are lowering your past performances on Canadian content.
1945 The very point of our existence is to make sure that there is maximum Canadian content, not to lower it. And we have identified PNI as the heart of Canadian content and that very heart you are trying to lower.
1946 MR. BIBIC: But if you lock us into what we spent in the past under a different framework and you do the same to the others, we are all going to have different PNI percentages and that reduces our flexibility vis-à-vis the others, simply because CTV at the time spent more and invested more time and energy on PNI.
1947 And so it locks us into a category of programming to a greater degree than others that's less profitable or more unprofitable if you wish.
1948 THE CHAIRPERSON: Any minimal that you establish becomes automatically the maximum. You know that as well as I. No doubt you will do your best to come in as close as you can.
1949 MR. CRULL: Well, I don't think that's true because in the hours -- you set hours of minimum programming for various categories and I think, as I have sat with these teams when it makes business sense, we exceed those. There are -- in fact, in order to never fall below you have to set a business plan to exceed them.
1950 I assumed, Mr. Chair, that the 5 percent was a number that you looked at and you said, "If I'm going to change the policy, change the policy of how we focus spending on programs of national interest".
1951 If I'm going to change it I'm going to go from an area where the industry was regulated with one set of rules that were common across all participants but each of them approached it differently. So their historical spending created different numbers.
1952 And I assumed that you looked at all of those numbers and said that for the industry we think 5 percent is the right number. Somebody was slightly above 5 percent; somebody was slightly below 5 percent. But because we are moving from an old model to a new model we have to pick a number. We have to pick a number that applies to everybody. Somebody was a little bit above it. Somebody was a little bit below it.
1953 The pro quo that we are giving you -- the pro quo that we are giving you is $265 million in a business that is tremendously financially challenged. I'm committing that 50 percent of my costs is not going to make money. That is quite a pro quo.
1954 THE CHAIRPERSON: But if I take what you have just said, we basically made -- as you say, we made a decision of 5 percent; that's it, period, why are we even bothering about having this here, having PNI as a subject matter for discussion at this hearing?
1955 I mean that's how you read it.
1956 But we didn't stop by saying at least 5 percent of gross revenue is appropriate. We then said:
"The large groups will be required to file, as part of their renewal applications, their historical spending on long-form ... Based upon its analysis of these past expenditures, the Commission will establish, at licence renewal, a base level spending requirement for programs of national interest and determine whether any increases over the licence term may be necessary."
1957 Past experience -- we didn't say based on 5 percent. I mean you ignore that sentence. That sentence was there. It was written there for exactly that we can have the discussion we are having today.
1958 MR. BIBIC: Yeah, and we are saying if you look at the overall circumstances, the fact that we can -- you know we have been at 5.8, 5.9., 5.2; given the challenges of PNI and given that we will never hit 5 percent exactly, based on all those circumstances you are now making your determination as to whether any increases over the licence term may be necessary.
1959 And we are asking you to say no, stick it to 5. We are not saying you locked yourself into 5 but you are saying -- what I'm saying is we gave ourselves the flexibility to come or the decision gives us the flexibility to come before you and make our case. We think 5 percent is the right number under the circumstances. That's what we are saying.
1960 MR. CRULL: We also appreciate that what you are wrestling with and the regulatory symmetry is such an important part of our perspective in this hearing and in every hearing that BCE comes before you. And I think what you are wrestling with is you know applying that to everybody and the overall implication on spending.
1961 And, you know, I think at the heart of this I'm saying that the guys who were below it need to come up to 5 and that the dollars of a PNI, in fact, I have looked at for Rogers going from 3 to 5, that 2 percent is $8 million. In fact, no, I think it's $6 million.
1962 So I think that it does get to the root that regulatory symmetry is so important. These are very similarly-situated large operating groups and it's so hard for this team to absorb that our behaviour in the past will punish us in the future vis-à-vis the behaviour of others. And so that's where we stand.
1963 THE CHAIRPERSON: Okay. Tom?
1964 COMMISSIONER PENTEFOUNTAS: Yeah.
1965 Your historical spend is over 6 percent if we exclude 2008 on PNI, just to make myself clear.
1966 You are somewhere north of 5.5 percent. Is that correct?
1967 MR. CRULL: It's 5.6. Yeah, 5.6 is the average.
1968 COMMISSIONER PENTEFOUNTAS: So that your historical spend is 5.6.
1969 If all the players were at 5.6 is that basically what you are asking for today? I know you are asking for 5. You are asking for 5 and you are asking for everybody else to be at 5; is that correct?
1970 You don't want to be punished for the fact that you may have spent more than someone else. Fine, but will you spend historically -- I'm excluding the 7.5 in 2008.
1971 For the sake of argument you are at 5.6. If everyone was at 5.6, you could live with that?
1972 MR. CRULL: I think that would be consistent with the arguments we have put forth. The only thing that would, I think, violate is it would cause overall as a group -- as a group for the three companies, it would cause spending to increase.
1973 I don't think that that was the intent and it's stated that the intent isn't to cause the overall spending to increase.
1974 COMMISSIONER PENTEFOUNTAS: That would be consistent with the policy.
1975 MR. CRULL: M'hmm.
1976 COMMISSIONER PENTEFOUNTAS: With your understanding of the policy as it was laid out in the fall?
1977 MR. CRULL: Correct. Just I guess the other thing that's hard for me is I applaud and I appreciate and I'm actually very sympathetic to the different sides of the table.
1978 And I appreciate that the benefits spend that we are putting in is because we have completed a transaction and that's our obligation. The Commission was flexible with us on our benefits, and we are appreciative of that.
1979 But when I just look at the mathematic of the money flowing over the next five years, I sort of feel like this isn't the year to have this debate. The PNI is getting a really, really big lift over the next five years.
1980 Five years from now if we are renewing our licence and there have been no transactions to create benefits then you might sit there and say, "We are really worried about a decline in spending on PNI" and I could see that angle. I don't understand when there is a guaranteed 28 percent increase in PNI flowing, I don't understand why it's the point in this hearing.
1981 COMMISSIONER PENTEFOUNTAS: Well, because the intervenors will tell you, you are punishing PNI because you are merging and acquiring and the only reason all that money is there because there were transactions that occurred and that was part of the cost of the transaction basically.
1982 So you know the intervenors are going to say, "Why are you punishing us if you guys want to wheel and deal?"
1983 MR. CRULL: But I think the practicality is that there is a guarantee --
1984 COMMISSIONER PENTEFOUNTAS: I understand the practicality.
1985 MR. CRULL: There is a guaranteed amount of money and in the next licence renewal there may not be that guarantee. It's going to the same people.
1986 THE CHAIRPERSON: Len, you had a question?
1987 COMMISSIONER KATZ: Yeah, I want to come back to the discussion that I referred to with Mr. Brunton yesterday and I think Commissioner Simpson raised it as well, and that's this reality programming and Canada Sings and Canadian Idol and all these things that make Canada unique and distinct.
1988 Does that make money for you?
1989 MR. KING: Boy, I wish I had better news there as well.
1990 ###################################################################################################################################################
1991 So the answer is no, it does not make money.
1992 MR. CRULL: ######################
1993 MR. KING: Yes.
1994 MR. CRULL: ##############################################################################################################
1995 And believe me, that's something that I have scrutinized extensively, whether we should be airing it or not and not airing it doesn't cut the loss by much.
1996 COMMISSIONER KATZ: So you are saying that even if we took a look at some of these shows that are on the shoulder, basically, of the definition that have been moved across wouldn't help you at all?
1997 MR. KING: I think it would. If you are asking if we are flexible on a definition of PNI and we allowed a certain type of reality shows, my belief why they were excluded was you didn't want broadcasters doing $10,000 cooking shows and saying that's PNI. So I can appreciate why it was removed.
1998 But the big budget Canadian Idols, So You Want to Dance, the show referred that's gone CanWest, those are nation builders. It's going after youth and it's engaging them in the system that we do.
1999 #####################################################################################################################################. So broadcasters are making a bet on how well it does. We bet on the wrong horse on this one.
2000 And it fell off a little bit in this last year and we already had -- the way you have to commission things is such in advance before you get a real clear picture of your revenue, we are in too deep on this. If we could reduce the costs or do something about that we would do so, but it's just the nature of it, the long planning process that goes in.
2001 But something like a Canadian Idol and things like that, it started to make money out of the gate and they have a shelf life. The trick for broadcasters is to know what year to get out when you think your costs are going to keep escalating and your revenue is going to go the wrong way. That's difficult to do.
2002 But I would argue that if you allowed a certain portion of that, and I don't have the answer -- I think that's probably a good debate -- I think it would be helpful in the flexibility and then people could decide for themselves whether or not they want to get into producing very expensive -- what I call things that bring a nation together, not the $10,000 cooking shows. I don't think they should count.
2003 COMMISSIONER KATZ: Can you provide us with how much expenditures you incur a la this 2008-2010 Category 2(b), 7 for those types of shows that you think could be captured in a more flexible definition?
2004 MR. KING: Yeah. We would be happy to.
2005 COMMISSIONER KATZ: How much you spent on each one each year?
2006 MR. KING: Yeah, we can do that.
2007 COMMISSIONER KATZ: And what's included in there?
2008 MR. KING: For sure.
Engagement
2009 COMMISSIONER KATZ: That would be helpful.
2010 THE CHAIRPERSON: The flexible competition is what clearly in the genre of So You Can Dance or Canadian Idol, in effect anything that is a demonstration of Canadian talent and not a cooking show or such like that. Okay.
2011 I think we are not going any further. I just leave you with this.
2012 Yes, go ahead.
2013 MR. BIBIC: I hate to do this. I don't know if we should have the debate or not but it's on the second pink sheet.
2014 THE CHAIRPERSON: Yes.
2015 MR. BIBIC: We haven't discussed this, the application of the Commission's formula for calculating CPE.
2016 THE CHAIRPERSON: Yes.
2017 MR. BIBIC: This calculation here reflects a straight bottom-line 30 percent in the manner that we had initially submitted but is not -- these numbers wouldn't be derived using the Commission's formula in paragraphs 50 to 52. We had filed it both ways last week after discussions with staff.
2018 I don't know if this indicates where the Commission is headed in terms of applying or changing the formula or which mechanism to apply, but I just thought I would raise it in case it merits a discussion.
2019 THE CHAIRPERSON: Len, did you have anything?
2020 COMMISSIONER KATZ: Well, what it represents was what we tabled last week and in order to be consistent because each one of the four parties that came before us had a different nuance to it, we simply took this as being, "Let's standardize this so we can roll it all up and issue an aggregated set of numbers that anybody can look at on an apples to apples basis".
2021 We had not pre-decided anything at this point in time.
2022 MR. BIBIC: So the numbers would be slightly different if you were to apply the Commission's formula in paragraphs 50 and 52 is the point I wanted to highlight.
2023 In terms of illustration --
2024 THE CHAIRPERSON: Oh, sorry, so these numbers on this sheet here, this white one which -- but not -- all these numbers. What methodology did you use, our methodology or --
2025 MR. BIBIC: If you look at our package, the one with the colour bar --
2026 THE CHAIRPERSON: Right.
2027 MR. BIBIC: Okay. So if you go to page 3 of that --
2028 THE CHAIRPERSON: Yeah.
2029 MR. BIBIC: So we ended the session last Monday with a request that we file -- that we add LPIF revenues going 2013 and beyond, we add Olympic revenues in and we calculate the CPE under the Commission's formula and then under what we had proposed.
2030 THE CHAIRPERSON: Yeah.
2031 MR. BIBIC: So if you look at the third sheet in that package.
2032 THE CHAIRPERSON: Yes.
2033 MR. BIBIC: You will see the calculations based on the literal application of the formula in paragraphs 50 to 52.
2034 And if you flip the page you will see the calculation if you say at the bottom line it's 30 percent of group revenues all the way across the board.
2035 THE CHAIRPERSON: Okay.
2036 MR. BIBIC: And they do derive different numbers is the point I wanted to make.
2037 THE CHAIRPERSON: And the second one for you is slightly more favourable to you.
2038 MR. BIBIC: The second one is actually not, and that's another point.
2039 Baseball -- I should say this. This is a very key point.
2040 What the second one does that's of benefit to us, to be completely fair, is it provides absolute cost certainty. It's 30 percent regardless.
2041 The previous one, the Commission's formula --
2042 THE CHAIRPERSON: Yeah.
2043 MR. BIBIC: Based on the projections we have, derives overall numbers slightly below 30 but of course if our specialty revenues grow more than anticipated you know we would have to end up paying more than 30 percent. It depends on performance.
2044 THE CHAIRPERSON: And you prefer the second one because it gives you a business certainty for planning purposes.
2045 MR. CRULL: I think that we accepted -- as we re-filed we accepted the Commission's methodology. And based on our outlook I would say we prefer the Commission's methodology.
2046 THE CHAIRPERSON: Okay, thank you.
2047 Rita, did you have a question, or Steve? Steve, sorry.
2048 COMMISSIONER SIMPSON: Just one clean-up question.
2049 Going back to "A" Channel Production Fund a Nordicity report that came out earlier this week which you may or may not have had a chance to absorb fully, had pointed out that there was a fund shortfall potential that, I think, was in the vicinity of either $1.1 or $1.2 million. It illustrated that there was, through the inheritance of or the succession of ownership of "A" Channels, there seems to be incompleteness with respect to the actual expenditure versus commitment.
2050 I'm wondering if you could comment on that and if not, prepare a submission?
2051 MR. KEVIN GOLDSTEIN: You are referring to the AMPIA appearance from yesterday?
2052 COMMISSIONER SIMPSON: Yeah.
2053 MR. KEVIN GOLDSTEIN: "A" Channel seems to be a very popular name. The fund they are referring to actually, as I understand it, relates to the Citytv stations in Alberta which are owned by Rogers. We adopted the "A" Channel name post CHUM's acquisition of Craig Media wherein the "A" Channels that became Citytv's and what were called the NewNet became "A" Channel.
2054 Bottom-line, not our fund.
--- Rires
2055 COMMISSIONER SIMPSON: Okay. So when Craig had made -- because I think at the time of transfer of ownership to Rogers, Craig had also made a commitment of 2.5 mill or something like that and we lost track of it, you know, being in camera, so I was scrounging.
2056 MR. KEVIN GOLDSTEIN: I would encourage you to ask Rogers later today.
2057 COMMISSIONER SIMPSON: I will. Thank you.
2058 THE CHAIRPERSON: Okay, before I let you go, counsel, we have to read out the undertakings.
2059 But I would like -- I still think you and I have not completely seen -- I understand your problem. I don't think you understand my problem.
2060 And my problem is this page here that you furnished. As I say, I see it's a sliding PNI going from 7.5 to 5.2 which if I accept your proposal, goes down to 5.2.
2061 I, for the life of me, just in terms of explanation, et cetera, it creates a major problem because it basically can be portrayed as us, in effect, as a result of this policy not only giving you flexibility, but also giving you less obligation on the heart of Canadian content which is PNI.
2062 That's my problem, just so you understand it. You have obviously time to think about it. We will continue with the other groups, et cetera, but that's the nub of the problem, just so we understand each other.
2063 Counsel...?
2064 THE SECRETARY: We will just go out of in camera before.
2065 THE CHAIRPERSON: Yeah, that's a good idea. Let's finish the in camera. Turn on the internet, Madam Secretary.
2066 THE SECRETARY: Perfect, one minute.
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STÉNOGRAPHES
Johanne Morin
Jean Desaulniers
Monique Mahoney
Sue Villeneuve
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