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.

--- Suspension à 1234 pour reprendre immédiatement en audience publique


STÉNOGRAPHES

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Jean Desaulniers

Monique Mahoney

Sue Villeneuve

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