ARCHIVED -  Transcript - Hull, QC - 1998/11/23

TRANSCRIPT OF PROCEEDINGS

FOR THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

TRANSCRIPTION DES AUDIENCES DU

CONSEIL DE LA RADIODIFFUSION

ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUBJECT / SUJET:

PUBLIC HEARING EXAMINING NEW MEDIA /

AUDIENCE PUBLIQUE SUR LES NOUVEAUX MÉDIAS

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 23, 1998 Le 23 novembre 1998

Volume 1

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

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.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Public Hearing / Audience publique

New Media / Nouveaux médias

BEFORE / DEVANT:

David Colville Chairperson / Président

Telecommunications /

Vice-président,

Télécommunications

Commission / Présidente du

Conseil

Martha Wilson Commissioner / Conseillère

Cindy Grauer Commissioner / Conseillère

Joan Pennefather Commissioner / Conseillère

David McKendry Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Carolyn Pinsky / Commission Counsel /

Karen Moore Avocates du Conseil

Ted Woodhead Hearing Manager / Gérant de

l'audience

Policy / Responsable de la

politique sur la

convergence

Carol Bénard

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Québec)

November 23, 1998 Le 23 novembre 1998

Volume 1

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

Presentation by / Présentation par:

Interactive Multimedia Arts and Technologies 10

Association

Digital Media Champion Group 74

Communications Information Technology of Ontario 134

Mr. Andrew Clement 157

Pelmorex Inc. 194

NetStar Communications Inc. 232

Specialty and Premium Television Association / 280

Association de la télévision spécialisée et

payante

Hull, Quebec / Hull (Québec)

--- Upon commencing on Monday, November 23, 1998

at 0903 / L'audience débute le lundi

23 novembre 1998 à 0903

1. THE CHAIRPERSON: Good morning, ladies and gentlemen. Welcome to the public hearing on the rapidly expanding, increasingly available, range of communications services referred to as the "new media".
2. Je suis David Colville, vice-président, Télécommunications, du CRTC et je présiderai cette audience.
3. Permettez-moi de vous présenter mes collègues: à ma droite, Françoise Bertrand et Martha Wilson; à ma gauche, Cyndy Grauer, Joan Pennefather et David McKendry.
4. Les nouveaux médias entraînent des changements significatifs dans une industrie des communications qui évolue elle-même à une vitesse accélérée. Ils ont des répercussions de taille sur tous ceux qui travaillent dans ces domaines.
5. C'est pour s'adapter à ce nouvel environnement que le Conseil a amorcé un processus de planification stratégique en 1996. Le but de cet exercice était de nous donner les moyens de suivre de près tous ces changements et d'y répondre de façon efficace.
6. Pour passer de plain-pied à l'ère de l'information, nous nous sommes dotés d'une vision stratégique et d'un plan d'action triennal. Et, pour tenir compte des répercussions que pourraient avoir tous ces changements sur l'industrie des communications en tenant compte des objectifs de la Loi sur la radiodiffusion et de la Loi sur les télécommunications, nous avions déjà prévu, entre autres, un examen approfondi sur la question des nouveaux médias.
7. And in the broad context of the government's agenda to promote connectedness and electronic commerce, are there ways in which the existing Acts and regulations promote or inhibit that agenda?
8. Our job at the CRTC is to make sure that the tools are there to meet these goals as the communications environment continues to change. Or, conversely, to ensure that the existing regulations do not inhibit the development of the new media. We are not looking to apply old regulatory models to new media, nor do we have in mind any regulatory model.
9. Our objective at this hearing is simply to address three basic themes with regard to the new media.
10. First, in what ways and to what extent does or will the new media affect our regulation of the traditional broadcasting undertakings of radio, television and cable?
11. Second, to what extent do some or any of the new media services constitute broadcasting or telecommunications services as defined in our two governing Acts? And, if they do, how should we treat them consistent with achieving the objectives of those Acts while at the same time providing an environment which will stimulate the development of these new services?
12. Third, can we also use this public forum to provide information and recommendations to the government on broader policy issues, particularly as they relate to the government's connectedness agenda?
13. We will also use this public consultation process to explore the implications and significance that the new media hold for broadcasting and programming undertakings, producers, telecommunications carriers, access providers and all Canadians.
14. The Commission sees this hearing as an opportunity to investigate the current state of the Canadian new media industry and its domestic and global potential. To do this, we are taking advantage of the unique process of the CRTC to examine the issues the new media bring with them.
15. Our public proceedings are open to a wide variety of people. This hearing offers interested parties a forum to set out their views on the new media and engage in a constructive discussion on issues of concern. They offer a way to gather a complete record on the new media that will provide the Commission with a better understanding of the scope and impact of the new media, the evolving industry structure and the potential competitive access issues that may affect consumers in all regions of Canada.
16. Since we are exploring this field, we guarantee that we are open to any ideas about how the new media should be defined, or what role, if any, the Commission should play in their regulation or supervision.
17. We would hope that coming out of these proceedings we could overcome a considerable amount of the uncertainty surrounding the regulatory environment with respect to the new media.
18. The two public notices we issued announcing this hearing have sparked a lot of interest. We have received several hundred written and e-mail comments on this topic.
19. It is fitting that this hearing marks the first time the Commission has used an on-line forum to allow interested parties to comment on the issues being addressed. I would like to thank the McLuhan Program E-Lab Unit for hosting the on-line forum on behalf of the CRTC.
20. Que ce soit les citoyens préoccupés par ces questions ou les producteurs et les distributeurs, en tout 85 intervenants ont demandé à être entendus par le Conseil. En fait, ils ont été si nombreux à vouloir se faire entendre que nous avons prolongé de 10 à 12 jours la durée de l'audience.
21. Nous nous pencherons donc sur les questions qui ont été soulevées dans nos avis publics et dans les mémoires que nous avons reçus, comme par exemple, pour n'en citer que quelques-unes, la protection des renseignements confidentiels et la sécurité des transactions sur Internet; l'accessibilité; la diversité des cultures et la dualité linguistique; le respect des droits d'auteur; la taxation; les droits sociaux, sans parler des conséquences que pourraient avoir les nouveaux médias dans notre vie de tous les jours et de notre société.
22. Le Conseil tiendra compte de tous les points de vue et avis qui lui auront été soumis avant de rendre publique sa décision, au début de l'été prochain.
23. CRTC staff who will be assisting us during this hearing are our Hearing Manager, Ted Woodhead; Daphne Fry, Manager of Convergence Policy; Legal Counsels Carolyn Pinsky and Karen Moore; and the Hearing Secretaries, Diane Santerre and Carol Bénard. Please don't hesitate to call on them regarding any matters of process.
24. I will now ask our legal counsel Carolyn Pinsky to go over some of the administrative and housekeeping matters regarding the conduct of this hearing.
25. MS PINSKY: Thank you, Mr. Chairman.
26. Over the next 10 to 12 days the Commission will hear a number of oral presentations by interested parties. In addition to these oral presentations, all of the written interventions received to date are part of the public record of this proceeding.
27. Les parties sont invitées à s'installer en avant pour présenter leurs commentaires. Je rappelle que les parties ont 10 minutes pour leur présentation sauf si autrement spécifié par le Conseil.
28. In order that the people responsible for recording the transcripts can provide an accurate record I would ask, when you speak, that you press the small button on the microphone in front of you. This will activate the microphone and be indicated by a red light. As well, when you are not speaking, please ensure that the microphone is off; otherwise, this may cause interference.
29. Parties wishing to purchase copies of the transcripts, either in hard copy or machine-readable form, should make their own arrangements with the court reporters. The transcripts of the hearing are also available through the Internet.
30. With respect to sitting hours, we will sit from nine o'clock to one o'clock and two o'clock to six o'clock each day, except for Monday, November 30th, when we will adjourn at four o'clock for the Quebec provincial elections. We will break for coffee in mid-morning and mid-afternoon.
31. The entire record of the proceeding to date can be reviewed in the temporary public examination room located in the room outside of this hearing room, the Papineau Room.
32. Finally, I would like to remind all parties that this proceeding will conclude in February. Parties have the opportunity to file final written argument by the 8th of February and to present their argument orally during the week of February 8th.
33. Parties wishing to appear at the oral final argument phase must file their requests with the Commission by no later than 18 January. The Commission will notify parties with respect to their appearance.
34. I would remind parties that the oral final argument phase is for the sole purpose of allowing parties to present a summary of their written final arguments and not to reply to the filed written arguments of other parties.
35. Thank you very much.
36. Madam Secretary.
37. THE CHAIRPERSON: Before we call the first party -- were you going to do that?
38. MS SANTERRE: Yes.
39. THE CHAIRPERSON: Before we do that, I just want to make a couple of procedural or logistic comments.
40. We will be adjourning a little bit early tomorrow, probably about 4:30, because we have to appear before a parliamentary committee to talk about year 2000 issues.
41. Depending on how the hearing goes -- as I indicated, we have decided to extend the hearing from 10 to 12 days; we may not need that long and we may finish within the 10 days. If we do go beyond that, though, you will see an absence of two of the Commissioners here, the Chairman Françoise Bertrand and Joan Pennefather, because we have the French specialty hearings which will be taking place in Montreal that week; so they will be stepping down from the Panel for the Monday and Tuesday of what would be the third week of this hearing if we extend that long.
42. I should note in that respect that, because this is a policy hearing, all of the Commissioners will be involved in the ultimate decision and report that will come out of this proceeding, whether or not they are on the Panel.
43. With that, I think we can call the first party.
44. MS SANTERRE: Thank you, Mr. Chairman.
45. The first appearance this morning will be by Interactive Multimedia Arts and Technologies Association.

    0915

46. THE CHAIRPERSON: I probably should also note before we get started here that we are probably going to see a number of parties -- well, I know we are going to see a number of parties who haven't participated in our proceedings before. I want to assure everybody that what we are trying to do is better understand parties' positions and the issues surrounding this. We are not out to try to embarrass people or trip them up in detailed legal arguments or anything like that -- or vice versa.
47. It is interesting, somebody said to me this morning, "You know, the parties are always really nervous because they don't know what the questions are." In fact, many of the Commissioners get nervous as well. We all do usually when starting these hearings. So let's understand we are all starting from the same point.
48. Welcome, lady and gentlemen.

    PRESENTATION / PRÉSENTATION

49. MR. LANGLOIS: Good morning, Mr. Chairman and Members of the Commission.
50. Thank you for inviting IMAT to participate in the review of new media and for allowing us the honour of helping to set the stage by appearing first in this public hearing.
51. My name is Aurel Langlois and I am the President of the Interactive Multimedia Arts and Technologies Association, otherwise known as IMAT. I am also President of Electramedia, a company that develops original interactive new media content and is also a fee-for-service provider.
52. To my left is Maxim Engel, in charge of IMAT's External Relations. Maxim is the Chief Operating Officer of Gala Multimedia Inc., which develops original new media content.
53. To my right is Adam Froman, the President of the new media consulting firm Multimediator Strategy Group. Adam is the past president of IMAT and also an active member.
54. Behind me is Sam Punnett, Vice-President of R&D for Multimediator Strategy Group. Adam and Sam are the authors of the CanCon New Media Sessions Report prepared earlier this year.
55. To my far left behind me is Carol Anne O'Brien, an associate with Cassels Brock & Blackwell, which is IMAT's legal counsel.
56. IMAT is Canada's oldest, largest and fastest-growing non-profit, member-supported association for interactive new media professionals. It is dedicated to fostering the growth, promotion and international recognition of a world class interactive multimedia industry in Canada. IMAT currently represents nearly 700 multimedia practitioners, mostly from Ontario. The majority of IMAT's members are individuals and small companies. However, 130 of its members represent larger corporate entities and organizations.
57. IMAT's role is to act as the primary professional association for the interactive multimedia content production industry in Canada. It serves as a networking group and actively supports initiatives and partnerships with other organizations with the goal of creating a national interactive new media industry that has a focus on the global marketplace for our members' products.
58. In September 1998, IMAT and the Association des producteurs en multimédia du Québec announced their intention to establish a national umbrella organization to unite interactive multimedia producers across the country. This national initiative will allow the interactive multimedia industry in Canada to represent all stakeholders and to speak with one voice on national issues.
59. IMAT's members have participated in the tremendous growth of the new media industry in Canada. When my partner and I formed Electramedia in 1992, there were six interactive new media companies in Toronto. There are now over 400. IMAT had approximately 30 members in 1992; membership increased to 500 in 1996 and to 700 in 1998. It is IMAT's vision that the new media industry in Canada will continue to grow at comparable rates.
60. The global imperatives of new media and electronic commerce are such that the new media industry will continue to grow internationally. The Canadian interactive new media industry will grow as well. However, if we wish to ensure that Canadians continue to be leaders and champions within this global new media revolution and reap its benefits for Canadian society, we need to provide incentives for private capital to take the risks associated with this new industry and its emerging business models.
61. New media will have an impact on almost every aspect of communications between individuals, businesses and governments. From the perspectives of both business and culture, the continued growth of this unique cultural industry in Canada is imperative. For Canada to maintain its leadership position within the global new media industry, we must become knowledge exporters.
62. IMAT hopes that following this review the CRTC will be able to assist with the development of a supportive enabling framework for interactive new media. However, we note that this industry experiences paradigm shifts at an unprecedented rate. A generation can be as short as six months. This type of change is such that traditional regulatory mechanisms will not succeed in the interactive new media environment.
63. IMAT's members and the majority of the participants in this proceedings agree that the focus of the industry and of the CRTC should be on creating a healthy, vibrant Canadian interactive new media industry that can provide unique products and services for the Canadian market and for the world.
64. The question for the Commission in this proceeding is how to assist and support the growth of new media in Canada. If the Commission were to choose to impose a traditional regulatory model, the growth of interactive new media would be slowed significantly. The imposition of regulation would reduce investment and impose a heavy burden on a small, sunrise industry that is beginning to flourish but still in its infancy.
65. As the creators of interactive new media content in Canada, IMAT and its members do not seek the protection of regulation. This is the case even in the face of emerging competition from broadcasters and others who have significant access to capital and market power and are now entering the interactive new media world.
66. As noted by IMAT in its written submissions and by numerous other participants in this proceeding, regulating new media on the Internet in the same way as broadcasting or even telecommunications is neither desirable nor technically possible. Regulation cannot be justified on the grounds of natural monopoly or spectrum scarcity.
67. The global nature of on-line distribution of new media means that small, local participants cannot be protected from international competition by traditional regulatory barriers. Technical barriers to entering new media markets are low. Creators and producers of interactive new media have the capability of reaching large numbers of consumers around the world, directly without the intervention of traditional distributors such as publishers and broadcasters. However, financial barriers, such as access to growth capital for investment in interactive new media, are high.
68. Mechanisms that have been designed for mass media such as television and radio broadcasting cannot be translated so as to apply to interactive new media. Interactive new media is a unique medium. To the extent that new media shares some of the characteristics of broadcasting, it also shares characteristics of the postal service: over 80 per cent of the traffic on the Internet is e-mail, which are private one-to-one communications, in non-real time. A variety of delivery mechanisms are used for the distribution of interactive new media. For example, a significant proportion of new media content is still delivered by CD-ROM.
69. Global access means that access by Canadian consumers to unregulated international information sources cannot be prohibited, even if this was deemed to be desirable.
70. Finally, any regulation imposed on the Canadian interactive new media industry, particularly at this early stage of its development, would become a significant burden and place Canadian producers at a competitive disadvantage compared to their international counterparts.
71. As noted in the questions posed by the CRTC in its Public Notice, in IMAT's submissions and in the submissions of other participants in this proceeding, self-regulation can be used to reduce the dangers associated with illegal and offensive content on the Internet. The Canadian Broadcast Standards Council assists in controlling violence in television programming and the Association of Canadian Advertisers assists in controlling the distribution of unsolicited advertising. Similarly, associations representing new media producers and Internet service providers will be able to help to ensure that existing laws of general application are enforced and that codes of behaviour are developed as needed and enforced. In addition, screening software can be used by parents, employers and others who have concerns with respect to content.
72. The national initiative sponsored by IMAT and the APMQ will take the lead in implementing the recommendations of reports such as the Digital Media Champion Report and the Wall Report. The interactive new media national association will work in partnership with government agencies to provide an initial forum for the development of self-regulatory measures.
73. I would now like to introduce Maxim Engel.
74. MR. ENGEL: Thank you.
75. It is IMAT's view that support for the interactive new media industry should proceed under four pillars: first, support for research and development for content development; second, education and training; third, support for marketing and promotion; fourth, access to capital for investment in interactive new media products and companies. Throughout these proceedings you will hear each of these areas discussed in some detail. IMAT's focus is on the need for capital for the development of original Canadian interactive new media content.
76. Individual and small and large new media companies can be encouraged to expand their businesses by government policies generally and by specific funding mechanisms established by governments and other entities.
77. IMAT members have participated in a variety of programs that are available to assist in the development of new media content. Of the variety of existing funding bodies, two of the largest private sector funds, the Bell Broadcast New Media Fund and the Stentor New Media Fund, face uncertain futures. Although interactive new media is a sunrise industry, the eligibility requirements for the existing Telefilm Fund are far more stringent than the requirements for funding television and film. This should be changed to assist the development of interactive new media.
78. Government funding agencies may wish to distinguish between content that is commercially sustainable within an international market and that which is culturally significant to Canada. Just as the telling of Canadian stories through traditional media such as film, television, and literature is supported through a variety of mechanisms, culturally significant interactive new media content should be financially supported. Tax-based incentives that assisted the initial development of the Canadian film and television industries should be viewed as models for support to the interactive new media industry.
79. However, private investment is crucial to the continued growth of the Canadian new media industry. IMAT's members recognize that significant financial assistance to the new media industry can only come about when private investment capital is engaged. Although the funding available via Telefilm and others is appreciated, such amounts pale by comparison with the scale of necessary private investments.
80. With recommendations from the CRTC and from Canadian Heritage and Industry Canada, tax-based and other incentives should be established by the federal government to kick start the Canadian industry at its crucial stage of its development.
81. Aurel.
82. MR. LANGLOIS: Along with international companies, the Canadian industry will continue to grow quickly. Canadian interactive new media producers are committed to excellence and are ready to position Canada as a world leader in interactive new media by telling Canadian stories to Canadians and exporting them to the world.
83. That concludes our presentation, Mr. Chairperson. Members of our panel will be pleased to respond to any questions the Commission may have.
84. THE CHAIRPERSON: We have a few. Thank you very much for your presentation.
85. If you will just bear with me for a second, I would like to just lead in, I suppose, to my questions a bit. I was struck by a number of comments you made in your written submission and again this morning, particularly I guess in the context of what we are trying to achieve by these proceedings.
86. You don't have to turn to this, but I have noted -- because I will read it -- from page 4 of your first round submission you said:

    "It is important that the results of this CRTC proceeding and Canadian government policies generally provide support to Canadian new media producers in their efforts to access and compete for business creating interactive products in global markets, as well as to produce Canadian new media products solely for the Canadian market."

87. You went on to say, I think this was in your Phase II submission, that otherwise

    "... new media will only be a cottage industry, a side line of traditional media companies or a cultural industry curiosity."

88. Then again this morning you said that:

    "... the focus... of the CRTC should be on creating a healthy, vibrant Canadian interactive new media industry that can provide unique products and services for the Canadian market and for the world.

    The question for the Commission in this proceeding is how to assist and support the growth of new media in Canada."

89. I think you have probably captured in your words really as good as or better than perhaps we have said one of the main rationale for why we are conducting this proceeding.
90. I would like to pursue with you several issues that you have raised in your submissions in this order: I want to talk a bit about market power and some of the concerns you have raised around that issue; secondly, some of the issues relating to traditional media; third, some issues with respect to intellectual property rights; fourth, a bit about advertising; and, finally, the issue surrounding privacy, hate and pornography on the Internet and various forms of new media.

    0930

91. So, if we start with the first issue related to the question of market power -- and again bear with me for a second; I want to reference a number of points your raised in your submission.
92. On page 4 of your first round submission you indicated:

    "Markets for consumer-directed products are highly developed, but are restricted by control of channels of distribution."

93. And again at page 5 you said:

    "The need for capital-intensive transmission and distribution facilities, combined with the prospect of lucrative new markets and new media, means that established firms from the telecommunications, broadcasting and publishing sectors will enter the new media industry and have the capacity to exert market power over firms that participate only in the new media arena." (As read)

94. Again, at page 6 you refer to content aggregators such as Yahoo, Sympatico and the CBC and suggest that they will exert market power, and you relate it to the market power of broadcast distribution undertakings or large bookstore chains.
95. Then, at page 10, you say that a regulatory policy should:

    ". encourage fair and equitable access to distribution networks and facilities (i.e. telephone and cable lines and [media] servers...)"

96. Finally, at pages 14 and 15, you again refer to large U.S. and Canadian sites as possible "gate-keepers" "limiting access of smaller players to their audience".
97. So I guess the first issue is, again, dealing with this question of market power and, to use your term, gate-keeping, I would like you to describe for us this market power or gate-keeping issue, how it might operate and its impact on content creators and how one might overcome these problems, particularly given what you and others have noted about the technology or nature of the Internet and the inability to control it.
98. So that's a long-winded introduction to a multi-part question.
99. MR. LANGLOIS: Thank you for your multi-part question. I will start off, I will lead on some of this, but I think everybody on our panel will probably make a contribution to the answer.
100. Market power refers to the ability of larger organizations to invest substantial amounts of money either to produce a popular product or have the financial wherewithal to deliver that product in a meaningful way to the marketplace. I will give you an example. Our company did a game a couple of years ago, a CD-ROM game, a puzzle game, and when it came time to distribute that through the stores, the retail stores were asking for certain sums to provide premium placement of that; it is called "end caps", to buy the end of a row of titles. Those end caps at that time were worth $55,000. So, to get any kind of obvious product placement and not get buried in the back or something, you had to spend that kind of money just to get a bit of a public profile.
101. The larger companies have the funds to be able to do that. Some of the smaller publishers don't have the funds to do that. In the case of some of IMAT members, they are self-publishing and then they are doing their own distribution on the Internet.
102. That's a model that becomes more and more difficult to compete against if you are self-financed. We see some of the larger U.S. firms dominating the marketplace just because of the sheer financial abilities that they have.
103. We would like to see some way of competing on a more equal footing with those firms. How we would do that, I don't have a clear-cut answer right now.
104. MR. FROMAN: I think one of the opportunities with the Internet per se, with the CD-ROM model, is that the independent producers tend to self-publish and get exposure for their products so that anyone can find their products. I think the opportunity exists.
105. How do they promote the products themselves and what are the incentives to help them do that as opposed to the sort of gate-keeping function, as sort of the retail outlets, the retailers perhaps had that opportunity because the Internet has changed that in the retail world. Since a lot of the smaller producers are able to sell their products on line and bypass -- Aurel has an example of a small U.S.-based game developer who has dealt with that and they are selling a product directly through the Internet.
106. When it comes to Internet-based product, to be able to get your products on the high traffic environments really comes down to just the advertising dollars. That's a new concept for producers to be able to, beyond production, promote as opposed to being restricted from being able to get that access.
107. So you don't necessarily have that same gate-keeping function in the Internet world but you have an opportunity where the ability to promote better will draw the audience and use various channels to get people to be aware of your product.
108. THE CHAIRPERSON: So I take it this aspect of it would get back to the issue that you have raised here and raised this morning about financing; I think it is tied into the four pillars that Mr. Engel noted during the end of your presentation here this morning, and that may address some of the issues about being able to "bargain" with physical distribution companies like stores or have the resources to be able to do better advertising or promotion.
109. The issue that you raised talking about encouraging fair and equitable access to distribution networks and facilities, including telephone/cable lines and media servers, I sort of interpreted that to be an access to infrastructure issue more than the kind of concern that you have described already.
110. Have I misread this concern?
111. MR. FROMAN: I think it is less in terms of getting access to host Internet-based products. The ability to get access to that infrastructure is not a huge problem, to be able to host a site. A lot of developers are actually hosting it on their own server. So I guess access to that infrastructure is probably not what we intended with that statement.
112. MR. ENGEL: I think one of the issues which has almost begun to come out since we submitted the first written submission is that 80 to 90 per cent of people -- and we are talking on line, here, on the Internet -- find what they are looking for through using one of the search engines, Yahoo, one of the major portals. Now there is a tendency -- or it seems to begin to move in that direction -- they are going to start charging for listings. In other words, you can create your site, but if nobody knows it exists, then it doesn't have any effect, whether you are trying to sell your own product through it or whatever. And, if they begin to shift over to charging for rankings on the major search engines and listings, that's going to have a very bad effect because it will have the same effect as the retail problem that Aurel referred to.
113. THE CHAIRPERSON: And, to the extent that may be or may become a problem, how would you suspect that anyone might deal with that issue?
114. MR. ENGEL: I think the problem is somewhat analogous to that faced by the Canadian publishing industry going back I guess about 20 years, about how did we get Canadian books more prominently displayed in the bookstores. I think that's maybe the issue. I am not sure of the mechanism, but that's one of the analogies I would draw.
115. THE CHAIRPERSON: Mr. Froman?
116. MR. FROMAN: The challenge is a bit of a global one because, in order to gain that global exposure to where all the users are going to, it doesn't matter where they exist, they are global sort of portals that are emerging that people want to have their sites exposed on for the greatest amount of impact. So it is just a challenge of branding and being able to promote a market for these developers; it is not one that will be restricted in the sense that they won't be allowed to access them, but it is going to be the same that they will face as any, say, American or European producers will be facing in terms of reaching that global audience with their product.
117. THE CHAIRPERSON: So does this fundamentally take us back to a question of financing?
118. MR. FROMAN: Yes.
119. THE CHAIRPERSON: That sort of addressed what I understood you to be talking about -- again, I refer to pages 14 and 15 of your submission, where you talked about this gate-keeping and limiting access to smaller players and their audience, because my understanding, as you suggested, Mr. Engel, is that in some instances you have to pay to get on, but depending on the popularity of your site as it develops, you may get paid to be on. So that's probably just a natural evolution of a supply and demand marketplace.
120. MR. ENGEL: It is a natural evolution, but what I see -- we created a site, for example, our company, based on the TV series "The Valour and the Honour", which has been very successful. We have put up contrary opinions and forums and it has worked, and we are well listed with the search engines, including Yahoo. But if they begin to move more, which seems the direction ahead, where they are going to charge to list you, then if we created that site or any other Canadian site was created, we probably couldn't afford to compete against the major U.S. companies to get listed in the top rankings of Yahoo. That's the problem as I see it.
121. THE CHAIRPERSON: Again, overcoming that problem, do I take it from your submission earlier and your presentation today fundamentally the issue for you is to get at good financing in order to be able to play in that game, beyond that -- Mr. Froman or Mr. Langlois?
122. MR. LANGLOIS: Basically, what we need to do is develop the industry to the point where it is strong enough to compete on a global scale, especially when we are talking about the Internet. But promotion and advertising of excellent product will succeed in any marketplace. What we have to ensure is, (a), that we have excellent product and, (b), that we promote it and make people aware of it and compete in the marketplace.
123. THE CHAIRPERSON: Specifically, what sort of assistance do you think needs to be provided to the industry in order to help it develop in that respect?
124. MR. LANGLOIS: I think it is a twofold process. There is a number of what I would call commercial products that should be financed by private industry. We need to develop some sort of mechanism to make that more attractive.
125. Currently, interactive new media, especially content development, is seen as one of the riskiest areas of development. The costs are high for any title or any kind of Web site, any full-featured Web site. So you have to be able to sell a fair amount of product to be able to recoup your money. You also need to develop the cultural product, and cultural product often times would not be considered commercially viable. So what we need to do there I believe is continue the public support of government and the various funds to ensure that we develop that area of the industry as well.

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126. THE CHAIRPERSON: In that respect, you probably focused I suppose a little more this morning in your presentation than you did in the written brief earlier -- and I appreciate that this is, as you have already suggested, a rapidly-changing environment and people's views change on many of these issues over a fairly short period of time.
127. You have said this morning in your presentation at page 8:

     "Government funding agencies may wish to distinguish between content that is commercially sustainable within an international market and that which is culturally significant to Canada."

128. I gather you are drawing the distinction between commercially sustainable and culturally significant; I take it there is an inference here that that may not be commercially sustainable. Correct me if I am wrong in that respect. And you say:

     "Just as the telling of Canadian stories through traditional media such as film, television, and literature is supported through a variety of mechanisms, culturally significant interactive new media content should be financially supported."

129. First of all, how would we draw this distinction? I guess a lot of people argue that maybe with the changing technology the economics of this business may well change such that the traditional funding mechanisms may no longer be required.
130. I guess in this context the issue that you are raising here is fundamentally much the same issue that we face with traditional media, not so much whether or not there is a scarcity of spectrum or whatever, but whether or not the economics of the business would warrant a total free market approach, and would we have Canadian cultural product, to use your term, which is culturally significant on our media if it wasn't for some form of intervention.
131. So how would we draw this distinction here, and what particular kinds of mechanisms should we be dealing with with respect to the new media? And does the technology itself mean that it might require some different treatment, or maybe it doesn't need the kind of regulatory treatment that we have traditionally had.
132. MR. ENGEL: I think we already draw the distinction in other areas of the cultural industries. If you think of the television industry, we have certain kinds of programs that are produced that are considered extremely commercial and, let's say, will play on a private broadcaster and will receive various funding from the Telefilm or the Cable Production Fund. Then we have other kinds of programs that are pretty much not considered commercial but of value to the country and are produced solely in house by CBC with no real other potential for them, export or otherwise, and we have the same coming out of the Film Board.
133. So I think we have mechanisms where we have been able to deal with that issue, and I think the same thing, or similarly, can apply with regard to new media content. We have subjects that can be treated in new media that will appeal basically only in Canada, and I have to think we have to recognize it, and then we have other subjects that will have a major export potential.
134. If we only treat the ones that appeal to the world, then we aren't going to have any that are particularly indigenous that may not appeal to the rest of the world. So I think we need probably a variety of mechanisms to deal with the two different kinds of content that we could produce and will produce here.
135. THE CHAIRPERSON: So, with some sort of definition, you would argue that we should be providing some sort of funding for those culturally significant products?
136. MR. ENGEL: Yes, I think we certainly should if we intend to have a culturally significant society in both languages.
137. THE CHAIRPERSON: Where would we get the funding from to support that?
138. MR. ENGEL: There are a variety of mechanisms that could be used. At times we have used direct government intervention such as Telefilm -- I call that direct funding; and indirect, such as tax-based incentive funding, which encourages private investors with various incentive mechanisms -- those are the two main mechanisms -- and blendings of two.
139. THE CHAIRPERSON: A lot of people have suggested we should have no new taxes on the Internet. If we were going to go beyond direct government funding, how would one approach this in terms of -- where would you go for this source of funding for this sort of thing?
140. MR. ENGEL: IMAT's position -- and I also personally support it -- is there shouldn't be any new taxes, but I think a tax-based incentive can be sort of increased capital cost allowance for private investors or groups -- I mean, I am not going to suggest the specifics of a mechanism now -- could be written off against other income or accelerated depreciation. Those are more questions I think into the Revenue Canada department, but those are some of the mechanisms that could be used.
141. THE CHAIRPERSON: And a lot of people, in many of the submissions that we have got, have suggested that we should have tax-based incentives here in terms of the creators and other companies who may invest in this sort of business.
142. Now, the whole issue of dealing with culturally significant product I think has been largely treated from a two-pronged approach in this country, if you will. One is providing funding for it through some means or other, either through Telefilm or the Canadian Television Fund or, in the case of some aspects of the CRTC regulation, having expenditure commitments on television broadcasters and so on.
143. The other aspect of it is, once it gets funded and created, how do you make sure that it gets on, gets accessed? I guess fundamentally that has been -- as we have said in public, when you strip all the rules away and strip them down to their basic element, the real issue is access. So we have had rules concerning access of specialty channels to cable, access of what one may characterize as your culturally significant programming to get on over-the-air television and so on.
144. In the case of the new media, or particularly in terms of the Internet, those kinds of access issues, once you have your culturally significant program funded, are they still there? Do they go away? Many people have suggested that's no longer a problem because of the nature of this.
145. What is your view on that?
146. MR. ENGEL: I would say it isn't really a problem because, as I mentioned earlier, our company created the Web site of "The Valour and the Honour" after the show was made, a few years later, and access was not a problem. We just went to an ISP and put it up, and there it was. It is not the normal case in broadcast media, where the broadcaster or the cablecaster is a gatekeeper; for a very minimal fee anybody can put it up on an ISP Web site, and then it is a question of getting it known.
147. THE CHAIRPERSON: Mr. Froman.
148. MR. FROMAN: The food chain right now is such that the business models are just emerging, especially with respect to the Internet, and I think with those who are generating the audience right now, those ISPs and the portals, their business models are just emerging now as well.
149. So -- and it is happening right now -- everyone is trying to be creative in terms of how do we promote. In the absence of a lot of money to fund that promotion, the producers don't have the marketing dollars to be able to promote it, and those portals or those companies who are generating the traffic are trying to figure out how to sustain and how to generate enough revenues. So what is happening is these sort of co-operative deals are occurring that are trying to get some more exposure for the smaller producers with sort of back-end royalty deals, et cetera.
150. There are challenges associated with that because everyone is trying to make money at this point and keep their heads above the water, I suppose. They are involved in business plans that -- they say it will be successful in some time going. But it is happening now and it is sort of a co-operative between the producer and the publisher, in Canada anyways.
151. THE CHAIRPERSON: Do you think, given that, that it is because we are at such an early stage of developing the business model, the business case here, that it is in some respects perhaps a little premature to know to what extent there may be problems with respect to access or funding?
152. MR. FROMAN: Probably. Right now, the access would be, there are two groups; there is the group who produce content and try to compete on a worldwide basis with the traffic around the world, and there are the others who just want to get the production done.
153. Right now, we are seeing that the Canadian sites that are primarily advertising based are competing against U.S. counterparts to generate sufficient advertising revenues to sustain their own business models. So it is very difficult for them to say this is how best this access issue works.
154. So they really don't have a gate-keeping role because a Canadian producer, if they have the money, can go to the U.S. site and advertise and strike a deal there. There is no real difference. The challenge will be how do you promote both sides or support both sides of the equation, support those who are actually investing in content and generating traffic and becoming a branded portal, and then how do you support the producers to make sure that they can get the full sort of food chain, as I call it, working.
155. THE CHAIRPERSON: I would like to go back for a second to this issue of access to networks or facilities, if you will. Again, on page 10, towards the bottom of the page, you have six bullets there, and in the fourth one down you talk about encouraging fair and equitable access to distribution networks and facilities, that is, telephone and cable lines and the media servers. We have talked about media servers, but it wasn't clear to me the kinds of access concerns that you had with respect to telephone and cable lines.
156. MS O'BRIEN: If I may, that was going back to IMAT's Information Highway submission. They were referring to the point that at that point that was one of their main concerns, and I think that may be one of the things that is not as much of concern now other than the issue of market power and branding; as broadcasters and others who have market power set up portals and gateways, it may be difficult for content creators to have access to those sites as opposed to putting up their own sites, which may be difficult to promote and make people aware of.
157. THE CHAIRPERSON: So you are suggesting that this may have been an issue but is not any longer?
158. MS O'BRIEN: It is still an important issue, but --
159. THE CHAIRPERSON: I don't understand how it is one.
160. MR. LANGLOIS: Over the last year we have seen some radical changes in terms of the Internet, how that is structured and how one gets up on the Internet in terms of going through portals and the aggregators of content. It currently isn't a problem but could become a problem. Where we see some changes is, in the past aggregators of content would pay you for content whereas now they are asking you for money for content. So that's kind of a big change.
161. If that trend continued, that could cause problems for small producers. That's why it still remains an issue for us, for IMAT, and something to keep an eye on.
162. THE CHAIRPERSON: Okay, but that's, again, a little different issue. That's the one we discussed earlier about the economic questions in terms of bargaining with content aggregators.
163. I take it then there is no particular problem now that you can identify in terms of access to the facilities, the infrastructure of telephone companies, the telecommunications infrastructure or cable infrastructure.
164. MR. FROMAN: No. There is sufficient access now. The cost of Internet to be able to host your site and the number of places that you can go and actually have access for your content is growing phenomenally. So it is not consolidating, that it is going to be more of a challenge to get your content up on the Internet.
165. This being in 1995, this is 12 lightyears later.

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166. THE CHAIRPERSON: Yes, I appreciate that.
167. Going back to this issue, then, about the portals and gateways, again, at page 17 of your submission you said:

     "The support of Canadian meta-sites, portals and gateways,... would serve to give prominence to Canadian new media products, in English and in French, in the context of the global marketplace for new media."

168. What sort of support are you talking about here?
169. MR. FROMAN: I think the number of portals is growing and changing depending on the nature, content and where the users are. Like I stated earlier, they are having their own challenges in developing their business models for their own sites to keep them self-sustaining. So if there are incentives that could be provided to them to host Canadian content in light and ways that they can be interested in doing it as opposed to being forced to do it, that would be advantageous for the industry and would help promote the Canadian presence worldwide.
170. But I think the challenge here is that they are managing their own business plans, developing their businesses today. They have a clear path. A lot of them invested a lot of money in developing their own brand presence and developing themselves at a portal that it has to very much be incentive based for them to, say, look at supporting other Canadian producers to host your content because they don't have the money to invest in it and put money into it. We have seen that over and over again.
171. The first place a lot of producers go to for funding for a content idea is to the portals, which are both facility based and non-facility based, and the challenge they have right now is they don't have the money to invest in beyond their own content development. So how do we create the incentives for investment? Again, how do we create incentives for investment to be provided or incentives for those portals to actually carry Canadian content which won't be a burden on them?
172. THE CHAIRPERSON: Mr. Engel.
173. MR. ENGEL: One of the issues is that in reality, except for Yahoo, I think, which just became profitable, I don't think there is a portal or an aggregator that's actually making a profit yet anywhere in the world. So the whole, if you will -- "battle" is not necessarily the word I would use, but the whole issue is about market share.
174. amazon.com is a good example. That's about market share; they aren't profitable. As soon as you look at market share and you are looking on at least a worldwide let's say language base, if we are talking American and Canadian sites, which are obviously in English, then there is no real incentive for an aggregator or portal to promote Canadian content because that's unlikely to get the kind of share to help them increase their market share in an audience, without talking about what the revenue model of that would be.
175. I think that's one of the issues we are facing and it is going to get worse before it gets better.
176. THE CHAIRPERSON: Given all that, what sort of incentives could one be considering to try to encourage these folks to post Canadian content?
177. MR. ENGEL: I think one kind of incentive we could look at is the Canadian aggregators and portals could certainly be encouraged to, if you will, promote or feature other Canadian content sites on their portal with some kind of incentive base; that would be a step in the right direction because currently, to the best of my knowledge, I think the main portals such as Sympatico, Canoe, et cetera, only feature -- let's say 90-odd per cent of their own content are generated content.
178. THE CHAIRPERSON: You have suggested again that perhaps we should have an incentive to encourage them to promote or feature. What would the nature of those incentives be?
179. MR. ENGEL: One incentive is, I think, if there were funding mechanisms that encouraged the creation of more regional Canadian content and they were the kind of product that brought an audience or users to it, then that would certainly be an encouragement for them. They are more likely to begin to feature sites from cross-linking, et cetera, if other Canadian subject matter sites were drawing a strong audience. I think that's one way of looking at it.
180. MR. PUNNETT: If I could pose one suggestion -- it came just when we were discussing this -- there are currently regulations associated with expenditures with broadcast outlets on Canadian content, and if there were perhaps a credit associated with reallocation of production monies to new media product associated with fulfilling Canadian content requirements -- that was one thing we discussed.
181. THE CHAIRPERSON: I could see how that might put more money into the creation of the content. I don't see how that would deal with the incentive for the portal or the gateway to host or provide the links to that content once it is created, which I take it is the sort of incentive thing you were talking about here.
182. MR. PUNNETT: Yet many of these broadcast entities are evolving into gateways. So they would be doing this to provide more content for their own sites and that would build the quality of the services there.
183. THE CHAIRPERSON: I see.
184. MR. FROMAN: I think, because we represent primarily those who are producing the content and looking for the access, I will go on to defer -- I think you are going to have a lot of the portal type groups coming up to ask them, in terms of their business models that are emerging, what they would want.
185. I guess from our side, if there is a way, either from the producer's point of view, to access some funding to be able to pay those people and build a good business relationship to be able to advertise on their sites and to promote the content, it would be from our perspective -- and keep it at a straight up business relationship because it is helping build their business model and it is helping build ours.
186. So are there some ways that production companies can have access to the use of the capital on the understanding that part of the capital is being used for marketing and promotion -- then it is spending on the sites where you will gain the promotion.
187. It is hard for us to comment I think from that side because we do represent primarily those who are producing content, looking for the promotional vehicles to access, and we don't all understand how they have worked out their individual business models; I think they are all quite different, the different groups, and I think it is a very good question to pose to them. I would be interested to hear what they would have to say about what incentives they would like in terms of doing that, beyond just being paid to be able to promote content on their site.
188. THE CHAIRPERSON: Okay. I will take your point on that and we will perhaps pursue that with others in the proceeding.
189. Let me switch to my second issue -- just to get a sense of time here, I have tried to put the ones that I thought we would be pursuing the longest towards the top of the list and the shorter ones as we go further down.
190. Dealing with traditional media, at page 3 of your submission -- and, again, you don't have to turn to this because I will be jumping around a bit -- you have noted that it is important to distinguish between traditional media and new media. Then, at page 8, you noted that regulatory control has traditionally been extended through controlling the distribution or access to content.
191. I would argue that fundamentally the Commission's concern has been trying to make sure that content has access to distribution, but, be that as it may, at page 12 you have suggested possible parameters for an exemption order, although you and many others have suggested fundamentally we wouldn't need an exemption order because most of this shouldn't be considered broadcasting.
192. Do you think that traditional media will ultimately be delivered by the Internet, the media that we deal with here, radio and television programming, the kind of -- again, using the term you used in your opening comments this morning, culturally significant?
193. MR. LANGLOIS: The traditional broadcast media will certainly invade the Internet, if you will. It is another transmission medium, and there is no reason to suppose that you won't see that kind of thing. We are already seeing examples -- CNN Online, MSNBC, typically news carriers. We are also seeing WebTV kind of come into being; that's kind of a hybrid between interactive and traditional broadcast.
194. It is going to be I think increasingly difficult to differentiate between what might be considered traditional broadcast media, which I would take is one to many in real time, but interactive new media encompasses that possibility but also encompasses non-real time one-to-one and a variety of other communication methods. So I think it is really much broader in terms of its scope.
195. Some of the traditional broadcast media will certainly look to re-purpose content into the interactive media, and we don't foresee that as being a problem per se from a content producer's perspective. We would just like the opportunity to sell our content to those people.
196. THE CHAIRPERSON: While this is probably theoretically possible and perhaps even practically possible at some point in time, it doesn't seem to be today. Do you have a sense of when that technology is likely to develop such that distribution of traditional media content over the Internet would be sort of a reality in the sense of sitting down and watching that sort of programming?
197. MR. FROMAN: I think it is incrementally becoming a reality as the technologies of delivery are converging as well. We are seeing the same sorts of capabilities emerge from wireless distribution to twisted pair. I would say that largely, in the case of radio, very recently radio is fully capable of being distributed right now via the Internet I would say at broadcast quality, and that is something that has occurred in probably the last three to six months.
198. What this means, I don't know, but it is quite easy to get the local station in Albuquerque sitting in my office in Toronto. This has serious implications for radio; their market is moving global. They are structured as local media essentially, and as the listenership increases I think the business models will change; there will be a great transformation. Then, it is conceivable that the same thing will occur for broadcast television.
199. THE CHAIRPERSON: I understand that it is conceivable, but picking on your expertise in this area more than ours, I am trying to get an understanding of what you think may be the timing in terms of when we might see this sort of change having a real impact on what we might characterize as the traditional distribution media for traditional television.
200. MR. FROMAN: I think that's a hard one -- I don't know, I wouldn't venture to give a specific date.
201. One of the groups that I know will be presenting, Sheridan College, have established a high definition television studio, digital television studio at Sheridan, and they have very strong perspectives on that because they are actually starting to produce in that. It is a fascinating question to pose to them. They do come up later in the hearings.
202. If anyone else wants to take a shot at a date, go ahead.
203. THE CHAIRPERSON: Let me ask you this in respect of that sort of thing.
204. Given what we have talked about so far in terms of the access issues, if you will, in terms of content to the new distribution medium, if we see this sort of change happening with respect to conventional -- and, again, using the concern over the culturally significant programming or drama type programming, do you think that the change in technology will overcome the access problems that we have historically had in terms of access to the distribution medium? In other words, will Canadian programming still get the prominence that we have been able to achieve in either radio or television or cable today, that that would still exist in the new medium in the same sort of way in terms of making sure that that's available?
205. MR. LANGLOIS: There has been a fundamental change in communications brought about principally because of the Internet. The Internet is the first truly global medium. As a result of that, as content developers, we really have to look at a global audience and determine how to reach that global audience in a significant entertaining and informative manner.
206. I personally feel that the rules have kind of changed. We have to produce content that is excellent, we have to promote that content and make people aware of that because we are truly competing now. We are not limited by the range of broadcast signals because the signals are global in nature. With the Internet you are also capable of serving an audience of one.
207. So these are radically different parameters in how to communicate, how to draw interest. IMAT feels that we have some good stories to tell in entertaining ways. I think that's enough to compete in a global medium.

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208. MR. FROMAN: I think it is a fabulous opportunity for Canadian producers. It opens up a world for them to promote their products to the world. There is no better way of getting a Canadian audience to watch your content or want to watch your content than what is popular somewhere else.
209. What the Internet is going to provide as the distribution medium opens up and access continues to open up around the world to content, it is going to allow Canadian producers, Canadian storytellers to tell their stories to a market much broader than Canada. And, as opposed to worrying about whether the Canadian producers will have access to Canadian content in Canada, they will be able to access it because it will be popular around the world.
210. We are doing some world class work in the production of Canadian content, in particular in the new media, and having access to that global market makes it better for the producers; it will help them make money because it is a global market, and they will be able to promote to a Canadian audience.
211. I think anyone who has remained in Canada or continues to remain and build companies in Canada has a desire to be Canadian and produce stories for Canadians, but at the same time they are trying to make their businesses work. So it is a very different perspective for those in the new media industry. They see it more as an opportunity to promote to the world, and the Canadian public will gain a lot of benefit from that as opposed to worrying whether they will have access.
212. THE CHAIRPERSON: Mr. Engel, did you want to make a comment on that?
213. MR. ENGEL: I was feeling kind of brave as to when did we think this convergence would occur. I guess as high definition television comes in, which is on I think a 15-year time scale, which is totally digital; once that's actually the primary means of delivering the broadcast signal, then I guess we will see some form of true convergence where unlimited TV channels coming in from everywhere can be delivered into your TV or your computer, and conversely the Internet can go either into your computer or your TV. How that will change all models of programming and the economics, that's a whole other issue.
214. So we are probably 15 years away from true convergence.
215. THE CHAIRPERSON: Well, that's beyond the terms of all of the members of this Panel.
216. MR. ENGEL: Yes. So I don't think we have to worry too, too much yet.
217. THE CHAIRPERSON: Let me take that previous issue as the segue into my Item 3, which is the question of property rights.
218. You have noted that the current business case involves fee-for-service work, where the creator retains no intellectual property rights -- largely, I take it, the work of your members. You have also said we need to "develop products that produce revenue on an ongoing basis through the ownership of copyright in the works". Again, at page 20 of your submission you said that Canadian residents should have ownership of the copyright in the new media product.
219. What is the problem? A lot of people have raised issues surrounding this whole question of ownership of rights. It is one thing to talk about being able to have a market of one or be able to target the whole world with either Canadian culturally significant or culturally insignificant product; it is another thing to get paid for it. And, until we are able to reach that situation, I don't think there will be a business case for this product.
220. So what is the problem and what do you think we need to do -- and I use the royal "we" here, not just the CRTC -- to overcome this problem?
221. MR. LANGLOIS: I think there are two separate issues there. One is the state of the industry at present. The industry is so young that very few producers or very few companies can just produce original content. Many of us survive doing fee-for-service work for other companies or other organizations. That's an access to capital financing issue ultimately, and I think we have defined what remedies might be used there.
222. The other issue, the copyright issue, is one -- this is usually on a smaller level -- where a writer or somebody who contributes to a larger project would have to give over copyright, assign more rights to work. Then, if and when that particular project is a success, they would want to participate in the royalty stream that comes down off of that. Currently we are not seeing a lot of that in place.
223. The copyright issue also relates to content that's created and then stored in a database somewhere and can be accessed forever and ever without any royalty being paid back to the original creator. That's where our main concern is from IMAT's perspective.
224. THE CHAIRPERSON: Now, a lot of parties, or a number at least, have raised a number of those sorts of issues with respect to the rights question. Are you participating specifically, your organization or individual members, in terms of trying to deal with this with the Copyright Board or the government in terms of amending the legislation to deal with this sort of issue?
225. MR. FROMAN: In the past we have been challenged by trying to deal with the recognition that new media is a unique sort of entity, and these are one of the platforms that we said -- IMAT's initiative to establish a national umbrella to deal with these types of issues, because these are definitely issues of a national concern for the group.
226. To respond to one of your points, though, in terms of how companies are dealing with it, Aurel and Maxim represent two interesting perspectives, Aurel being a fee-for-service -- the large proportion of their business is fee for service and they also develop their own content.
227. One of the issues for a fee-for-service type company that continues to exist in the industry is they want to be able to finance the development of their own products, and by being able to retain the rights of products they do in a fee-for-service environment is very important because there is programming, there is content that they would like to have access to to develop further into their own products. So that's an intellectual property issue that producers go through.
228. Then the other one is with Maxim in terms of the intellectual property rights in the global Internet space. We are seeing that the music industry is addressing that now and the challenges.
229. So it is not unique with new media per se. The only difference in new media is that you might pull in previously copyrighted material, and that in itself -- I think we brought that up in the 1995 hearings, the challenges -- at the time when CD-ROM was very prevalent, when a producer would develop a CD-ROM and they would go get some sound, they would get some videoclips if it wasn't all original, and then they had to go clear the rights all the way along the path, which is quite a challenge for a new media producer because it was very broad, and most of them had never dealt with that in the past. So they had to deal with this new world.
230. I think there are groups addressing the digital intellectual property rights.
231. I think, from IMAT's point of view, it would be more from Maxim's point in terms of once you have created your product, and also from Aurel's retaining the property rights of you fee-for-service work.
232. MR. ENGEL: There is another issue that comes out of that, which is, our company only deals with the creation of original content, we don't do fee-for-service work. When you take an existing, even though you have permission, photo, videoclip or audio and you change it, which you often have to do to put it on the Net, then you have, shall we say, changed the expression of the original author in a sense. For example, something we did was, we took some of the Canadian World War II war paintings. They were digitized. We got permission from the Canadian Museum of Civilizations but we did have to change them slightly.
233. If we change them a little bit more, then who owns the copyright to this new, shall we say, digitized, slightly modified version? That is an issue. I don't have any solution for it, but that is an issue that will become more and more prevalent, I think.
234. MR. FROMAN: To answer your second point, we just haven't had the resources up to now to address that. The traditional groups that are dealing with copyright, I think they are starting to deal with it, and it is a responsibility of our community to start having strong relations with them and supporting them on those issues.
235. MR. ENGEL: That's one of the reasons we are trying, with APMQ, to form a national multimedia organization because we think, as one voice, we can address that issue far better.
236. THE CHAIRPERSON: In that context, you may want to think about the final submissions in this proceeding, whether there are some specific recommendations you think we might be making in terms of dealing with this issue as well.
237. Again dealing with the business case, switching to my fourth issue, that being advertising, we talked a bit about the business model, and you largely note in your submission -- and we have discussed it -- this fee for carriage or fee for producing product in your case. You seem to discount the role of advertising in your submission, but a lot of others seem to place a lot of emphasis on the role of advertising in terms of the business case.
238. I am wondering why you have sort of discounted it, or you appear to discount it in your submission at least. Is that just because of the fundamental nature of the type of programming, the type of content that most of your members work on?
239. MR. LANGLOIS: The advertising model in interactive is still at a fundamental, unformed stage. Things started with banner ads, which became part of click-throughs. Advertisers or clients were willing to pay for banner ads initially and then wanted more interactivity, so they were only willing to pay for click-throughs. We are now seeing a trend where clients are only willing to pay for somebody who actually went to that person's Web site and in some cases we are starting to see advertisers who are only willing to pay on purchase of product off of a particular Web site.
240. The advertising model I think is really still in an evolutionary state. How it works, who pays for it and at what point people pay for it is really still being formed, much like much of the interactive new media industry. There is a lot of R&D and a lot of experimentation that's still taking place. For that reason, we really hadn't focused on it.
241. THE CHAIRPERSON: That's fine. There are others who will be appearing over the next number of days who have expressed some particular concerns with respect to that issue in terms of the business model.
242. If I can just, then, switch through the last issue that I wanted to pursue here, and that's the question of privacy and hate and pornography on the Internet and so on, you have suggested that existing laws and regulations are sufficient to deal with these sorts of concerns but you have noted that we might need modifications with respect to enforcement. I guess I was curious as to what you had in mind.
243. MR. LANGLOIS: With the Internet being such a distributed medium -- for example, you can have a client in Canada whose server is in Florida and who is talking to somebody in Europe -- which jurisdiction takes place and how is that enforced? We are starting to see a model kind of emerge where country of origin takes precedence in terms of jurisdiction. People are talking about that; the Europeans have one view, the Americans have another view, and it hasn't been formalized or set yet.
244. We are looking to some sort of international treaty or some change in international law to allow that enforcement.

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245. MR. FROMAN: I think the challenges -- I think we are all aware of how quickly something is replicated once it is up on the Internet, and to be able to address that -- I don't think anyone here is against trying to enforce that and to go after sort of the country of origin where it has been posted, but I think our thinking is very much in the international effort. We have seen some instances recently in the news about that international team to go after the child pornography ring, et cetera, and more of that international investment in technology to try to track down that type of content.
246. It is something that's out there. I think the people who have been involved in the Internet from the early days -- there is a certain etiquette that occurs on the Internet that people don't condone certain activities but, at the same time, as it becomes more mainstream -- there are bad people on the Internet who are creating software viruses every day; that's what they do in their homes, and you have companies who are there to try to build tools to address those viruses. I don't see it being all that much different in terms of questionable content because it is all digital information.
247. So any support from an international basis that Canada can do with the U.S., with other companies as well as, I suppose, supporting private companies who are maybe creating tools, et cetera, to deal with that -- it is a pretty huge problem.
248. THE CHAIRPERSON: We have talked this morning about financial incentives and assistance to the business, and you have talked about that in a quite detailed way in your submission. I haven't pursued a lot of those because it were detailed.
249. On page 20 you have sort of, in conclusion, said near the middle of the page that financial and other incentives are required -- and appropriate to encourage the development and production of new media.
250. Are there other incentives that you think should be considered in terms of trying to develop production of new media that we haven't discussed here this morning, that you did not detail in your submissions but that you had in mind
251. MR. PUNNETT: I can think one, off the top of my head, would be the role of government, for instance, as a model user. If they adopt a policy statement, say, towards provision of Canadian content to for instance boards of education, there would be some kind of a financial incentive for boards to acquire Canadian content. That might be one way. It would be a policy incentive rather than -- actually, a statement of use, a statement of "We support", and then that would focus producers on providing for that need.
252. Right now we have a problem where a lot of our reference materials and encyclopedias come into the country from American sources, already installed on the computers. That's a serious problem culturally, I would say.
253. THE CHAIRPERSON: This largely takes us back to a financial constraint. Having been familiar with some of the further use policies of programming that television broadcasters have had trying to get educators and school boards and education departments to have the resources to actually acquire that sort of content has historically been a problem.
254. Mr. Engel.
255. MR. ENGEL: One of the issues is that a major market for Canadian content when it is disc based is the Ministries of Education, who are buying site licences or large numbers of CD-ROMs, albeit that's a provincial jurisdiction. But one of the problems is they only will buy when you deliver to them the finished product totally. That means the producer must shoulder the whole risk, bring it into them, and they decide or select whether they should buy it or not.
256. That works fine if you are Microsoft producing Encarta Encyclopedia because you have the whole world, and if Ontario doesn't buy it, well, okay, they didn't buy it. But if you are producing something specifically Canadian with no mechanism to ensure that the product will be bought or some method of them pre-buying it or indemnification system, then you take the whole risk; if they buy it, fine, and if not, you have no other market. So who is going to take the risk?
257. THE CHAIRPERSON: And who should take the risk?
258. MR. ENGEL: I think maybe the Ministries of Education for their site licence -- okay, funding is short and tight today, I freely admit -- should shoulder maybe some of the risk in some form as distinct from "Deliver us the final product and then we decide; if we buy it, fine, and if not, well, too bad."
259. THE CHAIRPERSON: Mr. Langlois, did you have something you wanted to add?
260. MR. LANGLOIS: I think what we are referring to in your quotation from our submission was we were looking for a variety of tax-based incentives that could be implemented, and those could be, as Maxim pointed out earlier, a direct incentive. Ontario right now has a 20 per cent labour tax credit on original content. That kind of thing, we are suggesting, could it be expanded to include the whole industry and include the fee-for-service people as well? Most of the fee-for-service people are also content creators at one time or another, and our belief is that a healthy industry is going to produce more content development, and bringing in incentives on a number of levels will make the industry as a whole that much healthier.
261. MR. FROMAN: I think the interesting thing with this medium is the fact that the new media industry is about 90 per cent fee for service in Canada, which creates opportunities for incentives beyond just the obvious group of content creators and the traditional group of those involved with the development of some type of programming to be involved in this incentive process as well as the financial institutions, but even corporate Canada has a role in terms of -- that are non-media-based companies but are the users of new media which are financing the development or financing the new media industry today.
262. There are challenges for new media companies to compete within Canada, and it is very competitive. The budgets are typically much smaller than the United States.
263. I just heard a story from one producer where they said, "Why should I stay in Canada and compete for a $50,000 project when, in the same amount of time and effort, I go to New York and there are $300,000, $400,000, $500,000 projects right there" -- and leverage the Canadian capability and our dollar at this point to be able to build on that, which is helping to build the industry.
264. From that you will see producers being able to have the finances to be able to finance the development portion of their projects, and then I think it is partially the co-operation of the provinces, the federal government and the private sector community to build the other mechanism to help produce the products and promote them. So I think it is a much broader scale in terms of who to be involved in this, and it does extend far beyond the participants in these hearings.
265. I was pleased to see a number of groups that weren't traditionally involved in hearings and aren't familiar with the Commission but have a broader perspective participate in these hearings. I think I would have preferred to see as well some other groups that were completely unrelated, perhaps car manufacturers and perhaps to see a bank up here discussing what they can do. These are much broader issues.
266. So I don't want us to lose focus that it is only the people in the broadcast community and the telecommunications community that have a commitment to developing this, or the incentives should be just targeted at them.
267. THE CHAIRPERSON: Mr. Engel.
268. MR. ENGEL: I was just actually going to expand a bit on Adam's thing.
269. Because I am in Quebec a lot and close to a number of companies there -- and they have a stronger incentive than the rest of the country because of their provincial incentives -- a lot of the companies are mainly aiming to get their fee-for-service work from the U.S., which is fine; they are competing with American companies, they are taking advantage of our dollar exchange, et cetera. But the one thing that's going to keep people home ultimately, because we don't know where the dollar will be over the long run, is to create their own content, to tell their own stories.
270. I find that in Quebec or Ontario basically and the rest of the country the fee-for-service companies, when it comes to their heart and soul, it comes to doing original content. That's where we need really the mechanisms and support to do that.
271. THE CHAIRPERSON: Counsel, do you have any questions?
272. MS MOORE: Yes, thank you, Mr. Chair.
273. The Specialty and Premium Television Association has suggested the creation of a super-Canadian Web site in order to promote and direct consumers to Canadian new media content. What is your view on this suggestion?
274. MR. PUNNETT: I would say that that site may already be embodied in the CBC at this moment.
275. There are companies and portal entities in Canada that are working to fulfil the needs of the Canadian marketplace. Canadian niche market is a viable marketplace. I would say to create something new that they are not doing already would be hard to imagine. I don't know what it would look like.
276. MS MOORE: You have submitted at page 12 of your Phase I comments, if the Commission deemed an exemption order to be appropriate, that products or works that should be excluded are those distributed via an interconnected global computer network that can be retrieved by an individual on demand and that have an interactive component.
277. Could you please elaborate on what, in your view, are specific characteristics of interactivity and perhaps give some examples?
278. MR. LANGLOIS: Interactivity basically is a two-way interaction, much like software; you make an action that results in an action on the digital side of things.
279. MS MOORE: Would, for example, simply being able to ask for the content be an example of interactivity or would it require affecting the content of the program in some way or the service?
280. MR. LANGLOIS: It is a difficult legal question. You would have to think that more than one interaction would be required, more than one and less than a million.
281. MS O'BRIEN: If I could just maybe add to that a little, I think there may not be a distinction between requesting content and affecting the content. The choices will be so many that, by making a request, you are affecting the order in which you see things, you are affecting the universe of choices that you have from that point on.
282. So I think a request would be sufficient to call something interactive.
283. MR. PUNNETT: Interactivity is a key component of our definition of "new media". The other component of that is that there is a computer involved. So those two together, that constitutes new media for us.
284. MS MOORE: Thank you.
285. Those are my questions, Mr. Chair.
286. THE CHAIRPERSON: Thank you.
287. I think those are all our questions. Do you have anything you would wish to say by way of conclusion?
288. MR. LANGLOIS: No, we don't, Mr. Chairperson.
289. THE CHAIRPERSON: All right. Thank you very much. We appreciate your coming here this morning.
290. I think we will take a break at this time and we will reconvene at eleven o'clock.

     --- Short recess at / Courte suspension à 1044

     --- Upon resuming at / Reprise à 1104

291. THE CHAIRPERSON: We will return to our agenda now.
292. It has been suggested that I should speak louder and assert myself so that the people at the back of the room can hear very clearly. So I will endeavour to do that for the rest of the proceeding.
293. Madame la Secrétaire.
294. M^me SANTERRE: Merci, Monsieur le Président.
295. The next presentation will be done by Digital Media Champion Group.
296. You may start now.

     PRESENTATION / PRÉSENTATION

297. MS CARTWRIGHT: Thank you, Mr. Chair.
298. On behalf of the Digital Media Champion Group, I would like to thank you for allowing us to come and speak to you today. Very briefly, I will give you an overview of my introductory remarks and introduce the two people that are with us today, and then I will be asking you to direct most of your questions to Mr. Kocho, who sits besides me.
299. We will be introducing the Group report, the broad overview of the report, speak to the fact that one of the major contributions of the report is a definition of the digital media industry, speak to the types of services and products which are offered by the digital media industry and speak to the overall regulatory framework which we are encouraging in regard to the digital media industry. A subset of those remarks, of course, will be given in regard to the specific role of the CRTC.
300. As we will mention in our remarks, the major request that we have is that the CRTC and the overall regulatory framework give clarity in this marketplace which, as you can tell from the last group's remarks, is an emerging one and a dynamic one.
301. Finally, we will be speaking to the report's recommendations on the type of contributions that government in an overall way can make to the digital media industry.
302. In January 1997, a group of people involved in a broad cross-section of Ontario's digital media industry came together to form the Digital Media Champion Group. The Digital Media Group's work was coordinated by staff from the Ministry of Economic Development, Trade and Tourism, and the Ministry of Citizenship, Culture and Recreation.
303. In January 1998, the DMCG group was chaired by Keith Kocho, who is sitting with me today. It included ICE, Alias/Wavefront, Ingenia Communications Corporation, C.O.R.E. Digital Pictures, Bell Canada, Rogers Wave, City Interactive, the Canadian Imperial Bank of Commerce, Key Porter Books, the Bell Centre for Creative Communications Centennial College and IMAT, the Interactive Multimedia Arts and Technologies Association.
304. This group produced the report that is before you today, and as of September 1998 the group continued in the form of an implementation council. This group, the Implementation Council, consists of Royal Bank of Canada, WebWorks, Oberon Interactive. Bell Canada, Bell Centre for Creative Communications Centennial College, Donohue and Partners, which is my firm, which is a member from Frensen Young International (ph.), and Communications and Information Technology, Ontario. We were further assisted by two government advisors, provincial government advisors, from the Information and Communications Technology Branch, Ministry of Energy, Science and Technology, and the Cultural Policy Branch, Ministry of Citizenship, Culture and Recreation, Ontario.
305. As I stated, the most important thing that the Digital Media Champion Group did was produce this report. The other two things that the Digital Media Champion group has done which are of note is to encourage the digital media tax credit which was implemented in the last Ontario budget and encourage the Digital Media Growth Fund, which was also announced in the last Ontario budget, which is a $10 million fund encouraging the growth of digital media in Ontario.
306. I am going to invoke one of our board members, and she has been a board member in both the original group and now the Implementation Council, Sheridan Scott, who of course is a well-known regulatory lawyer and key industry player, when she speaks of this report as being a cross-sectoral and consensual snapshot as of January 1998. I think the phrases she used are important.
307. "Cross-sectoral", this represents a real convergence of the industry and a real consensus within the industry as of January 1998. Of course, I make this date important because in digital time this is a dog's year away, it is almost a year ago, but we advocate that much of the content in this report is still extremely relevant and we ask that you take it to heart.
308. The broad overview of the report's mandate and importance is found at page vii, which is at the beginning, "Finding Solutions". It would be about the first couple of pages in.
309. I won't dwell on this for too long, but we basically outline the important things that can be done to create and encourage the growth of the digital media industry in Ontario, which we would argue would be applicable to much of the rest of the country in some cases. No. 1 is "Strengthen industry coordination and partnerships"; No. 2 is "Eliminate barriers to growth"; and, No. 3, "Increase opportunities in domestic and international markets".
310. We would argue that one of the major contributions this report makes is a schematic which is found at page 4 of the regular numbers. The reason this schematic is important -- I will just wait till you get to it. I am sorry to be pedantic about this, but I will read the explanation above it:

     "Figure 1.3 illustrates the convergence of the computing, telecommunications and creative/content industries, and the strategic position of the digital media industry. The borders between the various industries are not always clear-cut. There is often overlap between the computing and telecommunications industries and between the computing and creative/content industries. The digital media industry is the shaded area at the core where the three industries converge. The diagram illustrates clearly the interrelationships among the industries and the need for effective strategic alliances."

311. The reason I point this out is because it really does highlight the convergent nature of the digital media industry, that it is not simply about content, it is not simply about applications and it is not simply about infrastructure, but it really is an intersection of all of these areas.
312. The other thing that I want to point out is the text which lies right underneath the schematic, which states:

     "Digital media integrates text, video, images and sound into a single digital format. Its products are unique from, for example, music CDs or videos, because they are interactive."

313. This is important because it speaks of the interactivity, though, if you read the small text below it, we do make the point that not all digital media is interactive, and the best example of that would be computer animation.
314. So let me stop and pause here at this convergence and at this schematic and do what I forgot to do on my agenda, which is introduce these two people. This is actually a good jumping-off place.
315. Connie Putterman is here representing CITO, Communications and Information Technology of Ontario. CITO originates with the Ontario government -- they will explain themselves, I am sure, much better than I am here -- and contributes to the growth of research and development at the primary stages by matching public and private funds. Connie is Manager of Business Development for Digital Media. So she, in some ways, represents the application side of what digital media is.
316. Keith Kocho, who sits besides me on my left, represents or seems to embody the convergence indeed. Mr. Kocho is the founder of Digital Renaissance, which has about 150 employees in Ottawa, Toronto and San Francisco. Digital Renaissance defines itself as a transactive media company. Mr. Kocho is on the board of CANARIE, ITAC and the Advisory Board to Apple Computer. However, he is also on the board of the Canadian Film Centre and the Stentor New Media Fund. So, as you can see, there is a lot of convergence there. As well, DR is a true convergence company in the fact that its strategic partners include BCE, Alliance Atlantis and Arthur Jones (ph.).
317. So, having stopped or paused to introduce my two speakers -- which was rather inconsiderate of me -- as I move along, let me just say this about digital media. First of all, in terms of what it is, Mr. Colville, with due respect, I did read your interactive chat on Canoe and was most interested to see that -- and you defined it as well today -- one of the key things you are interested in, with obvious reason, is the issue of content and Canadian cultural content.
318. One of the points we want to make out is this report does speak to the issue of Canadian cultural content but it does speak to what the broad range of digital media is. So it involves not just entertainment, and even entertainment in the under-represented categories that CRTC is normally concerned with in the broadcast sector of variety, drama, children's work and documentaries, but also education, professional digital media, which would include medical texts and medical diagrams, and information -- Reuter feeds, business feeds, stock feeds, that sort of thing.

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319. So the key point we want to make is, this is a very broad area with the convergence of interests and people. I will just leave my point there.
320. At page 6 of the report, which is one page over from where we are right now -- as of January 1998 the report makes a point that it does seem at that time that there were two types of companies out there, or companies performing a dual role: one is fee for service, one is the production of original products. There does seem to be some discussion that there are new models emerging, but the Digital Media Champion Group Implementation Council cannot speak to that because there hasn't been a consensus. But, as of a year ago, there does seem to be a consensus on this dual model and there does seem to be new ones emerging. Mr. Kocho might want to speak to these new models on a personal level, but he won't represent the group as a whole.
321. Having said that, and as I said really speaking from this schematic with all of these converging factors, this is what the Digital Media Champion Group has argued with regard to the regulatory framework.
322. First of all, it sees the regulatory framework as a broad, enabling framework and makes a point that it is not simply the CRTC but also the Copyright Board, obviously, and Investment Canada, and we speak to that. We are very grateful that you have also brought up these issues of privacy and security. We can't speak to that on behalf of the Digital Media Champion Group because we are speaking primarily from the report, but we do note and acknowledge and basically think what a good idea it is that you are speaking about it.
323. So we would like to see an overall regulatory framework obviously that encourages and provides clarity in this marketplace, which, as I said, is so dynamic.
324. With specific regard to the CRTC, we make these points.
325. First of all, we note the CRTC's 1995 Report on the Information Highway and we also note your Vision Statement, where basically you state that, where competition is at its most fierce, regulation should often be the lightest. We think that this is a good principle to go on as a guiding principle.
326. The next point we make is, again to reference Mr. Colville's remarks on Canoe and to speak to the report, we ask that the CRTC clarify where the Broadcasting Act does apply and state, where possible, if it does apply, what small area it does capture, and we have asked, as per our submissions and our report at page 33 -- you don't have to go there -- that exemption orders be given.
327. So, to just summarize those remarks, we are asking for a light hand, we are asking that you provide clarity on the issue of the Broadcasting Act, and where the Broadcasting Act does capture a small piece of the digital media industry -- because, as you can see from our explanation, the digital media industry is much, much more than entertainment or Canadian cultural products -- that exemption orders be given.
328. Having concluded those remarks, let me just say finally that the Digital Media Champion Group Report has a great deal to say about the role that government can play overall. If I could, I simply will take you to the appendix, which is at the back of the report, at page 47, and speak to these issues.
329. First of all, the Digital Media Champion Group Report of January 1998 has a great deal to say about infrastructure and thinks, to summarize -- and I will probably do this inelegantly -- that it is important for this country to be wired, it is important for Canadians to have access to the Internet and access to high broadband, high bandwidth, and that fundamentally we think that this is an important issue of public policy and will also encourage the growth of the industry. That is captured in Recommendation 3.2.
330. At Recommendation 3.14 the report seeks assistance in marketing digital media products and services internationally.
331. At Recommendations 4.2, 4.3, 4.4 we further seek assistance from the government in enumerating qualifying and quantifying industry statistics and market analysis. This would include help from Statistics Canada but also from Industry Canada, because the dearth of market information has been a problem for the digital media industry.
332. We have explored and encouraged the use of tax incentives at 3.6, 3.2 and 3.4, and for obvious reasons encouraged government to procure Ontarian and Canadian digital media products and services at 2.6.
333. Finally, and this is possibly the important -- this is the reason we are pleased to have CITO sit with us in that they are submitting in the next group that you will be listening to -- is training and education, which we think is of fundamental importance to the growth of this industry and to the overall strength of this country.
334. So, to summarize, one of the things that is captured in this report is the enabling effects that this industry can have on the rest of the country and other industries. We list a number of examples of this. The digital media industry spills out into things like the travel industry, the medical profession, the legal profession, and fundamentally this report speaks to the issues of training, infrastructure, encouragement, so that this industry can really be sustained and nurtured in this country.
335. There is a role for the CRTC in terms of providing clarity, and we are certainly grateful for the forum, to come and speak to you today.
336. With this, I am going to close my remarks and ask that the bulk of your questions be addressed to Mr. Kocho. Thank you for your time.
337. THE CHAIRPERSON: Thank you very much for your presentation. You said we didn't have to go to page 33 of your report, but, as you may know, we have already been there because I quoted the report and referenced Mr. Kocho in several public speeches I have already given on this subject. So I guess you can get a sense that we have been through your report.
338. Just to comment on the Canoe chat, I wouldn't want to suggest that the answer to any particular question would be the definitive view. With all due respect to the folks at Canoe, it was a somewhat confining environment in the sense that it took two computers and four people to undertake that that day and try to fit within an hour the answer to as many questions as possible, which meant we had to be rather quick to can our answers to the various questions that came in. We appreciate your comments nonetheless.
339. With that, I think I will turn the questioning over to Françoise Bertrand.
340. THE CHAIRPERSON OF THE COMMISSION: Good morning and thank you for having participated actively in a written form. It is a report we had seen before, but it is important that you address it in the context of our forum this morning and that you have taken the time to come in and meet with us.
341. My questioning will follow quite closely your own logic into your report, kind of seeking for clarity and more precision on some means, but first -- and you have addressed it lightly at the start saying that, of course, the 1st of January, 1998 was the date you came to that consensus and that the world changes rapidly.
342. I would be interested in knowing -- because you started the work in January 1997, and we are almost in January 1999, or are coming there -- what would you say have been the most important elements in the environment that have changed, not necessarily bringing another look into the matters, but that you have observed while you were working on that report? Now that it is kind of figé into a form that has been distributed, what would you see that you would like to tell us to be careful of that has changed and will pursue in terms of speed of change?
343. MR. KOCHO: Primarily, I would suggest the collapsing of the three circles in the diagram that was presented to you. It is clear, particularly if you look at the U.S. economic climate and the acceleration and consolidation of industries through mergers and acquisitions, primarily in the telecom and cable space, they have had a dramatic impact on the potential economic benefits that are present in this evolving industry.
344. I think primarily the cautionary note that I would have for you is the pace of change -- not to suggest for a second that it moves too quickly to be observed and to be clarified, as has been requested by this group, but it is moving extremely rapidly, and there is a phenomenal amount of capital being generated, particularly south of the border.
345. In my limited experience in the business environment, I would suggest to you that it has momentum that is far greater than anything we have possibly and potentially seen in the past in the evolution of traditional media because of the number of different industry segments that are included in the diagram that you looked at.
346. THE CHAIRPERSON OF THE COMMISSION: Do you think the pressures come from specific industries? For example, the role that the financial universe, the banking for example, has had, as we observed, do you think there are some specifics that have kind of pushed it either faster or in such a way that it has greater importance?
347. MR. KOCHO: Yes, and I will use something that I have been fond of saying; I think it might be somewhat flippant, but I am often fond of saying that convergence really means conflict of interest and that in fact just about everybody in these various industries wants to own the end customer. So, if you look at the financial industries in particular, what is really going on is an opportunity that's referred to as, in some cases, one-to-one marketing or a channel for one. This is essentially an attempt from a brand ownership perspective to have ownership over the end customer.
348. Anything that an existing business can do to free itself from the bonds of traditional infrastructure, whether they be leases on the premises and so on, to clearly identify their presence within this one-to-one environment on the new technological medium, more converged technological medium, will drive this change, I would think.
349. The extent to which different industry players have greater access to either infrastructure to access those customers -- I wouldn't say they are necessarily new customers, they may be spending their dollars in different ways -- or, to echo the comments of my colleagues from IMAT, that they have the capital to do so, primarily from a marketing perspective, which is to say placing new forms of content up on new forms of distribution, is but one part of this equation. Getting customer mind share is primarily the driver here, and to do that it is clear today that those activities are still undertaken in traditional channels, which costs real dollars.
350. In other words, it is extremely difficult to build brand awareness on line in an emerging medium. There was a quote, I can't remember who said it, but it is quite a telling one, and it is quite old; it was in the early stages of the Internet. It was suggesting that advertising on the Internet is a bit like placing a billboard on your front lawn. In fact, that's largely true, and that's the point I am trying to make.
351. The massive amounts of dollars that need to be taken into account to procure distribution in a physical format outside of the on-line space and to build brand awareness to drive people to the Internet is really one of the key issues that we are talking about here, and the people who have access to that, as Mr. Colville was suggesting in the previous line of questioning, market power, will probably continue to.
352. THE CHAIRPERSON OF THE COMMISSION: I will come back to that distinction you are making between physical distribution and electronic distribution and the way to get market power, but let me go back for a minute again in terms of what was the starting point of your initiative.
353. Indeed, I suppose it was a meeting of the minds when you see who did participate to the group, but what was the real driver in terms of really bringing everybody together and making it happen?
354. MR. KOCHO: Opportunity, I would think. Speaking personally, I think we are sitting in a position, particularly in this country, with an opportunity to one-up our neighbours to the south, frankly -- the value of the dollar, the production expertise, the education and so on that exist here in an environment where no one really knows what is going to happen. In the case of broadcasting in particular, the model was very clearly set well before this industry in Canada took off. We are in an environment of extreme uncertainty, which to me presents a huge opportunity for our industry.
355. So pulling together all the different people who you see represented in that report was undertaken provincially for a variety of reasons -- it was easier for us to do it that way. The provincial government provided an immense amount of support and interest in this area as is indicated by the support they have given in the form of tax credits and funds, and in a go-forward position there is a continual level of dialogue with many ministries within the provincial Government of Ontario and I applaud them for their interest in this area.
356. I would think, though, the primary driver was a view on behalf of the private sector participants in particular that there was a requirement for consensus and a presentation in that regard, and trying to pull this together was largely driven by that.
357. It is a very complicated environment that we are operating within. I think, anecdotally, probably the most challenging element of the entire process was spent in the first couple of weeks just trying to define in a consensual manner what digital media was.
358. THE CHAIRPERSON OF THE COMMISSION: Thank you. There are some results that have emerged since the dépôt of the report already? Since the report has been done, there have been some initiatives already that are a net result of that?
359. MR. KOCHO: Most definitely. As I have already mentioned, the two incentive-based frameworks the Province of Ontario has instituted are clearly a result of the activities of the group and the interest on behalf of the government and other associations and so on who have spent a great amount of time speaking with various levels of government on these issues.
360. The creation and go forward of the Implementation Council, which my two colleagues to the right here represent, and a desire on behalf of multiple levels of government and other public and private sector organizations to work with this group and other groups to try to drive forward some of the recommendations in the report are pretty clear. I think there have been some tangible results.
361. THE CHAIRPERSON OF THE COMMISSION: What more do you need at this point? Given that you talk about partnerships and strengthening the partnerships, I am quite interested to see what tools you need more in a practical sense, of course our look being is there a way for us to help in any way. Where do you see the partnering occurring? You are talking about the interfaces in your diagram and that it is collapsing more every day. Is it partnering you see within those interfaces or do you see it occurring elsewhere?

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362. If you had to say within the next year or next two years what are the most important partnerships to happen, what would they be?
363. MR. KOCHO: I think there is a series of them and at multiple levels.
364. If I take the public and private sectors as an example, I think the activities the federal government has undertaken in a number of areas in the wired communities and so on, initiatives that are going on within the context of SchoolNet and other activities, are clearly extremely important levels of partnership; the more the private sector can get involved with those public sector initiatives, it will have a greater potential for distribution of a content that many of us are talking about being funded here.
365. I would also like to applaud the efforts -- and you will forgive my conflict of interest here as I mention that Bell Canada is a shareholder; I will declare it. The Bell Broadcast and New Media Fund I think is a model example of how to try to bring together a couple of the different sectors that you see represented in that diagram by encouraging the mature economic and distribution paradigms that exist within the broadcast industry to be brought to bear and the potential creation and distribution of new media product.
366. I think there are a variety of benefits out of partnerships like that. Many of them aren't tangible. If nothing else, it encourages a common taxonomy amongst industry sectors so that various levels of government, including the Commission, can more clearly address what exactly is going on in this industry.
367. In my personal opinion, I think that that type of encouragement or partnership in the creation and distribution of new media products that may ride on a variety of distribution channels that are created by domestic producers as elements of original intellectual property is probably the area where we stand to benefit the most, and anything that the Commission and the government can do to stimulate greater creation of that will be of immense benefit.
368. The other sectors that are represented in our report and those of others -- and I don't mean to undervalue them at all, but I do believe if you accept the argument that the technology has an enabling effect across a variety of vertical markets, then the majority of the fee-for-services industries that are present in the new media community will continue to flourish based on the opportunities they have realized by the penetration of new technology into their markets. It is a business proposition: If the economics work, they will succeed.
369. I know from my own company's perspective and those of others represented in the constituency of IMAT, we have grown tremendously over the last years purely -- well, not purely, but certainly as a result of having this technology grow rapidly into traditional vertical markets, which, as Meredith was suggesting, speaks to the enabling effect of the technology.
370. I am not sure if I have directly answered your question.
371. THE CHAIRPERSON OF THE COMMISSION: I was asking for the tools you were seeing. I think your colleague has maybe another --
372. MS CARTWRIGHT: If I could, with specific reference to strategic partnerships, there is a number of recommendations at 2.6. Keith has spoke to some of them. One of them is sheer procurement -- and I think IMAT spoke to that as well. The governments -- and this would be a provincial issue, but the Education Ministry can actually use Canadian product and services; supporting other efforts in other sectors, which Keith just spoke to; and -- Keith did speak to this as well and I spoke to it -- marketing efforts on an international level to encourage the international market to use Canadian products and services.
373. MR. KOCHO: Do not permit me to interrupt, which I am very good at doing.
374. Just to clarify the point that was also raised by our colleagues at IMAT around creating demand within a distribution environment, which Meredith was just speaking to in terms of trying to provide some framework within which, whether you speak -- I think the example that was given by our colleagues at IMAT was within the educational environment, encouraging the Ministries of Education to have some financial capability to procure cultural products. This is something that has been echoed several times and in different forums.
375. Again, to compliment the federal government, Heritage -- having instituted this fund to create indigenous cultural Canadian interactive new media properties is quite a muffle -- has endeavoured to provide funding for producers such as ourselves and others to create these properties, but there is little in that particular environment that Heritage can do to encourage actual consumption.
376. We stand to run into a real problem here if we don't try to complete that food chain and create an economic model that can actually work -- we will build a lot of stuff that no one will ever see.
377. I think the one thing that we need to understand most predominantly -- and the question came from counsel during the last set of remarks -- is this idea of interactivity, that products that are created with the assumption of interactivity are clearly different than those that are created without the assumption of interactivity.
378. If you provide a product to a consumer in an era of ultimate choice, they have the ability to go anywhere they want. In the television model, I think, which may be where the question was coming from, or decision to consume content, clearly changing channels is some aspect of user intervention. However, it is not user intervention or activity within the context of the program.
379. That's really I think where we are coming from. If we want to produce products that are designed for that paradigm, we also need to create some framework within which those products can be consumed that's commercially viable, or the government must support those activities. That, I think, is very much the tension that exists with respect to this idea of creating interactive Canadian cultural products and then how do we actually get them to market in a sustainable way -- definitely a tension between that which exists in the private sector to create products for universal distribution regardless who the end audience is, assuming there is a demand, and then trying to create a product that may or may not have a demand chain associated with it.
380. THE CHAIRPERSON OF THE COMMISSION: We will talk about how to encourage the creation of the product itself and the financing aspect of it, but when you talk about creating a demand, what have you got in mind exactly?
381. If we, the regulator, with what has been described as a heavy hand in Canadian content in the conventional world of broadcasting, have not been able to force consumers to really watch Canadian programs, in the universe of new media, which is even more free in its style and its global dimension, how can that be done and what have you got in mind when you say to create the food chain and make sure that there is an end user at the end that will, first, be part of that big world and demand Canadian products?
382. MR. KOCHO: I think the report itself -- and a number of other groups would echo similar sentiments that there are a variety of incentive-based frameworks that can be used to stimulate the production of the content. However, it has been echoed several times -- and I don't mean to over-simplify it -- that none of us have any idea what the future of the demand environment for the end content looks like today. If you were to take a snapshot, I would argue it will change in six months.
383. We are talking about an era of extreme uncertainty which at the same time, if I take it from a purely American perspective, as I stated earlier, is an era of opportunity. By trying to encourage innovation, which in a sense is speaking to the opportunity, by helping these organizations who want to produce original properties access the finances and the marketing dollars to gain mind share of end consumer, while you are providing a new form of a new product and a new distribution channel, you as a producer have the opportunity to attempt to create that value proposition for an end customer.
384. I think that's largely what we are talking about: level the playing field, also by providing an opportunity for Canadian producers of this kind of property to target American customers and others globally. While this value, in the eyes of the end consumer, is being further defined, we need as much advantage as possible, financial and otherwise, to be competitive globally.
385. I think it is less a case of trying to define what those things might look like as to how we can free producers from whatever bonds might be inhibiting them from pursuing those opportunities and create as many different financial and other frameworks to allow them to produce products that consumers may see as innovative and providing value that they are willing to spend money for.
386. THE CHAIRPERSON OF THE COMMISSION: Let's come back to this because it seems to me, in the different studies that we have had, that if we talk more information type of products in comparison to entertainment, the cost may be a bit less. But, when we talk entertainment and the global aspect we are always talking about, it is often, especially in the entertainment world, benchmarked by what we know in the south with Americans.
387. It seems that the amount of money we would need would be tremendous, being one; secondly, that the notoriété, the visibility are very important ingredients of the capacity of getting attention.
388. How do you see, given what you describe here as being the physical distribution being a barrier as we speak, when we come to the electronic distribution, that then there would be full capacity and full promises to be delivered if, as we speak, there are still those barriers that exist? Given the speed you are talking about in terms of the evolution as such, isn't there a problem that we will always be behind and there will never be enough money?
389. How do you reconcile what seems to be a very important need for financing the company, financing the products themselves, financing the marketing, and yet at the same time being in a situation where the benchmark is companies that are so much ahead?
390. MR. KOCHO: That's a complicated question. I will try to see if I can give you a concise answer, although I probably haven't been doing a very good job so far.
391. I would come back, I guess, in some way, shape or form to the original comments that I made about building brand awareness. To cite an example that was cited by our colleagues from IMAT, which is amazon.com, there is an opportunity to build brand with such pace and veracity in the marketplace that we are moving into -- and I agree that, again, this is an information-based example as opposed to a dramatic programming, but I will try to relate the two of them. To attract the kind of capital to build brand and take over market share from industry leaders in an environment enabled by this kind of technology has just not been seen before.
392. So again, I come back to that as if the economic climate is right -- I don't think I have a silver bullet to suggest how you compete in that environment other than to remove as many barriers as possible. If you look at a business model such as Amazon's, that's entirely what they have done; they have set their business up across the street from the largest distributor of books, they don't have physical presence, and they have gone about building brand and spending the majority of their dollars there, getting into different forms of technology to reduce their costs, which is clearly a motivator for all businesses in this environment, including dramatic programming -- using technology to reduce the cost of production and distribution -- and then just invested tremendously in brand building, brand awareness with the consumer.
393. Most people these days, if you look at financial markets in particular, would suggest that the valuations being attached to these kind of companies are ludicrous, but in fact what you are seeing, if any one of these models is successful, is the growth trajectory of businesses of this nature with the right level of capitalization, given the amount of market share they can achieve in a short period of time, is phenomenal compared to traditional organizations, and their inability to compete in the same environment is really the point I am trying to make.
394. Because the barrier to entry in technology is so low, I wouldn't say it is easy, but if you have the right economic climate put in front of you and the opportunity is presented, you can very quickly build a world leading business which is borderless. The challenges in production of a dramatic nature, to your point, don't change in terms of creating dramatic compelling programming regardless of the distribution medium that it is on, but clearly getting that dramatic programming into a marketing context that's going to be interesting, acceptable and, forgive the term, sexy with respect to a consumption audience is a huge challenge, and it is still going to take a lot of dollars to do that.
395. I guess what I would say is that no one has defined what that product looks like as yet. We are talking primarily I think in these hearings and a lot of the submissions about the idea of the Internet as an entertainment medium -- and I would go so far as to suggest it is not a particularly entertaining medium today.
396. There are huge dollars being made in the video-gaming industry, which is clearly a digital media industry where the content is interactive, but most of the distribution does not take place on line right now, and there is compelling content made by Canadian companies that have been immensely commercially successful, amongst others worldwide. You can be competitive with using enabling technology, building a strong marketing presence and relationships with distributors of the same nature that people have done traditionally in film and television.
397. So I don't think we should be afraid of the competition and the rush that's going on, particularly south of the border. If anything, we should jump on board and take advantage of it. We have a cost structure as the taxation -- at least in terms of some of the corporate opportunities that are there from an R&D tax credit and other types of things. We could speak to some of the barriers that might be removed from an education and personal tax standpoint to encourage more people to stay here; I think that's a longer discussion in its own right.
398. Again, I think the point I am trying to make is we should not be afraid of the opportunity, we should be prepared to accelerate as much as we possibly can to access the kind of capital to make Canadian companies competitive with those in the U.S. and abroad.
399. THE CHAIRPERSON OF THE COMMISSION: Let's take Amazon. In terms of the recommendations you have here, what could it have taken from the measures you are recommending to create a Canadian Amazon, as successful -- I am not talking just being there and offering something, but as successful? Is it a matter of access to the books themselves, the distribution chain itself, the branding strictly, the way you can attract attention? What are the ingredients and what would it take to make a winner of a Canadian of the same kind?
400. MR. KOCHO: I think we have a couple who are doing quite well both in the physical store environment and in distribution on line.

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401. I don't view Amazon as a technology company, I view them as a marketing company pure and simple. My personal opinion is the greatest success factor that they have been able to achieve is early access to capital for a business model that, in the minds of most people, made absolutely no sense. They were able to build brand share very quickly by accessing a lot of risk capital in the U.S. and in various settings.
402. Again, I think there is a difficult problem that building business in Canada sees, particularly in the new media environment, which is that the financial markets in this country are incredibly risk averse. There is a wonderful climate that exists in the Valley area that sees people breaking in tons of dollars over and over and over again, which largely looks like a big shell game. You know, you start up an organization, you take it public, the people who are involved in doing that do quite well and the management of the organization does well, as does everybody else, and you go on to the next thing. That can be replicated here. There is absolutely no reason why it shouldn't be.
403. Unfortunately, although I would submit the banks and some of the financial institutions are coming around to this line of thinking, our traditional view of investment is, well, we are not going to be the first off the mark; we will not take risks, we will follow.
404. To your comments and questions earlier, if we do that, we are going to face a tremendous uphill battle trying to build mind share and market share versus the amount of capital and the loudness, I guess, the projection capability that exists south of the border.
405. MS CARTWRIGHT: I am just going to break in here and say that that is page 23 of the report, 3.1, but there was strong consensus on this, that access to capital is a major issue and access to inventive entrepreneurial capital.
406. THE CHAIRPERSON OF THE COMMISSION: In that sense, you are talking access to capital to finance the companies themselves and not to do it piece by piece -- in terms of some funding for special projects that we have, like the program of Telefilm is much more product oriented -- and get some help. You are talking in that part, which is really a very important element of your whole report, the access to capital, which is retaken by many intervenors, as a matter of fact.
407. MR. KOCHO: Both. Again, I don't have a financial background, but it would seem to me, given the embryonic state of this economy we are talking about, that the purest and most reasonable form of financing is equity financing. Debt financing in an era where no one is sure what the return on that and the risks are going to be is extremely dangerous.
408. Entirely, the kind of financing that's going on in the U.S. that has propelled the growth of these companies is early-stage risk equity financing. It is the kind of thing that, whether you do it at a project level or a corporate level, makes a great deal of sense. It also provides for, whether it is public sector dollars or private sector dollars, a return on that entrepreneurial invention, which in its own right is encouraging greater competition and suggesting that the investors who are involved are not just simply throwing money at an idea because there was a policy or another reason that suggested they should, but they believe in the underlying product and its ability to achieve a return in the marketplace.
409. THE CHAIRPERSON OF THE COMMISSION: In the areas where there could be a funding of a more direct kind going at the product itself, given where we are at in the evolution of things, where would it be more worthwhile in terms of being an accelerator for the industry at large to be a success and then create the emulation that would be needed in order to give the appetite to others? Where would you see the criteria being?
410. MR. KOCHO: I will try to answer that question in two ways: one, on behalf of the report, and the other submissions that you will continue to hear, I would think it is the marketing emphasis that's probably most important for us to focus on.
411. Now, putting on my Digital Renaissance hat, about every six months, and increasingly in the environment with respect to software products and content, the distribution channel issues that we face are astounding and extremely difficult, and I don't know that there is anyone who can answer how you make a product, whether the product is more of a service product or a tool or a content product, successful in the distribution climate that exists.
412. Some of the examples that our colleagues from IMAT were citing, in the era of interactive physical goods distribution, CD-ROM, had issues related to accessing shelf space in physical distribution. One of the lines of business in my organization is software product. We are not actively engaging in physical distribution of our product at all. We found that the requirements for that distribution have flipped to a point where previously, as was cited in the last presentation, you used to be paid for access to your products so that a distributor could make money on it by selling it through to an end consumer. These days, you pay them to put your product up, whether it is electronically or physically.
413. So the cost of doing that, given the backdrop, as I was saying, you can access capital and build products far more quickly than any other -- I wouldn't say any other industry, but certainly from a technology standpoint the tools and things that are available to allow people to build a competitive product are extremely -- so there is a lot of noise. Finding an innovative way to market your product and generate revenue from it I think is the most compelling thing.
414. What we are trying to do essentially with the products that we are developing is to collaborate with existing and traditional mass media, which has the ability to build brands effectively and drive mind share, to create a relationship between that mass marketing vehicle, whether it be television, film, print, something else, to a more intimate and interactive environment such as the Internet, where we can whether in this case conduct commerce with that customer to generate financing that completes the value chain from a production perspective.
415. I think the reason I make that point is because we cannot view the investment of either production or marketing dollars to create incentives and so on for the industry to create content in a uni-medium perspective. Consumers will still continue for some time -- and I am not sure that I would agree or disagree with Maxim's prediction that it is going to take 15 years for this transition to take place. I would think in many ways, if you look at the creation of content in the abstract, in other words not as it is deployed on one particular distribution medium, but if one brand is persistent and accessible across multiple distribution media, then we have convergence. It might not be just on one platform, but it is brand convergence and experiential convergence.
416. That's the kind of thing that we can do. If we focus on that level and the marketing support of that type of innovation, you can take the relative economic models that support these various industries and have an overall picture that's quite compelling, and you can build a very successful undertaking in that regard.
417. THE CHAIRPERSON OF THE COMMISSION: To come back to questions that Chair Colville had earlier this morning, how do you make sure that the brand is not totally driven by the aggregators, by the infrastructure, that really the individuals, the producers of content themselves, have an equal chance to have their brand established, whether it has declined in many platforms?
418. MR. KOCHO: Again, here, I think I will answer from my perspective.
419. I am not sure that I share the viewpoints of some people who have expressed that there is some difficulty there today. Let me put it this way. If you look at the value propositions that exist on the Internet today, they are mostly Internet value propositions. They are not about a traditional market environment. I go to the Web and I need to do something, so I will search. Therefore, because I needed to search and it is new environment, there is a value proposition there for a consumer. That is already being lessened in terms of importance as you look at other kinds of things that portals are bringing on to aggregate customers.
420. Our particular perspective on it is to try to create a completely different view of things, what I would call micro-portals, which is a way to target individual consumers in different jurisdictions who have specific interests, so they participate in a community of interests; build product across multiple media that's targeted specifically to that customer.
421. In that sense you are challenging this fundamental idea -- because again, I think if you take the portal idea to its ultimate extreme, what we are basically saying is that we are going to try to take a traditional view of how consumers' activity are aggregated, which is some control of access, and map that onto an environment that's supposed to be ultimately about consumer choice.
422. Today, the strength that a lot of these portal companies enjoy is based primarily on marketing. This is what it is about. They go out and say, "You need to be here." But eventually, as consumers get on line -- and I realize this all the time when I talk to members of my immediate family, who think I speak a completely different language, and for that matter I do, and I don't really consider them luddites, but sometimes I do.
423. When they get on line eventually, they say, "This is what this is all about?" This isn't tremendously exciting today in contrast to some of their traditional expenditure of an entertainment dollar as an example. It provides a certain level of utility and unique experience that they cannot access in a traditional medium, but if you try to contrast it to something like television or film or theatre and so on, it still pales in comparison.
424. I guess what I am suggesting here is that those issues are primarily ones of a marketing relationship that exists between those portal companies and consumers today; they are still being leveraged primarily outside of this embryonic media, and we can, if we take different approaches to it perhaps -- and I will use the term of another Canadian on this, Don Hapscott (ph.) -- we "disintermediate" that model, just as those portals are "disintermediating" traditional businesses today. It depends which way you look at it.
425. THE CHAIRPERSON OF THE COMMISSION: What do you think should be the ultimate goal eventually of the support on that kind of economy and that kind of industry given a federal government or given a federal regulator or given any partnership? Is it to make the proposal successful for the ones who are involved, or is it of any importance to have a Canadian presence in that big universe?
426. I was looking at figures where it says that 5 per cent of the content on the Internet is Canadian. Should we have a goal of increasing that proportion per se, or is that fine, 5, 10 per cent, it doesn't matter, but that presence should be more effective and more successful and be more of a business proposition rather than some fly-by-night eventually because they don't have the financial strength to really make a case over the years?
427. Where would you see the objectives being?
428. MR. KOCHO: The primary one that I would challenge this group with would be to clarify your definition of "success".
429. THE CHAIRPERSON: Well, I am asking you to help. What should it be?
430. MR. KOCHO: I will try to. I think there is a number of different avenues that we can take. One of them certainly is to allow the creators and producers of new media products to participate in some of the existing funding and incentive frameworks that are there now to increase potentially the presence of Canadian products, both on line and in other places, because, as I was trying to illustrate with the broadcast and other traditional media partnerships that we have been establishing, there are also clear benefits to the traditional media companies by working with new media organizations. So, when you look at things like broadcast funding and tax incentives that are there for the broadcast community, by partnering, in the context that I was mentioning with the Bell Fund, there are clear benefits to both organizations, both sectors.
431. Trying to achieve an objective to suggest that there should be a certain amount of Canadian programming, what that might mean on line as a policy objective I think is quite difficult. Again, it comes down to what you mean by "Canadian". Does that mean that it is purely produced here, does it mean that it has a certain amount of indigenous content in it and so on.
432. Again, to come back to issues of demand, if we are trying to pursue this from the perspective of creating more jobs in the domestic content creation environment, then that's an employment objective of success. If we are trying to simply put up, whatever the distribution format happens to be, a variety of indigenous Canadian content, then I think the triggers more directly need to be pursued at the consumption level -- how do we create environments for consumers to purchase more of this type of material which will then obviously provide an opportunity for more content to be produced.
433. In the report and in a number of the submissions that you have had presented to you, there are the kinds of incentives that are presented to encourage a greater penetration of end consumer appliances, whether they be computers or the next generation of interactive television platforms and so on, to provide for a greater penetration of the technology in the market from an access perspective. Then we have to figure out ways to encourage Canadian citizens and Canadians abroad, or perhaps international consumers, to consume Canadian product.
434. I think the latter is entirely a marketing opportunity, and perhaps the two former ones could be addressed through a variety of different incentives of a taxation nature, not just in terms of procuring the actual access technology.
435. One of the things that's interesting about this e-commerce environment that we are moving into is that there are a lot of opportunities opened up for what I will call "non-cash transactions", where you can encourage someone to participate in something -- the predominant mode these days tends to be an advertising opportunity. And it is not just the new medium in these days; many of the U.S. telcos on their pay phones are doing things like, you can have a free phone call if you listen to an ad when you pick up the pay phone. That is an example of different kinds of incentive-based programs that could be used to encourage various elements of the market to consume a form of content.
436. I may have had a reaction; I am not sure if it was a good one or a bad one.

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437. THE CHAIRPERSON OF THE COMMISSION: No, I find it strange because there is a real concern that we will assimilate any initiative or any element that is travelling the Internet as program and that, because of that, we are a bit reluctant because we don't want to prevent the development, on one hand, but on the other hand we would like to consider ways to create a greater market and to kind of even direct the consumer more towards what is travelling.
438. So I find it is a bit strange because, in the supposedly heavy-handed universe that we have in telecom and broadcast, our objective is always to have the supply available and the demand to act upon their own tastes and to go and move towards really more and more pick and choose and, really, the consumer's choice.
439. It is interesting. So it was a smile of just the mind, that what you are talking about is to help create a better demand and a greater demand for the Canadian content and not the other --
440. MR. KOCHO: And demand I think that's informed by some value that the consumer sees as benefiting them. I do not mean in any way, shape or form to diminish the efforts and so on of the Canadian broadcasting industry and the independent producers that support it, but we may have an extremely vibrant production community, I am not entirely sure how many consumers consume the programming. That's, at least in some part, because the distribution medium does not afford them the choice of interactivity both within the programming and the volume of programming that's there and for regulatory and other instruments that have been used to help create and maintain that market.
441. I think the sentiment that you are getting and will continue to hear, particularly from a technological perspective, from our group and others is it is impractical to assume that that level of jurisdictional gate-keeping, whether you call it a technical one or something else, is going to be possible given the global economic climate that we are operating in, if nothing more than just the North American one.
442. So I think it is more about trying to create compelling programming that consumers are going to have a desire to consume across multiple media that can create the economic climate we are looking for, and that's where we should be focusing. If we try to focus on anything else, by the time we get to a solution for it, it will be gone. For that matter, the distribution medium we may have conceived a solution for may be gone.
443. THE CHAIRPERSON OF THE COMMISSION: Talking about this and talking about regulation, you started your presentation by saying how rapidly everything is happening and that it is very important that we create at the same time a more certain universe for the health of the digital economy, if we can call it that.
444. Is it a proposition that is not a bit antinomic in the sense that, on one hand, we have the change that is occurring every day, every month, about it, and at the same time we would like to create a freeze in terms of the perspective we may have on a regulatory look over that universe?
445. MR. KOCHO: What I was going to do was cite the example of Industry Canada's current activities with respect to electronic commerce, because I think it is a fine model to follow, which is to suggest again, in an era where we don't know what the rules are, to take a leadership position globally and position this country as a centre of excellence, if you will, for the creation of both technology and businesses to take advantage of the uncertainty. We can do the same thing in the a content space; it just depends on how we want to approach it.
446. I don't think I have a specific answer to your question. Obviously, I believe that to be the quandary we are facing in these deliberations, but you can take one approach to it that says, let's try to implement a traditional view of a regulatory perspective and from various forms of legislation to seal off at one point and also prop up in another industries that are, in our particular case, very unclear as to where they are all going; or we can try to place a yardstick, if you will, several years in the future and suggest, given there is obvious uncertainty in certain environments, which is obviously an opportunity if we take a position to encourage the development of business, cultural businesses and otherwise, to be internationally competitive in a wide variety of ways -- I think these issues we are talking about will work themselves out.
447. My personal opinion is they are going to work themselves out anyway regardless of what we do here -- not to sound defeatist in any way, shape or form, but the pace of change and the momentum that's going on, it is massive. I find myself every couple of weeks just reading something and realizing how quickly this is happening. This is not, again, to suggest that it is futile at all, but we do run the risk, the more we sit back and analyze rather than saying let's enable -- as I say, I think Industry Canada's perspective on e-commerce is that we will be run over by a variety of countries. And it may not even be the Americans who do it. As was stated in a previous presentation by our colleagues from IMAT, this is truly a global industry.
448. THE CHAIRPERSON OF THE COMMISSION: So what you are saying is the disadvantages would be such, if there was really not the capacity -- you would prefer to have a goal and just kind of bring all the means to it rather than creating the wrong tool which might eventually impair our capacity of being there and alive.
449. MR. KOCHO: Yes. I think that the theme of industry regulation, self-regulation across the board is quite a predominant one and that anything that would inhibit the businesses, who are struggling as they are to be competitive internationally, would deal a fairly critical blow to an already encumbered environment.
450. I can reflect on the variety of challenges we face from a human resources perspective. The climate we have to operate within to try to hire people and keep them within Canada is incredibly competitive, and we have many, many difficult challenges in front of us primarily because of the taxation situation we have here and the value of the dollar -- not to suggest we don't need further difficulties. However, there is very little, if you take my business in particular, that forces me as a company or as individuals to operate here -- not just in the U.S. but in just about any other country in the world given the globalization we are talking about.
451. So anything we can do to encourage that development and also to work in partnership with the government, with the Commission and other organizations to facilitate the development of the kind of content, cultural and otherwise, that we think needs to be encouraged in Canada I think can be successful in that regard without the requirement of a specific regulatory imperative to do so.
452. MS CARTWRIGHT: Pardon me, I am just going to break in again and reiterate -- I know I am not as provocative as Keith, and my constraints are upon me with regard to what I can say, but I think, if you could, Recommendation 3.11 in the report -- this is the consensus of January 1998, but the Implementation Council, which again is representative of voices in the industry, has come to reinforce that recommendation with specific regard to the CRTC -- a light hand and exemption orders with regard to Broadcasting Act.
453. I know I am being repetitive here, but just to pick up on something that Keith said -- and it is in the report as well -- there is a lot more grey hair in this room than ever existed in the digital media industry. My clients, the small ones -- speaking personally, we represent some really big players, but the clients that I actually started with, they can't afford to come here and talk to you and the regulatory framework is obtuse to them. In these beginning stages a light hand would help them.
454. Thank you.
455. THE CHAIRPERSON OF THE COMMISSION: We understand that very well and we haven't forgotten either the written form and the consensus behind it.
456. Let me pursue. The CRTC doesn't only regulate, it has a role of monitoring as well and it is in contact with many parties. In light of what you were identifying in terms of the necessity for more visibility, branding, kind of giving some voice to the existence of what is done here, are there any ways in which the Commission could help or assist given, if you take your diagram, that we have a strong rapport with the telecommunications universe and the broadcasting universe? Are there ways by which we could support the evolving of that economy, either through favouring the creation of the content itself as well as the awareness of the end user? Are there ways that you have thought about?
457. When we look at what the Commission could do, it is immediately regulation, but there are also all kinds of elements that we are pursuing. I will take one, for example: equity. With the broadcasters we pursue that idea without having a responsibility in equity and without being heavy-handed, I don't think. Yet it creates an awareness in the whole practice of business as well as on the air and it helps achieving larger or broader objectives that are not necessarily the immediate responsibility of the Commission.
458. So, in that perspective, are there things, ideas that you may submit to our attention that we could or should consider in terms of helping the agenda to move?
459. MR. KOCHO: As we have suggested -- and also I think the IMAT presentation spoke to that as well -- there are a high variety of levels of incentive-based programs of a taxation nature that could be put in place. I would again echo the comments of the gentleman from IMAT who was suggesting that there were a variety of incentive-based programs in place during the embryonic stage of the film and television industry, particularly from a production perspective, in Canada at the time, whether they were tax credits and all sorts of different things that enabled the industry to grow.
460. All of those things will have a tremendous enabling impact on the development of content. Various levels of government, as a model user, is certainly going to assist with the consumption element that we are talking about in creating that.
461. I am not sure that I have other issues. There are things in the report that we have cited, but I think we have touched on most of them. I am just not sure which.
462. MS CARTWRIGHT: I guess my job is just to repeat everything we have said.
463. Attaching new media into the current broadcast funds will be very helpful because again we think it will cross-pollinate and encourage close partnerships amongst those companies that are doing entertainment and cultural content, but fundamentally these recommendations really speak to a macro approach to growing the industry and making sure that there is financing and education and research and development on a sort of holistic approach to growing an indigenous industry.
464. So, if there is a message that the CRTC can send, it is on those macro points around infrastructure, which I am sure the CRTC would be able to address in comprehensive ways, because this is about making sure that each Canadian has equal access to the Internet. We are far from that now; I think, what, 20 per cent of Canadians are on line.
465. Then the tax and financing issues are clearly not within your rubric, but again a strong message can be sent about fostering venture capital and equity financing in this country in which, compared to the Americans, we are sadly at a disadvantage.
466. So those macro issues are things that we are hoping that you can pick up.
467. MR. KOCHO: I would echo the focus. The report speaks to this, although there have been extensive efforts, both federally and in a variety of provinces. There is again an Industry Canada program, IRAP, that I would cite, that RC administers.
468. It is important to recognize that what we are talking about in these converged circles are products that are the byproduct of innovation in technology and in content simultaneously. That's primarily what differentiates these products in the marketplace. If I cite the gaming industry in particular, the thing that differentiates the product on the shelf from a distribution perspective is not just innovation in form but innovation in function, simultaneously.
469. We can work and the Commission can also work to encourage greater cross-pollination between the R&D climate that exists in the IT and telecom industries and having that kind of collaborative focus with the traditional content and new media industries to create products that are at once differentiatable from a content perspective but have enhanced functionality and innovation attached to them, that it is technologically based, to differentiate those products in the market.
470. That's a difficult thing to achieve but it is certainly something that an organization or a body such as the CRTC can assist with because what has happened, if you take this converged model that we are talking about, you have essentially a series of industries that mirror what is going on in government. It is kind of a stove-pipe approach to the way that this issue of convergence is dealt with; it is typically done in isolation, at an organization, a vertical market and a ministerial levels.
471. The more that these issues can be dealt with in collaboration, in light of the comment I made about cross-pollination from an R&D perspective -- this is a huge challenge, and I can't underscore it enough. You will hear a lot -- I am sure that CITO would echo this tremendously -- that there is declining emphasis on pure research in this capacity because of the requirement to accelerate products to market. That's a huge problem from a competitive perspective.
472. Greater relationships could be established between the public and private sectors, particularly in a university context, community colleges and other organizations that are doing primary research, for the production of products that will differentiate content and technology in the global marketplace that can be launched by Canadians. That's a difficult nut to crack when margins are declining, funds from a government perspective for pure research are declining, and the traditional mode of thinking globally is less R, more D.
473. If you are talking about trying to get a product to market extremely quickly, you are going to focus less and less on primary research, and we run the risk of having a totally homogenized environment where there is a not a lot of innovation, we are not encouraging it.
474. So anything the Commission can do in that capacity to focus on creating a climate where you can have that kind of cross-pollination and R&D, and I think much could be done in terms of looking at how we -- because I was commenting, just as an aside earlier, when Meredith was introducing it, that it not only converged but confused from the standpoint of what it is our business actually does, and I tend to think that the environments of the traditional cultural industries, whether they be broadcasters or independent producers, think of R&D fundamentally differently than people in the information technology and telecom industries do. Much can be gained by trying to bring those two groups together from the perspective of innovation.
475. That I think would be of immense benefit. Then we will clearly have a focus on the right part, which is innovating products that are going to be differentiatable globally.
476. THE CHAIRPERSON OF THE COMMISSION: Thank you.
477. MS CARTWRIGHT: Then that does get into the examples that were used in the report around virtual environments for car making and surgery. A lot of these developments are coming out of Sheridan; I know that CITO has a special relationship with Sheridan College, and it is these types of relationships and partnerships that have to be fostered and encouraged to keep the thinking in Canada. That's what we don't want, is this drift to the United States of our best thinkers and our best researchers.
478. THE CHAIRPERSON OF THE COMMISSION: Thank you very much.
479. Legal counsel?
480. MS PINSKY: No questions.
481. THE CHAIRPERSON: Thank you very much. We appreciate your coming here this morning. I guess, Ms Putterman, we will hear from you in the next presentation.
482. We will take our lunch break now, reconvene at 1:30 and continue through the afternoon.

     --- Recess at / Suspension à 1220

     --- Upon resuming at / Reprise à 1329

483. THE CHAIRPERSON: I guess I am a bit early by this clock on the wall, and back here is about five minutes ahead of this one and my own watch, but since everybody is here and seems to be ready, Madame la Secrétaire...
484. MS SANTERRE: Thank you, Mr. Chairman.
485. The next presentation will be by Communications Information Technology of Ontario.

     PRESENTATION / PRÉSENTATION

486. MR. LEACH: Good afternoon, ladies and gentlemen of the Commission.
487. May I open by introducing my colleague, Connie Putterman, whom you have already met in the previous deposition, and Joanne Stanley, responsible for marketing and communications.
488. Thank you for the opportunity of being able to be here today to dialogue on what we consider to be one of the most important technology issues facing Canada now and in the new century.
489. I would like to begin my remarks by explaining why Communications and Information Technology Ontario is here today.
490. A not-for-profit corporation, CITO's role is to implement the Ontario government's Centres of Excellence Program by acting as a catalyst between the communications, IT and digital media industries, and academia. In this capacity, we contribute to the growth of industry by brokering and co-funding technology research partnerships.
491. CITO is a managed research company governed by a board of directors of leading technology experts from industry and academia. We were formed in October 1997 through the merger of two previous Ontario Centres of Excellence, the Information Technology Research Centre and the Telecommunications Research Institute of Ontario. At the same time, our mandate expanded to include research technologies for the future of digital media and their application. Our focus in this area is on the development of tools that allow digital content to be created, stored, manipulated, searched, communicated and effectively presented.
492. We are participating in this proceeding as a stakeholder in relevant public policy, especially in Ontario. We believe that our knowledge of leading research, both at home and abroad, may help the Commission determine concepts, policies and strategies that foster Canada's leadership in the global digital economy.
493. As an organization that has a broad perspective on what is required to make a technology-dependent industry prosper, our central message is that in the emerging digital media industry the most effective approach to helping the industry prosper is to fuel aggressive research and development through collaborative partnerships among private and public sectors, and academia. In the long run, we believe this approach will promote the focused research and applications development, and the sharing of ideas and resources, that will assure Canadian industry a leading role on the global scene without stifling local competition and innovation.
494. In our view, this aggressive research and development should bring together university-based, multi-disciplinary teams, working with, and co-funded by, industry. However, to be effective, the collaboration requires much more than straight funding. In fact, it requires research companies managed by experts from industry and the academic world, committed to fostering pre-competitive, industrially strategic research, with the goal of creating powerful commercial opportunities for Canadian business.
495. This collaborative model has proved successful for CITO in its work in the telecommunications and IT sectors, and it will prove to be a compelling model for digital media as well.
496. There are many advantages to the collaborative model:
497. - one, it leverages government and industry co-investment in research and development and accelerates the flow of innovative ideas into commercial reality;
498. - two, it unites the best minds in the country to promote Canada's competitiveness in technology and applications;
499. - three, it ensures progressive training strategies for the development of current and future talent; and
500. - four, it creates a professional team of people to orchestrate partnerships, to overcome obstacles faced by the industry and to manage the flow of intellectual property.
501. This model has already proven effective.
502. In CITO's case, one example is our ongoing role facilitating research and development for the area of semiconductor technology known as "systems on a chip". This facilitation has fostered an evolving relationship between academia and industry which includes focused applications development, as well as training and ongoing recruitment benefits. It has also sparked the creation of companies such as Philsar Electronics, an Ottawa-based semiconductor company now on the brink of international recognition.
503. In an area closer to digital media, I would like to point to another facilitated partnership involving the University of Waterloo and the Open Text Corporation, a developer of knowledge management systems that help businesses leverage the global reach of intranets. Sponsored research and co-operation made possible the early launch of an on-line dictionary with a high speed thesaurus capability. Open Text is located on the University of Waterloo's campus, and the research conducted at the university is fed into the company and to other players in the industry for their mutual benefit.
504. An example of the collaborative model in digital media is the interactive animation research partnerships CITO recently established linking two highly-respected Ontario colleges, Sheridan College and Centennial College, with leading companies in new media to research and develop new media products.
505. The Sheridan College partnership will further the development of interactive animation; the Centennial College project will explore user interactions with on-line information, and result in the development of new communications tools that help corporations enhance the way they plan and evaluate multimedia Web opportunities.
506. The facilitation and co-funding of partnerships such as these delivers tremendous value and benefits to industry and to the economy as a whole. It promotes new Canadian companies and stimulates new ideas that create new value for industry and help sharpen Canada's competitive edge.
507. Canada must be a leader in strategic industrial research and development if it is going to be a serious player in digital media. Indeed, the choices we make now about the policy framework for this emerging industry will affect Canada's technology leadership for years to come.
508. With digital media still in its infancy, a balance must be maintained between competition and collaboration. On the one hand, the market for new media is very diverse, with multiple small companies and a few very large ones who have the potential to quickly become dominant players. Therefore, mechanisms must be put in place that help build a supportive infrastructure for aggressive research and development while allowing smaller players to innovate and grow rapidly while partnering for global reach for international exploitation.
509. One approach is to adopt the type of framework that is in place for PCS services -- one that is a heavily-regulated model and requires participating companies to allot a percentage of their revenue for research.
510. Another model is a pure funding approach, espoused by many, and is typified by Ontario's Interactive Digital Media Small Business Growth Fund which was announced recently. The focus here is to co-fund projects conducted by Ontario-based companies and organizations in this field.
511. However, the third model, and the one that we are convinced will be the most effective for new media, is the collaborative research broker model, which organizations such as CITO have nurtured in various industrial sectors.
512. At CITO, we believe that the policy framework we build now must stimulate digital media, not put up barriers. In such an early stage of development, regulations may inhibit the growth of the very services and applications Canadians want and value most, and those that are most critical to our ability to compete globally. At the same time, predatory competition would be harmful to an emerging industry.
513. The collaborative model I have described does not attempt to set policy or make rules. Instead, its goals are to encourage excellence and to create synergy amongst the private and public sectors based on world class research.
514. As an organization, we espouse a supportive legal framework, a collaborative spirit, a sharing of risk, a source of high quality people, and a will to win internally, for each of these elements is a key to Canada's success in the global market.
515. Now, I and my team would welcome the opportunity to discuss our position with you.
516. THE CHAIRPERSON: Thank you very much, Mr. Leach. Commissioner Grauer will discuss your position with you.
517. COMMISSIONER GRAUER: Thank you.
518. Actually, the first question I have is in the area of partnerships, which certainly we have heard a lot about from many of the intervenors and here this morning. I am curious if you view the nature of the partnerships that are evolving or are desirable in this digital world as differing in any significant ways from partnerships that might exist in a more traditional business model.
519. Are the business models evolving in such a way that the partnerships look different?
520. MR. LEACH: Thank you. I think the challenge of partnerships in this field is it is a very new industry. Therefore, my perception is that the partnerships will probably need to be developed possibly slightly differently from partnerships in a more conventional industry.
521. There is a tremendous amount of research and development that's still required in this industry to allow people to navigate effectively through this information space which is being created. That is novel in that it can't really come directly out of a major player. We will like to use the example of Northern Telecom and Bell Canada as an example of very, very high levels of individual corporate research and development.
522. Here, I don't think we have that option. So we are addressing a technology and a diversity of technology and a diversity of opportunity, which means those partnerships need to be built differently and they probably need to be built by the sorts of organizations that we represent, i.e., a team of professional people whose sole role is to develop those partnerships.
523. The small companies themselves, as Keith Kocho was indicating, are very driven by short-term time frames. Getting their attention to do the very key research which is necessary for their future is a major challenge, and without professional people promoting that, those partnerships probably won't happen.
524. COMMISSIONER GRAUER: Thank you. Maybe I could also look at it a different way.
525. The group that was here before you, Digital Champion, had a model of what the digital world is going to look like in three areas -- strategic positioning of the digital media industry with telecommunications, computing and creative content all converging in a certain place. So, presumably, there is an essential involvement of those three, some of which are much older and more traditional industries and some of which, by their very nature, are very creative and innovative and not prone to thriving in a very structured environment.
526. I am just wondering if this is new in that it places really unique challenges in front of the industry, or is it not relevant in your view?
527. MS PUTTERMAN: Perhaps I might be able to clarify our position for you in the sense that, coming from a research position in the terms of the academics and university environment that we work within, I think the challenge is to get both parties to the table to be able to understand each other's positions.
528. In the digital media framework, the industry is new and, as Peter said and as Keith said earlier, I think many of the companies don't put resources toward research or research and development, so they are not quite able to articulate some of their research needs. I think the goal is to bring those parties together to be able to talk in that same language and to have the research community as well look at this community and understand some of the issues they are facing and the implications that that has.

     1345

529. COMMISSIONER GRAUER: I guess, certainly from your perspective, there would also be to understand the importance of research in terms of the future of the business.
530. MS PUTTERMAN: (Nodding in the affirmative).
531. COMMISSIONER GRAUER: Thank you.
532. As a broker of academic and industrial research partnerships with a knowledge of the research that's taking place here and around the world, where do you see the development of new media and new media services going over the next three to five years?
533. MS PUTTERMAN: Again, I think from a CITO perspective, if you ask the question about development of services, from our perspective we are looking at the research tools, some of the tools that are driving the applications towards producing those services, tools such as interactive tools, enabling tools, tools such as those I think will be at the forefront.
534. It is pretty difficult to predict. Typically, and in our model, going back to the way that our model works, we put out a call for proposals from the research community and what we do is assess the research that is happening currently in the university environment and connect that to some of the needs of the markets that we are working with. So many of the advances are coming in in forms of animation rendering and such.
535. As well, to talk about the convergence aspect, we are also seeing research coming forth in the areas of Internet protocol, which is on the telecommunications side, which converges the technologies.
536. COMMISSIONER GRAUER: Could you give me some examples, then, of something that might involve the tools in a call for proposals, what that might have been, what it looked like?
537. MR. LEACH: In the programs that we put together, in digital media particularly, we very clearly follow the model that we have of using professional people to establish these linkages. The relationship between Sheridan College, for instance, and Immersion Studios (ph.), came out principally because we were in discussions with Sheridan about the excellence of their program and the capability they have in animation, realized that they wanted to push the envelope substantially further than it had been pushed already.
538. Immersion Studios was sitting there with an interactive visual product, a fascinating one, and needed the avatars, or the animated animals, to interact with each other. Unfortunately, the way that the technology is described today, there is no method of allowing one of those animals to have a personality so that it interacts with other features. You have to build that and program it specifically, but in an interactive environment you don't know how these people are going to come together or these rendered images are going to come together.
539. So we realized there was an opportunity here to push the state of the art. We had some people who had the capability to do it and a company that had the need to have it done. They wouldn't have found each other without us.
540. COMMISSIONER GRAUER: Interesting. Thank you.
541. In paragraph 18 of your submission you refer to several elements that you consider to be key to the success for Canada. First on your list is a supportive legal framework. What would that entail?
542. MR. LEACH: I think some of the key things associated with a legal framework are the whole issue of intellectual property controlled management. That is a very key issue and one that requires rethinking from the historic relationships between the people who create intellectual property and the people who distribute it.
543. We now have a mechanism which has a very different distribution mechanism which is not controlled in the same way. That means that the people who create the intellectual property have very clear rights to use that intellectual property and for other people not to steal it, not to misuse it.
544. So, from a technological perspective, we think there are a number of avenues that need to be looked at that reflect in the legal domain. there is the whole issue of privacy and security, so encryption technologies and all those sorts of things associated with this environment I think are very key.
545. So we don't have a prescription of what the total environment has to be from a legal perspective, but that legal perspective must make sure that the people that create this knowledge have an ability to control it after they have created it. It is very easy to move it out of one country into another country and then export it back again if those appropriate mechanisms are not in place.
546. If we could encourage people here, because of the framework that we have, to generate the content here, then we will have a very, very successful industry.
547. COMMISSIONER GRAUER: So will you have some specific recommendations for us at some point about even things the government should be doing or we should be doing to develop that framework? For instance, I know the federal Department of Industry has a bill on privacy. Are you engaged in that process?
548. MR. LEACH: The only way that we have engaged in that process is from a technical perspective, i.e., what is realistic, what is technically possible today and what might be technically possible tomorrow. It isn't our role and we don't have the resources to look at the legal issues associated with the industry, but from a technical perspective, what could be done technically, that is certainly our field.
549. COMMISSIONER GRAUER: Thank you.
550. You referred in your oral presentation this morning to concerns about predatory competition that would be harmful to the development of an emerging industry. Could you elaborate a bit on that?
551. MS STANLEY: By "predatory competition", what we are essentially saying is that you have a number or several very, very large players in the industry and quite a number of smaller players. What we need to put into place is an infrastructure, a supportive, collaborative one, which allows the small players to work together and work with the larger players to be viable so that they all have a chance to survive. The infrastructure has to promote that kind of supportive collaboration.
552. It is that kind of predatory competition, or the reverse of, that we suggest should not happen in a new and emerging industry like new media.
553. COMMISSIONER GRAUER: Do you have any suggestions as to how we might go about doing that? What are the mechanisms that could protect against predatory competition or ensure the flourishing of the smaller companies.
554. Do you have any specific --
555. MS STANLEY: Perhaps you can cite the Philsar example.
556. MR. LEACH: I think we have some sort of examples, and it is probably best explained by examples.
557. We have a capability in the semiconductor field in this country which is possibly unique. To go back some time, the filter Kodak, which was a Canadian invention, allowed Northern Telecom to become the multinational it is today. One piece of technology allowed the digital switch to be created.
558. In the circumstance we are facing now with this particular small company, it started about five years ago, it was a spin-out of our own program at Carleton University, and they are designing chips now for people like Intel. Intel isn't a small player, and at some point in time Philsar may be very attracted to form something more than an alliance with a corporation like Intel to gain access to funding.
559. When it is an independent organization, we can help nurture it by keeping it on the leading edge, and if those people all are kept on the leading edge we can fight off some of that predatory competition.
560. We are starting to see examples I think in the States, particularly now, of this type of predatory acquisition going on. Microsoft, AOL, and AOL's recent purchase or just about purchase I think of Netscape, this is predatory competition. This is going to take opportunities out of the marketplace. We can't afford to do that here.
561. So, while we are dealing with smaller companies, if we can set up a high degree of collaboration between those companies, they are then less liable or less susceptible to the attraction of being acquired by one of the very major players.
562. So, by being assembled in partnerships, it is far easier for a company to resist being acquired by a large predatory company simply because they don't need the resources of that large company because they are already in partnership with people that can do everything that they need.
563. COMMISSIONER GRAUER: So you are looking much more at creating incentives and collaborations and partnerships as opposed to some sort of regulatory mechanism to prevent predatory competition. So it is the incenting side as opposed to the policing side of it.
564. MR. LEACH: Yes, I think it is the incenting side. There is so much activity here that I suspect we will get into trouble in NAFTA if we try to do anything other than an incenting program because, although this is partially a cultural industry, it is partially not a cultural industry, and while we try to protect our culture we have to share everything else. This, unfortunately, like a lot of other things, bridges the boundaries between what is openly competitive in a North American context and what is in some ways protected.
565. MS STANLEY: Just to add on what Peter was saying earlier, these don't happen naturally, however, and just throwing money at them also won't make them happen. There have to be mechanisms or an infrastructure that facilitate these partnerships, and frankly people who are dedicated to making them happen. The companies are small and don't have their own resources. So, in the sense of providing an infrastructure, I think that's the type of infrastructure that we would like to see in place.
566. COMMISSIONER GRAUER: So, again, it is presumably ways to incent partnerships probably on both sides. Is that fair? I mean, to create incentives to partner and collaborate as opposed to --
567. MR. LEACH: I think there can be incentives to partner and collaborate. Very clearly, I also think that just the power in this field of government in its own right, for its own needs, can in fact help the industry on a very major basis. In Ontario alone, the Ministry of Education is committing $4 billion to launch a much more aggressive program for computers in schools, including the content for education.
568. If you start to look at those sorts of flows of funds, then you start to realize that government has a very, very major role to play in the evolution of the industry as opposed to small funds here and small funds there. Because it becomes part of government's business, it becomes part of the health care business, it becomes part of the education business, it also becomes part of the service delivery business for government itself.
569. COMMISSIONER GRAUER: I am not quite sure what elements of a government program of that nature support your collaboration and partnerships. Is it the way it is structured? Is it the way their spending is expended? I mean, $4 billion could be given to anybody to do a job --
570. MR. LEACH: Yes, clearly the investment could be made on a number of bases, but with an emerging industry it is very easy to bring together a group of companies that are going to partner in a very large enterprise.
571. COMMISSIONER GRAUER: I see.
572. MR. LEACH: No one company can probably take this on their own. Therefore, they are going to have to partner to achieve the result, and government itself can actually help build those partnerships. We are going to have to build a tremendous amount of content just in the educational field alone, and that requires educators across the country, it requires all disciplines.
573. So this is a very highly-levered mechanism which is right in the middle of the government's business itself.
574. COMMISSIONER GRAUER: So, in terms of specifying that they will look favourably on partnerships, this, in and of itself, supports your model.
575. MR. LEACH: Certainly a strong recommendation by this committee I think would go a long way to getting them to take the issue very seriously. In Ontario I think they are already starting to take it very seriously. I don't know about other provinces because this is where I come from. I think it is starting to be taking seriously, but it can certainly be amplified by this committee.

     1400

576. COMMISSIONER GRAUER: Thank you.
577. MS PUTTERMAN: Excuse me, I just wanted to add a comment to what Peter said too.
578. To go back to CITO's collaborative model, I think in our case, in understanding our model, our funding goes towards people and goes towards students. I think that, in the flow, the production of what comes out of this model is the education of students that then are partnered with industry. So it is a direct transfer of, shall we say, skills and talent through the student.
579. That might exemplify a model through people.
580. COMMISSIONER GRAUER: Thank you.
581. I know that a number of intervenors have identified the need for a viable methodology to collect statistics on new media use, specifically Canadian usage of the Internet and new media products.
582. Would you agree that there is a need for assembling statistics here in Canada, a database?
583. MR. LEACH: I think the issue of assembling those statistics is certainly important. To us, in our business sector, it is probably not as important as it may be to other people to understand what is taking place within this industry.
584. COMMISSIONER GRAUER: So it is not something you would find particularly useful in terms of --
585. MR. LEACH: It is not something that we, as an organization, would want to take our own resources and promote. I think it needs to be collected on a clearly national basis, and there are organizations that I think have the capacity to collect that type of information. But, as I say, from a purely technical perspective, from our perspective, we would not see ourselves doing that anyway.
586. COMMISSIONER GRAUER: Thank you.
587. THE CHAIRPERSON: Thank you very much, Mr. Leach, Ms Putterman and Ms Stanley. We appreciate your appearance here today.
588. Madam Secretary.
589. MS SANTERRE: Thank you, Mr. Chairman.
590. I would like now to invite Mr. Andrew Clement to do his presentation.
591. THE CHAIRPERSON: Good afternoon, Mr. Clement.

     PRESENTATION / PRÉSENTATION

592. MR. CLEMENT: Thank you.
593. I am pleased to appear before you today and to contribute to a discussion that is vital to the Canadian public. While these hearings are quite limited in several ways, they do provide one of the regrettably rare but nevertheless valuable opportunities for public interests to shape this important field during its formative stages.
594. I am Andrew Clement, an Associate Professor in the Faculty of Information studies at the University of Toronto. I coordinate the Information Policy Research Program there which, since 1995, has investigated a range of information policy topics related to the emerging information and communication infrastructure. In particular we have studied the issue of universal access to information and telecommunications services. This work has produced the document "Key Elements of a National Access Strategy: A Public Interest Proposal", which forms the major part of my written submission to these proceedings. Since it is a wide-ranging proposal, I will highlight here only those aspects that are particularly relevant to the CRTC's jurisdiction and to the current hearings.
595. The field of new media presents novel characteristics that are clearly distinct from either broadcasting or telecommunications. However, it is equally clear that major areas do overlap with both those fields. While producers and distributors of new media offerings are largely correct in asserting that some of the existing regulatory measures are not applicable to new media, they also do need to demonstrate how their activities contribute to achieving the core goals of the Broadcasting and the Telecommunications Act.
596. These goals remain valid and urgently need promotion. This will require the development of new policy instruments. My remarks address one such instrument on the telecommunications side. I focus in particular on the means for ensuring universal access to essential telecommunications services through the creation of a Universal Access Fund.
597. "Key Elements of a National Access Strategy" is the culmination of three Universal Access Workshops held over the last two and a half years at the University of Toronto. To hold these, we received funding from four federal government departments.
598. These workshops were attended by representatives of public interest groups from across the country that are among the most actively involved with networking applications and policy making around Canada's Information Highway. Workshop participants were particularly concerned that a market approach was dominating the policy discussion and that alternative voices needed to be brought into the process.
599. The third workshop focused on formulating a public interest proposal concerning the National Access Strategy that the Ministries of Industry and Canadian Heritage were committed to develop by the end of 1997. Instead of a strategy for universal access, the government presented its connectedness agenda. While this agenda is a valuable initiative in several regards, we viewed it as too narrow to constitute an adequate national strategy for ensuring universality. It leaves serious gaps in terms of the conception of access, who is served, the consultative process, formative assessments, and governance.
600. In February of this year we called upon the Ministers involved to establish a National Task Force on Universal Access. In August we presented them with this document, the "Key Elements of a National Access Strategy", which we consider offers a significant extension and deepening of the connectedness agenda. The letter to the Ministers is attached to the speaking notes.
601. Central to our proposal is the ideal of an electronic commons. To give a sense of it, I would like to read from the "Access Vision" section:

1. There is a wide consensus that access is vital, even the central issue with electronic media. However, it is such a broad and loosely used term when applied to digital networks that it is difficult to formulate precise policy proposals to achieve it. To clarify the concept, Leslie Shade and I developed a multi-layered model of access which we refer to as the "access rainbow". I would like to refer to the model briefly. It can be found at the back of my speaking notes.
2. One of the main aims of this model is to enable the universality and inclusivity goals that underpin section 7(b) of the Telecommunications Act to apply to digital network services such as the Internet as they become more integral to everyday life. With conventional telephony, a major challenge was to overcome Canadian distances and geographic separation while at the same time ensuring that the monthly service charges were within the reach of all households. The situation is very different with digital networking. While rural and remote service rightfully remains a central issue, other factors, especially the cost and complexity of terminal facilities and the skills to use them creatively and effectively, are now much more important in comparison.
3. The policy focus should not now be exclusively on getting a signal to the subscribers in an affordable manner. Rather, addressing access barriers at all levels of this model -- at the carriage and device levels, software, content and services, service providing organizations, literacy facilitation and finally governance -- are all potentially necessary for achieving the goal of universal access.
4. In short, the growing importance of the Internet and other digital networking technologies means that the definition of "basic telecommunications services" needs to be expanded. Similarly, the means to ensure continuing access by Canadians to basic telecommunications services also needs to be expanded by taking into account the specific and dynamic characteristics of the new media.
5. A variety of support mechanisms are needed to ensure that all major access barriers at each level of the rainbow are removed. Our National Access Strategy proposes that a central component of this support mechanism should be a Universal Access Fund. This fund would support non-profit organizations in meeting specific access targets that are coordinated within an overall scheme for achieving universal access to essential network services.
6. Two areas are worth highlighting here. Both target public interest aspects of the new media that are lagging behind commercial development and risk being overwhelmed unless they receive sustainable support during the current formative period.
7. The first is to support non-profit community organizations in developing the means to serve their constituencies electronically, particularly by establishing and maintaining World Wide Web resources and fostering computer-mediated communications such as e-mail. This applies especially to civic networking enterprises that can provide assistance for many of the non-network-oriented community organizations in their locality.
8. Another important area is to support the establishment of Canadian, publicly-administered, non-commercial portals to the World Wide Web that highlight Canadian material. As the written submission by IMAT and their comments earlier this morning, there is a risk that these large commercial portals will dominate the market and gain the ability to service gatekeepers, thus limiting the access of smaller players to their audiences. This is especially true for the non-profit sector.
9. In this competition for scarce consumer attention, these large portals are showing strong commercial, even monopolistic, tendencies to the detriment of the public good aspects of their information offerings. This is one area where the CRTC may consider developing regulations to ensure that the large portals which are most accessible to Canadians give prominence to Canadian materials and otherwise promote social and economic goals.
10. However, there are major difficulties with this approach, and an alternative strategy for promoting the creation of highly visible, inclusive, attractive and useful public portal sites will likely be more effective. An obvious example would be the CBC; another could be in the area of health, for instance the Canadian Health Network currently being developed through Health Canada. Launching these publicly-controlled sites will require significant long-term investments, perhaps seeded by the federal government and sustained through the Universal Access Fund.
11. For the allocation of monies from the Universal Access Fund to be regarded as legitimate, the process needs to be transparent and publicly accountable. The overseeing body should be broadly representative of groups supporting equitable social benefits from networking. The access strategy document proposes the establishment of a National Access Council for A Connected Canada along those lines. Among other responsibilities, this council would set priorities for the universal access fun expenditures and supervise its administration.
12. A principal source for the fund would come from a percentage of the revenue collected by network providers. As AT&T Canada notes in its written submission, there is:

    "... an urgent need for the replacement of the current usage based collection mechanism with a percentage of revenue collection mechanism applied to a broader range of services and market participants."

13. It further notes that the contribution mechanism needs to be "technologically and competitively neutral".
14. The authority for the CRTC to establish such a fund could come from the proposed amendments to the Telecommunications Act in Bill C-17. Specifically, subsection 46.5(1) states that the Commission

    "... may require any telecommunications service provider to contribute... to a fund to support continuing access by Canadians to basic communications services."

15. Two of the more common objections to revenue redistribution schemes such as this are that they would threaten the growth of the Internet and disadvantage Canadian companies competing globally. These claims need to be treated sceptically and scrutinized carefully.
16. First, some areas of the Internet are growing extraordinarily rapidly, fuelled by intense commercial competition around strategic positioning. It is not clear that slowing this process down would do any harm. Indeed, a more balanced growth may be more sustainable in the long run. Furthermore, since the revenues of the fund would stay within this sector and are aimed at extending the reach and diversity of the network in terms of subscribers and applications, they could well enhance overall telecommunications growth.
17. Furthermore, service providers that learned early how to reach a more diverse audience in Canada and orient their offerings to serving broad social goals may well be at an advantage when entering markets outside of Canada. The other extreme, enterprises that are not prepared to demonstrate how they contribute to furthering the objectives of the existing legislation hardly deserve to be exempted from it.
18. In conclusion, these hearings come at a critical juncture in the development of Canada's information communication infrastructure. New media offer considerable promise for enhancing the life of all Canadians. However, the benefits are unlikely to be distributed equitably unless public interest perspectives play a larger role in the development process.
19. The Commission should resist the loud but narrowly-interested voices that would subvert the objectives of the Broadcasting and Telecommunications Acts. Instead, it should develop a broad and flexible policy that promotes the community-based and non-profit sector to ensure that Canadians can democratically exercise control over the media that are so much part of our lives.
20. Thank you very much, and I welcome your comments.
21. THE CHAIRPERSON: Thank you, Mr. Clement.
22. I read your submission with some interest and found I was torn between its seeming to be a fairly targeted, specific proposal at some points but then at other points I got the sense it was trying to solve every problem the Commission at least has tried to address in traditional telecommunications and broadcast media for 30 years.
23. MR. CLEMENT: Well, if we have helped in any way --
24. THE CHAIRPERSON: Perhaps to start, notwithstanding what was in your original submission and which you have repeated again this afternoon, you could explain for us what exactly you mean by this notion of an electronic commons.
25. MR. CLEMENT: The notion of a commons is a place for everyone, that's open to all, that people, whatever their backgrounds or resources, are able to come to and get some benefit from. We are using that as a term that gets away somewhat from the one-to-one communication of telephone and the one-to-many of broadcasting, but rather to see it in a more physical and sort of spatial metaphor -- it is a place where we can all come and meet each other and engage in a wide variety of necessary valuable acts in our lives, that we all have a right to be there and we all have a say in how it is managed. That's part of our notion of the commons.
26. THE CHAIRPERSON: You did talk about this issue of spectrum and air and water and so on. I guess I was struck with the notion about -- I think it is probably fair to say that largely we haven't adopted that notion with respect to telecommunications networks, even though we have tried to make sure that there is access to those networks; and we are dealing with some of those issues, at least in another proceeding now.
27. I guess it struck me that a large part of your concern here revolved around the access question, either access to the infrastructure by citizens or access to it by content creators, information owners if I can use that term.
28. MR. CLEMENT: Right.
29. THE CHAIRPERSON: Would you agree with me that, that largely these issues from your point of view in terms of this electronic commons are access sorts of issues?
30. MR. CLEMENT: Yes, certainly, it is very much about access. The notion of content provider is a bit more limited than I would take it to be because in communication processes very often one is not just providing content; when one is engaged with an e-mail discussion list, is that creating content? Some of it is archived and goes into a repository as a resource for others; in some ways it is, but in other ways, it comes out of an ongoing discussion and communications.
31. So it is access to those facilities and the ability to find others, find out what they are doing, engage with them in various ways; it is access to those processes, really, that we are focused on, and content certainly is part of it.
32. THE CHAIRPERSON: So, largely, this is a philosophy we should be adopting in terms of dealing with a lot of these other issues, this electronic commons?
33. MR. CLEMENT: Yes, I believe so. As a number of presenters have noted, the new media open up new areas that are still relatively unexplored; they are in a formative stage. They are in flux, and the CRTC and its regulatory and policy measures I think have to open up and embrace or at least consider broader notions of what it means for Canadians to communicate with each other.
34. We are trying to offer this as a possible model and a way to think about that, and it is one which we think can include both, as we say in the remarks, a wide range of commercial activities as well as ones that are not for profit and are considered to be more personal and community based. So it is to embrace all of the various ways in which people want to use networks.
35. THE CHAIRPERSON: Now, if we turn -- again, I am largely going from your original submission, but you have noted a lot of these issues again today. I guess this was where, when I was reading over this, I was at one level thinking, well, this is fairly straightforward, but then at another level it seems to be quite all encompassing.
36. You talk about establishing this national task force on universal access and you talk about the goals or objectives of the task force. As I say, they seem to me to be fairly all encompassing. I was particularly struck by item (e), which is at page 8 of your original submission:

    "determine the most cost-effective way for Canadian content creators and providers in the old and new media sectors to produce high quality material and make this content accessible to Canadians and the world;" (As read)

37. That's where I kind of thought, well, I think we have been struggling with that for 30 years here at the CRTC.
38. MR. CLEMENT: Right. Well, I guess it came out of a sense that this remained a vital question and we needed to think about that some more in ways that the IHAC process hadn't pushed adequately, we felt.
39. This document, as you can imagine, is the creation of a committee that is brought together for the purposes of an NSD (ph.), so it has that certain uneven character because it reflects the ambitions of many people, and we have found room for them.
40. THE CHAIRPERSON: You just mentioned IHAC, and I guess one of the thoughts that occurred to me was, are you in effect suggesting an IHAC 2, if you will, or --
41. MR. CLEMENT: Well, IHAC went through two final reports, but, given the ongoing changes in this field we can expect major technological changes to continue for another few decades, I would say.
42. There is a continuing need, I would say an ongoing need, for there to be an advisory, research, consultative process. There were many questions still left unanswered by IHAC. It didn't do very much, hardly anything in terms of research into the issues here, it didn't involve public consultations; even though those were claimed to be part of it, the public consultation aspects were minimal. So we felt that there was some major unfinished business in the IHAC process and we thought that a task force along the lines that we had specified, that would have a research component and that would have more open consultations, was necessary. We would still like to see that happen, but we are not holding our breath at this point.
43. THE CHAIRPERSON: I guess I am inclined to ask what do you think about this process, then, in terms of providing that kind of opportunity.
44. MR. CLEMENT: I think it is better than what IHAC offered. There are problems with this, and a number of the other commenters have observed that it is very expensive for many of the people who are involved in this to attend. It isn't as open and as experimental as many would like, but it is one of the few public forums that, in a disciplined way, deals with these issues. So I think it is certainly better than nothing and it is an important one. We would suggest some changes and we would suggest some other venues, and you are already starting to take some steps on that by opening up the on-line aspect. These are very fledgling and experimental and there are lots of problems with them, but I think we should be broadening our approaches to the ways in which we involve Canadians in deciding these matters.
45. One of the areas that's neglected in the CRTC process and which we think would be valuable would be to have forums that are much more design oriented. I am interested in issues of participation of users in the design of the system. So a constructive prototyping approach would be very valuable, for instance, for envisaging what kinds of public information and communication services would be useful. I think we can involve more people and draw upon their skills and aptitudes in the activities which they are more familiar with in that design process rather than requiring people to be oriented to this kind of panel presentation. This is not everyone's cup of tea.
46. So I think we should be broadening that, and we hope that the task force could address some of those process issues as well as tackle some of the still-to-be-answered questions. We may be overly ambitious perhaps in expecting that a two-year task force would accomplish all of those things, but we wanted to say that there was more of a start than the IHAC process represented.
47. THE CHAIRPERSON: Turning to some of the specifics, particularly in terms of the access questions, access to infrastructure, that you raised in your second round submission, you have talked about this basket of essential services and I think you actually referred to, somewhere in here, sort of a rainbow, if you will, of access.
48. MR. CLEMENT: Right. There are two different ways of approaching this.
49. THE CHAIRPERSON: Yes, but in particular you referred to local dial access with additional connection fee to electronic mail and a fee-charging Internet service provider of the customer's choice as being one of the components of this basket, if you will.
50. MR. CLEMENT: Yes, at some point.
51. THE CHAIRPERSON: Are you referring here to essentially the ability to make toll free access to the nearest ISP?
52. MR. CLEMENT: Yes, that's what we are referring to there.
53. THE CHAIRPERSON: I guess, given the hearings that we had -- I was going to say last year, but I guess it was just earlier this year; it seems like that long ago -- across the country, it appears that that issue was being addressed in many if not most parts of the country, and probably within a year or so virtually anybody anywhere in the country will have toll free access to the Internet.
54. Is that your understanding?
55. MR. CLEMENT: I understand that things are moving in that direction, yes.
56. THE CHAIRPERSON: Would you take it, given that, that that problem is likely to be resolved before long, that part of it at least?
57. MR. CLEMENT: The connection part looks like it will be; for people in remote areas, there may still be some problems with that. That, of course, doesn't mean universal access in the sense that the terminal equipment in the case of computers is far, far more expensive than in the case of telephone. So there will be continuing barriers to even basic services such as e-mail; it won't be so much on the wire side, the connection side, but on the terminal end, and we think that that should be addressed.
58. The minimum configuration still costs in the order of thousands of dollars, and the rate at which they become obsolete means that, for resource-weak organizations and individuals with low income, that still presents a serious hurdle. That's where the burden of the economic side or the economic obstacles to even basic digital services is increasingly shifting.
59. THE CHAIRPERSON: But, given the government's program with providing computers in schools and libraries and various community centres, do you think the government has a role beyond that in terms of trying to make sure that individual citizens have computers?
60. MR. CLEMENT: Yes, certainly.
61. The other aspect which I referred to briefly was the question of skills. The ways in which we are using, configuring, creating with computer systems is still nowhere near as easy as using a telephone, and if we are going to develop those skills, that literacy, we are going to need a great deal more in terms of support for individuals and for organizations; particularly as small community-based organizations increasingly rely on this, they are going to need a lot of help. I think the government is doing things and I think it can do more.
62. In the area of schools, the emphasis is primarily on getting the computers, the terminal equipment into the schools and getting the Internet connection, but there is a huge job in making it possible for teachers to effectively integrate that into their curriculum. That requires a lot of their time, it needs a lot of upgrading, it needs a lot of experimentation, and that is not being addressed.

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63. There are chronic complaints that it is a very unbalanced development. This goes back 30 years, when the computers first started to be put in schools. This is the same old story again and again: The emphasis is on putting the equipment in, but the training and the skill development lag behind. It isn't as visible but it is just as vital. It doesn't have the same political saleability as announcing a new equipment program, but in terms of effective use, that's much more vital than getting the latest model of a computer or the highest-speed line.
64. THE CHAIRPERSON: You have also mentioned that this basket of essential services within five years should include the option of an e-mail address and affordable Internet access. What do you have in mind there in terms of that being considered part of this essential basket of services in terms of access to an e-mail address or this affordable --
65. MR. CLEMENT: In the last couple of years Sweden has basically provided e-mail access I think to everybody over six years old or something like that. I don't know what the social consequences of that are, but that's what we would contemplate. At some point, just in the same way that we have a physical post office, at least those of us who have a home, I think we should expect that we can have an electronic mail address, that it is readily available, that it is not something you have to go great distance to get. We should be developing social policies that will make that possible.
66. That's what we are intending there, is to define some basic services that most people can be expected to find valuable in an ongoing way, and we should then make it possible for everyone who wants to have those to have them regardless of their means or where they live and so on.
67. So the definition of basic telecommunications services is going to change. In 20 years, I think that will be regarded as obvious.
68. THE CHAIRPERSON: When you talk about affordable Internet access, though, do you have a concern that it may not be affordable? I just want to determine affordability.
69. MR. CLEMENT: As I was saying earlier, if we look at what it means to have effective connection to the Internet, it is not just the $9.95 a month for the 30 hours, which you can now see advertised, it is the whole package, including the equipment. It is the skills to use it and so on.
70. Those, we need to be looking at as a whole and seeing whether people do face significant barriers. The monthly service charges at this point are going to be relatively minor, I think, compared to the other costs -- if that's what our goal is. If we are saying that the Internet is becoming vital for daily life and that all Canadians should have it, then we should look at what it actually costs to achieve that and what people actually need in order to make effective use of it.
71. We are not doing that kind of monitoring at this point. We lack the basic data to even make those judgments.
72. THE CHAIRPERSON: So, when you refer to affordable Internet access, you are largely looking at the constraint being the cost of the computer.
73. MR. CLEMENT: That's increasingly the case. We drafted this about a year ago, or our proposal came out a year ago. The costs are changing and they are coming down quite quickly in terms of the monthly costs, but if we look overall, those are still a very high cost factor. We should be tracking closely, in terms of the population, who can afford it, and the statistics still indicate a very strong correlation between income and Internet access. It is growing rapidly now, but I think we need to look ahead to the point where we are saying, well, Internet has joined telephone and television and other media as a recognized part of what we rely upon and anticipating that, unless we act now, we are not going to achieve the same levels of usage because of the cost structure of the whole package and not just looking at the monthly service charges.
74. THE CHAIRPERSON: Now, turning for a few minutes to this notion of the Universal Access Fund, you have suggested that it is agreed that some of the money should come from a percentage of revenue collected by network providers and some from general government revenues.
75. I guess I was inclined to ask who has agreed to this.
76. MR. CLEMENT: That was within our workshop, we agreed that it should come from -- some were more interested in one and some were more interested in the other. It wasn't a statement about the general agreement --
77. THE CHAIRPERSON: I am curious to know how you or your members would see that we should arrive at what an appropriate balance would be between the funds one would get from service providers and government revenues.
78. MR. CLEMENT: This is a tricky question, of course, and in part it has to address the very great dynamism in this field. It is extremely difficult to establish an enduring and fixed figure. In particular, we expect that in the early stages of this the government, if the will is there, could move more quickly than, say, the CRTC in terms of establishing a certain rate, and particularly for starting up in new areas such as, say, in the health field; we see that the government might fund that more directly through its health infrastructure program.
79. The figures in terms of the percentage of revenues are in the small, single-digit figures of percentage of revenue, 1 to 5, in that range. We didn't establish a particular one; we haven't done the detailed analysis that would be necessary for that.
80. THE CHAIRPERSON: You have suggested that funding should only be directed towards non-profit organizations.
81. MR. CLEMENT: From that particular fund, yes. There are other mechanisms where funding would go for profit organizations. In this particular case, we saw non-profit organizations as being the ones that are most in need of assistance from this fund.
82. THE CHAIRPERSON: When I look at the uses for the fund that you have listed on page 12 of your submission, it ran from:

    "- ensuring basic connectivity by making rates affordable

    - providing training and education

    - sustaining public points of access...

    - establishing electronic public spaces...

    - creating and distributing Canadian content"

83. I was trying to imagine how big this fund would be if it encompassed all of these activities.
84. MR. CLEMENT: The fund will have to be adjusted over time and in accordance with the specific needs that various groups in parts of the country experience. For instance, one of our contributors to the workshop was from Cape Breton Island, and there they saw that support for connectivity in support of their local economic development would be vital. We say that a non-profit economic development organization in Cape Breton might apply to the fund to get some support to build some of that infrastructure. They may then subcontract to a commercial organization to provide parts of that, but at least it would be funnelled through a local and responsive non-profit organization.
85. The mix will have to change. We are not in a stable enough environment, we don't have the basic statistics and the basic research in order for us to set out ahead of time precise numbers and how that fund would be apportioned. What that list there is is an identification of areas where we see there is a need, and we think that in the pursuit of universal access those things should be addressed from that fund.
86. THE CHAIRPERSON: But that seems like pretty all encompassing in terms of addressing not just access but creation of Canadian content. So we could be looking at hundreds of millions of dollars here.
87. MR. CLEMENT: It could be, but, as a percentage of the total investments in this field, which are, as an earlier presenter mentioned, on an unprecedented scale, it is still only a small fraction, frankly, of the sums that are being put into this field at this moment.
88. We consider that it is important that there be some balance brought to this. When billions of dollars are being invested in this field, we think that the public interest would be served if a portion of that was given to promoting public interest initiatives, and unless there are some mechanisms put into place soon, those interests are going to get extremely short shrift.
89. THE CHAIRPERSON: Let me shift to one of the last elements I guess of your proposal, which was the establishment of a national access council for a connected Canada. I guess this was another area where I was having some difficulty trying to figure out the scope of this thing because, when I looked at page 14 I saw, near the top of the page, for example, that you refer to:

    "Implementing a national universal access strategy therefore requires a publically accountable agency that does not merely give advice, but can act."

90. And, a little further down the page you say:

    "Its funding must give it the power and resources to implement national policy, not just influence it,..."

91. So it sounded like a pretty wide-ranging policy, regulatory, operational in the sense of acting organization.
92. Then, I flipped over to page 15 and read, near the middle of the page, or just below the middle, that you are talking about:

    "In creating 'NACCC' we should recognize that there are already a great number of valuable access initiatives under way."

93. And then you go on to list a number of these, like SchoolNet, CAP, Urban CAP, LibraryNet and so on.
94. It seemed to me that that was probably a particularly useful focus for this sort of organization to be trying to address, attempting to address and resolve.
95. MR. CLEMENT: Right.
96. THE CHAIRPERSON: I wonder if you might want to clarify just what you see as being the role of this national access council.

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97. MR. CLEMENT: We see those government initiatives that are listed there as useful starting points. One of our concerns about the connectedness agenda is that it is not really comprehensive; they are bits and pieces. So we want to work with those. They are valuable initiatives, but they by no means address the full range of the problem. That's why we saw that the council would have to have a wider scope than just those ones that are listed there.
98. We weren't resolved, within the time that we had, as to where this council would fit; in fact, there were some internal differences among us in terms of how big it should be and particular what its relationship would be to the CRTC, but we were trying to formulate in broad terms what the role of this organization would be and to start to identify some of the practical matters that it would take up. That's where the mention of these federal government programs comes in. Of course, there are many others, and we see that as a starting point.
99. THE CHAIRPERSON: What would you see as being the role with respect to either the Commission or the government or operating companies when you talk about not merely giving advice but connect, implementing national policy, not just influencing it?
100. MR. CLEMENT: This is through, for instance, establishing the priorities of the access fund and supervising its administration. So it would have some funds through the collection mechanism perhaps that it would then be able to allocate and support a range of initiatives. That's what we mean in part by "acting". So it wouldn't just be advising a government ministry or the CRTC.
101. We wanted to create a place that would sort of cut across some of the institutional divisions in the way that the federal government's activities and other governments' activities are currently structured because they are structured at the present time around particular technologies or particular areas, and the new media cut across them.
102. The institutions that manage a particular realm should in some ways reflect the characteristics of that realm. In simplistic terms technological convergence, at least in some areas, means that there needs to be institutions that can handle that phenomenon, and presently the structure of the government and public institutions don't conform to that. There is a mismatch here. So we need some institutional innovation in order to be able to effectively understand and manage this phenomenon. That's what we are trying to do here.
103. THE CHAIRPERSON: In conclusion, then, are there particular initiatives that you feel either the CRTC should undertake at this time or specific initiatives that we should be recommending to the government at this time?
104. MR. CLEMENT: I mentioned two in my oral presentation and I guess I will just reiterate them. One is to provide more support for civic networks, freenets and other types of locally-based, community-based networking initiatives that currently are facing severe sustainability problems. They provide an important role, but like the new media producers such as IMAT, they are at a severe disadvantage right now and they need some resources in order to seize this opportunity.
105. So that's one area, the civic networks.
106. The other is these public portals that I was referring to. These would be sort of high profile sites that would have a presence in Canadians' views, that they would turn to and could reliably expect that there will be a range of Canadian publicly-oriented materials. And they need to be established soon because, otherwise, they will face a harder time if they were to be developed later.
107. So those are two areas that I think we could really do with, and I would urge the Commission to consider recommending them.
108. THE CHAIRPERSON: And specific funding for the freenets? That would be government fund?
109. MR. CLEMENT: Well, government fund, or if we could get this access fund going, then I think it could be supported out of that. We will be talking to Industry Canada people about their CAP program and SchoolNet program and we have some thoughts on how those should be extended, but the problem is more general.
110. THE CHAIRPERSON: All right. Thank you very much, Mr. Clement.
111. MR. CLEMENT: Thank you very much for this opportunity.
112. MS SANTERRE: The next presentation will be by Pelmorex Inc.
113. THE CHAIRPERSON: Good afternoon, Mr. Morrissette.

     PRESENTATION / PRÉSENTATION

114. MR. MORRISSETTE: Good day.
115. Mr. Chairman, Madame la Présidente, Commissioners, ladies and gentlemen, my name is Pierre Morrissette, and I am the President and CEO of Pelmorex Inc. Joining me today are David Beutel, Vice-President and General Manager of our New Media Division, and Luc Perreault, our Vice-President, Affiliate Relations and Government Affairs.
116. Pelmorex is in the content business. Our focus is multimedia weather-related information services. We have over 300 employees dedicated to enhancing our position as the leading source of weather-related information in Canada. Our flagship properties are The Weather Network and Météo-Média, 24-hour all-weather specialty television services distributed to over 8.5 million Canadian households.
117. We operate Web sites, theweathernetwork.com and meteomedia.com, in English and French, which rank amongst Canada's most active sites. We have concluded numerous agreements with new media content providers and packagers. We supply branded weather content to over 60 per cent of Canada's daily newspaper circulation. We operate automated 1-900 telephone weather services. We serve the radio industry. We are in the early launch phase for subscriber-based on-line services serving highly- targeted industry segments such as agriculture.
118. We appreciate the opportunity to participate in this milestone hearing which addresses the subject of new media and its profound influence on all aspects of the Canadian communications industry.
119. In the broadest sense, we refer to new media as interactive services which offer personalized information on demand.
120. This hearing is particularly significant to Pelmorex because the new media market will be an increasingly important source of weather-related information. We view the Canadian new media market as an exciting opportunity for our company's growth and we are aggressively pursuing this opportunity. To accomplish this we are investing several million dollars annually in the areas of content development, technology development, the addition of new services to our interactive product line and reinforcing our key brands.
121. We wish to begin our presentation by outlining our three main conclusions:
122. First, new media offers a wide range of content services. The list clearly includes programming services made up of video, audio, animated imagery as well as graphics and text elements.
123. Second, the preeminence of Canadian programming services is one of the fundamental cornerstones of the Broadcast Act.
124. Third, the CRTC not only has jurisdiction over many aspects of new media but has the responsibility to ensure its development in Canada in a manner consistent with the Broadcast Act.
125. Let us now explore how we have reached these conclusions and later provide the Commission with our specific recommendations.
126. Information and entertainment programming services are major categories of the new media market.
127. As technology continues to evolve, it is only a question of time before users will be able to routinely download entertainment programs or movies from menus on demand. It has been well publicized that numerous radio stations offer their audio programming on the Internet. In the meantime, many information services already include video and audio content. These examples clearly fall under the definition of "programming services". We fully expect that, because of this phenomenon, most if not all licensed programming services will lose share over time to new media.
128. The onus is clearly on existing Canadian content providers to position themselves for the new media reality. It is also an opportunity for new Canadian content providers to emerge. But Canadian content providers will be faced with the fact that new media is a virtual world that knows no borders. Many foreign services will be accessible. Many of these will have huge economic clout and be in a strong position to gain market share in Canada despite limited or no presence in our country.
129. It is imperative, therefore, that Canadian content providers invest in technology as well as in the programming and marketing of their services to be competitive. But will this be enough?
130. In our view, the CRTC and other federal government departments should implement mechanisms, as has been done in the past, to encourage the development of a strong Canadian new media industry. Tax deductibility rules as they exist in the magazine industry or tax credits to support investment activity in new media technology are some examples. The most effective mechanism, however, is for the CRTC to adopt a supervisory role over the evolution of Canada's new media industry, reserving direct regulatory intervention only if required.
131. Canada is blessed with one of the most successful communications industries in the world. This is evident in all of its segments, whether we are describing the print, broadcast or telecom industries. All segments have evolved successfully. We also note that all segments have benefitted from government support in the form of tax incentives, ownership requirements or regulation. In each of these segments foreign services have been available. Canadian services have been successful, however, because we have always found a way to showcase Canadian content and services first.
132. Given the scope and potential of the new media market, a strong case can be made that various forms of government support will ensure the success of the new media industry domestically. Our experience in the past has been that government support has been an integral part of our winning formula and should be applied to the future as well.
133. We will now turn to a description of new media's value chain. The main participants in the new media industry are the content or service providers, the content packagers, also referred to as aggregators or portals, the distributors, also known as ISPs, and the end users.
134. Existing Canadian cable and telephone companies are well positioned to emerge as leading ISPs to the home or office because of their high speed networks. Cable and telephone companies are also emerging as content packagers. There are other important packagers, however, such as newspaper chains and services such as AOL Canada and WebTV to name a few. Packagers are one of the main gateways for content.
135. The most important issue for the content provider is visible shelf space which will drive traffic activity. The content provider can have the best service in the world, but without a strong location in the mall or position on the shelf, traffic will be constrained.
136. It is encouraging to note from briefs submitted by packagers such as AOL Canada and the CCTA, representing the cable industry, that they also recognize the importance of quality shelf space and appear to be committed to showcasing Canadian content services.
137. Showcasing Canadian content services while providing access to services on a global scale is a win/win scenario for all participants in the value chain. Users have access to everything. Canadian content providers maximize traffic. Packagers will have a strong lineup of domestic and foreign content and ISPs will accelerate subscriber penetration.
138. In its supervisory role, the CRTC should communicate clear expectations to the participants of the value chain. Having set a goal of creating a strong Canadian new media industry, the focus should be on predominant and preeminent shelf space for Canadian services. The spirit which should prevail in the distribution of Canadian new media content services should parallel the elements which have been applicable in the distribution of Canadian television services.
139. Supervision can and should work. If not, regulation may be needed.
140. In closing, we applaud the CRTC for scheduling this review and offer the following six recommendations:
141. First, the CRTC should act now to establish its jurisdiction, to the extent applicable, over this important new segment of the Canadian communications industry.
142. Second, the CRTC should defer regulating new media until, and only if, it becomes necessary. In the meantime, the CRTC should adopt a supervisory role.
143. Third, the CRTC should outline a clear set of expectations for the participants of the new media value chain. Regulation would be deferred as long as these expectations are met.
144. Fourth, the priority expectation is to showcase Canadian content. Although users will be able to access content from all over the world, aggregators should be expected to position Canadian content in a preferred and preeminent manner. Expectations would also cover issues arising from integration activities along the value chain as well as maintaining a balanced economic relationship between content providers, packagers and ISPs.
145. Fifth, beyond the CRTC's supervisory role, the Canadian government should establish mechanisms which will foster the development of a strong Canadian new media industry at all levels of the value chain. Some of these mechanisms could include tax credits for technology-based new media development activity and tax deductibility for advertising on Canadian sites only.
146. Sixth, the CRTC should schedule a number of follow-up hearings to review the implications arising from the growth and evolution of the new media industry.
147. About 30 years ago the Commission established its jurisdiction over cable. The result over time has been one of the most admired broadcast systems in the world.
148. The emergence of new media presents the CRTC with a similar regulatory opportunity, particularly as it relates to the distribution of programming services.
149. Thank you for the opportunity to express our views, and we will be pleased to answer your questions.

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150. THE CHAIRPERSON: Thank you, Mr. Morrissette. I will turn you over to Commissioner McKendry to pursue a discussion with you.
151. COMMISSIONER McKENDRY: Thank you, Mr. Chair.
152. Good afternoon and welcome back; I think we saw you not so long ago in the TV Policy hearing. I suppose it is a reflection on the evolution of the communications world that we see you at a TV policy hearing in your capacity as a specialty service, and now we are here talking to you in your role in cyberspace.
153. MR. MORRISSETTE: I guess we were there in the context of a traditional television programming hearing, and this is also a programming hearing from our perspective but a slightly more high tech application of how we deliver our products and services.
154. COMMISSIONER McKENDRY: I want to start by just asking you a couple of questions that flow from the oral comments that you just provided to us. I will probably come back to some of these points a little later, but I wanted to start by just asking you about your comments with respect to the supervisory role that you hold out for the CRTC, reserving direct regulatory intervention only if required.
155. Before we discuss the nature of the supervisory role, when would the "if required" kick in? What would be the criteria that would cause you to think that the CRTC should move from the supervisory role which we will discuss in a minute to a direct regulatory role?
156. MR. MORRISSETTE: I guess our recommendations involve a number of steps, and the first step is establishing jurisdiction. The second and very important step has to do with identifying clear expectations for the various players at the various levels of what I have referred to in my oral as the value chain.
157. These expectations should focus on, number one, the overall objective is creating a very successful Canadian new media industry. Relating to the broadcast sector, there are also various levels of the broadcast value chain, and one of the manners that we have been very successful in evolving the Canadian broadcast system is by maintaining balance at all times between the various levels of the broadcast value chain. As we have introduced new modes of distribution of television or radio services, as we have introduced new modes of services, at all times the system has evolved in a balanced way and we have ended up with a win/win scenario from producers to programmers to distributors to the end user.
158. In the area of our core business activity today of weather services, our flagship property are specialty television services. Specialty television services are totally dependent first and foremost on distribution, on access, access guidelines which allow distribution and enable us to develop a market of sufficient scope and mass to represent a realistic economic equation.
159. Well, as distribution is critical to the success of specialty television services, in Canada we firmly believe that distribution issues will also represent a key factor for the success of new media participants, especially content providers. So the expectations would clearly deal with providing Canadian services with the visibility, the ability to derive optimal levels of traffic to the Canadian users of new media.
160. So once we have identified these clear expectations that would accomplish this, then it is monitoring how things evolve over time. Things move quickly, but it is to find out what the issues might have been with regard to access during a certain period, and it would be checkpoints to review progress against plan.
161. COMMISSIONER McKENDRY: The priority expectation, I take it from your oral comments, is to showcase Canadian content. Are you suggesting that we would provide an expectation to, say, AOL that they would showcase Canadian content?
162. MR. MORRISSETTE: AOL Canada to date has been active in seeking Canadian content for its Canadian site. I guess what we are saying is that this expectation for a strong Canadian new media industry of showcasing Canadian content should be right up front and centre as one of the key elements to foster the growth of the industry. So I guess the answer to your question is "yes".
163. Canadians will have access -- that's the nature of the Internet and World Wide Web -- to everything, but as you go through a major packager's site programming or content or services can be highlighted. There can be a priority of programming that the end user would be going through before going out into the world, and it is that first line of traffic activity which is so important for Canadian services.
164. COMMISSIONER McKENDRY: What would be the vehicle for the Commission to impose an expectation on AOL? Are you suggesting that we would issue a licence with an expectation in it to AOL?
165. MR. MORRISSETTE: I guess we are not going as far as the point of ought there be licensing of either ISPs or packagers. This is something that you ought to reserve the right to consider at some future point in time.
166. Initially, I guess the results of this particular hearing process could be summarized in the form of policy statements, policy intentions, policy directions supported by a clear set of expectations. Ultimately the CRTC would be serving notice that it will monitor the progress of the development of this very, very important industry sector, this new industry sector, in the Canadian marketplace relative to those policy statements and the expectations that have been set out.
167. COMMISSIONER McKENDRY: So we would establish, through a policy statement directed towards the industry in general, a set of expectations that Canadian content would be showcased, and because you want us to monitor it, I presume you would suggest we set out certain criteria that need to be met by the content aggregators.
168. MR. MORRISSETTE: That's correct.
169. We have referred before to AOL. There are many packagers that are emerging in Canada who will play a key role as well. So it is not fair to just single out one of those. It would apply to all packagers.
170. I think there could be a different set of expectations that apply to ISPs, there could be a different set of expectations that apply to Canadian program or other content services, all of which are geared to achieve the evolution of a system which is balanced and which ultimately meets the needs of the end users, the Canadian public, and which results in a win/win situation because of an emerging strong Canadian new media industry.
171. COMMISSIONER McKENDRY: Have you given any thought to the specific criteria that would be in our policy statement, if we adopted your suggestion, that we would monitor against? What would we put in there that would be measurable?
172. MR. MORRISSETTE: Let me first go back to the content provider or service provider level.
173. First of all, it is our responsibility as a weather service, to take our example, to do what we have to do to present to the market, the end users, the best product available to Canadians that meets the needs of Canadians and which is highly competitive. That's our job and that's what we are prepared to do and we have been doing for the last three years, is to position ourselves as the leader in our field. We have achieved that position today and we want to build on that for the future.
174. Having gone from -- I lost my train of thought here. You might just refresh me with your question to get me back on track here.
175. COMMISSIONER McKENDRY: My question related to the measurability or the criteria that we would put in our public notice or in our policy statement that you are suggesting we should make in order that we could effectively monitor whether or not the content aggregators were fulfilling the expectation to showcase Canadian content, because the next stage in your suggestion is that, if they don't, we should regulate. So it seems to me important that, if we adopted your suggestion, we should have specific criteria against which we would measure, and I am wondering if you have turned your mind to those criteria.
176. MR. MORRISSETTE: Obviously, the packager level is the critical level of the value chain for Canadian content services. So one of the very first steps relates to, as we indicated earlier, showcasing Canadian services -- predominant, preeminent, priority, all key words in that regard.
177. In relationship to that as well would be monitoring integration activities along the value chain which perhaps could create potential conflict situations. I am not saying that that exists, but you would have to monitor that kind of potential.

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178. Monitoring the economic equation that exists between the ISPs, packagers and content providers. To an extreme, if the vast majority of that economic activity goes to only a few or only one of those segments, then obviously it could seriously materially impair the ability for the other levels to perform successfully in their own right.
179. So these are some of the examples in a broad context -- expectations clearly that relate to many of the access points which have already been raised in this proceeding to date.
180. COMMISSIONER McKENDRY: Just following through your scenario for the purposes of discussion, if we concluded that a content aggregator was not fulfilling the expectations that you suggest to us that they should fulfil, you then say that we should regulate. How would we regulate? Would we issue a licence and enforce the expectations then through conditions of licence as we do in broadcasting today?
181. MR. MORRISSETTE: It could go to that extent. Our primary recommendation is a supervisory role which we hope would result in a non-regulated environment, one over which the CRTC has jurisdiction, one which it is supervising, but hopefully with regular reviews and discussion and mechanisms that will perhaps flush out issues as they arise hopefully to be resolved along the way could result in achieving the win/win scenario that we are seeking without intervention.
182. The ultimate -- the ultimate -- possibility is for regulatory intervention, as you have described, through licensing or other means, but we are not recommending that and we are hoping that the industry can manage itself over a period of time to avoid that and still achieve the objectives that we are seeking.
183. COMMISSIONER McKENDRY: The Canadian Charter of Rights and Freedoms states that everyone has a fundamental -- and I quote:

     "... freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication."

184. Do you consider that your recommendations raise any issues under the Charter?
185. MR. MORRISSETTE: Well, I will answer that in a non-legal manner.
186. New media is a type of medium which allows people to access information in a virtual unlimited manner. All that we are suggesting, as has been the model in the Canadian broadcast industry, is that if we give the opportunity to showcase Canadian content and Canadian services in a priority manner without eliminating access to other foreign services -- because we all know that we have a multitude of other foreign services on television -- we accomplish the objectives and don't constrain anybody's rights in the process.
187. COMMISSIONER McKENDRY: Thank you.
188. In your oral comments today you said -- and I am going to quote:

     "It is encouraging to note from briefs submitted by packagers such as AOL Canada and the CCTA, representing the cable industry, that they also recognize the importance of quality shelf space and appear to be committed to showcasing Canadian content services."

189. My question is, are they typical of your experience with content aggregators in the current environment and are you experiencing any problems with respect to access?
190. MR. MORRISSETTE: It is early in the game; that's the first point. In our discussions to date we have been pleased with the level of co-operation and the interest in attracting Canadian content.
191. I can ask David Beutel, who heads up our New Media Division and who basically has been interfacing with many of these players.
192. MR. BEUTEL: Our experience, as Mr. Morrissette has said, has been very positive in dealing with most of the list of the content packagers and ISPs, many of whom are the same, to date, although we do recognize that, as everybody I think before us has mentioned, no workable, viable business model has been achieved or has been set in stone to date, and things will change. Earlier presenters did discuss the possibility, or the fact that it is happening, of charging for access or for prominent space on a search engine. So these are the kinds of things that can happen and this is the foundation of our recommendations, is to make sure that it is open to create this kind of environment for Canadian content providers such as ourselves to be working with major content packagers going forward.
193. COMMISSIONER McKENDRY: Do you have to pay for access now? Is that a problem today?
194. MR. BEUTEL: To date our experience has not been that case. However, we are noticing signs of a change in the tide, not necessarily for paying for space but more for -- in the past we have been paid for our content, and going forward it has been much more of a revenue share model based on sales activity that we do not control. So, in terms of knowing where our revenue model for our planning going forward, it is creating more uncertainty for us, which then translates into more difficulty to spend or to invest in some of the programming on our side.
195. COMMISSIONER McKENDRY: I guess what I am trying to get at is, is this a problem from your point of view? You have talked about the expectation that Canadian content should be showcased and so on. If a model emerges whereby fees are charged for access, is that something that you would accept as a typical way of doing business or is that something you would see as a barrier that the government or others would need to deal with?
196. MR. MORRISSETTE: It is almost too early to answer that question. The economic modelling or the variety of assumptions that go into business plans can vary quite significantly, and also different models can apply for different new media segments.
197. With regard to our Web site, currently the main source of revenue is advertising. We can see developing Web sites behind our Web sites which would become premium Web sites, which could have the potential of being subscriber based. We are developing on-line services which would be substantially subscriber based and advertising would be secondary. So it is the reverse economic model than our Web site model.
198. But, for us, another element of new media and a very important part of our strategic plan is, via the set-top box for cable, potentially direct-to-home or other modes of distributing television services. With that digital set-top box capability, one of our objectives is to create a virtual channel, an interactive virtual channel, behind our core television service. That could have a variety of different sources of revenues as well. In addition, some of our product line of services could evolve into e-commerce activity.
199. So these are evolving, as other people have said earlier it is evolving at a very rapid rate, the makeup of the key players is also evolving quickly, we expect to have more players getting involved in the key levels of the value chain, but we also expect a certain amount of consolidation taking place. We also see a number of alliances and partnerships that form. All those things, in varying degrees, are important, but it is a moving target.
200. So, as we sit here today, we are not in a position to finally determine that, let us say, a model that applies to our main Web site service being showcased at the level of key packagers across Canada, and for each for those services, if there is a revenue-sharing model, what should be the optimal equation of that revenue sharing. If the revenue sharing becomes overly skewed towards the packager, then obviously our service would not be economically sustainable.
201. So we have to monitor this, it is a moving target, and quite frankly we don't know and I don't think the packagers know what the optimal level is, hence the importance of reviewing this on a periodic, regular basis because at the end of the day what is most important in the win/win scenarios we have experienced on the broadcasting side is that in new media we achieve that balance that everybody wins, and the best Canadian content that we can have out there with the best Canadian packaging organizations and the ISP levels and the end user, it becomes obvious that everybody gains through that.
202. COMMISSIONER McKENDRY: Thank you.
203. I just want to go back to regulation for a moment. Commissioner Colville in his opening remarks this morning posed three questions, and I want to ask you the first question that he asked us this morning and get your response to that. I will quote his question:

     "First, in what ways and to what extent does or will the new media affect our regulation of the traditional broadcasting undertakings of radio, television and cable?"

204. Given your long history of involvement in the so-called traditional broadcasting, what is your response to that question? Will we have to change the way we regulate so-called traditional broadcasting?
205. MR. MORRISSETTE: In my view not. Television broadcasting as one form of broadcasting is going to be around for a long time. In our particular circumstance, it is interesting to note that information services is one of the top categories of use for new media and it is also interesting to note that weather information ranks second in terms of the category of information sought after news.
206. So, for us, the implications on our core television business is today. It is starting today. And information services will be the first to be impacted by new media.
207. Our assumptions in our own strategic plan is that our core television services will continue to grow, will plateau, and there would be some decline -- I am not talking a material decline, but some decline over time in the use of that medium as a primary or top three source of information. It will still be a very important segment, but it is going to lose share over time to new media. It has already started.
208. So, clearly, our strategy as the leading weather source in this country is to position ourselves to be one of the leaders in this new media market segment and be the leading weather providing source in that category as well, so that overall, as the core business might decline over a period of time in some level of market share, that will be supplemented by the share we gain in new media.
209. The analogy is clear. When we look at broadcasting, we started off with broadcasting. Then the eighties came along and we ended up with narrow-casting. What new media is is micro-casting on demand. It is just an evolution in broadcasting; that's what it is. And, as I said, information services will be the first to feel the effects of this. But, as we said in our oral brief, we believe they will impact most broadcasters, and it is up to most broadcasters to recognize that and position themselves for the reality of new media, which is also programming services.

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210. There are weather services today and other services, news, which offer nice graphics and what have you but supplemented with videoclips and audioclips and animated imagery, all of which make up our regular television business. It is an evolution of our television business.
211. MR. PERREAULT: To go more specifically to your question, the only point I might see, Commissioner McKendry, about the current regulation of the broadcasting system is what Pierre referred to about 10 minutes ago when we were talking about WebTV or the cable TV set-top box or the virtual channels. If, while watching let's say our weather service, you are able to click on an icon and then go directly to a server and download video/audio programming or information, then, how does the Commission regulate this? How do you regulate advertising on a virtual channel, for example?
212. This is going to be a regulatory challenge in the current broadcasting system because a conventional broadcaster, a specialty broadcaster might have different means of delivering programming to the end user, but we don't know that yet. It doesn't exist. We know the capacity is there, we have all seen demos of manufacturers of the set-top boxes, but it is not occurring today. But it is certainly something that we will have in the future, though.
213. COMMISSIONER McKENDRY: You pose the question how would we regulate in that situation. Have you had an opportunity to think about the answer to that question?
214. MR. PERREAULT: Honestly, no.
215. MR. MORRISSETTE: I have given it some thought.
216. MR. PERREAULT: That's why he's the boss!
217. MR. MORRISSETTE: On the traditional broadcasting side, quite frankly, I see it as business as usual because it is going to carry on just like conventional television went through the transition of the introduction of specialty television services. Now all television services will go through a similar transition. With the earlier example of the new media capabilities through the digital set-top box, it is just an extension of the broadcasting that we are doing today.
218. So, quite frankly, we see a business-as-usual scenario, with fine-tuning over time because conditions change over time.
219. New media is one of those new areas of industry, very high impact areas of industry, that has emerged, like cable did 30 years ago, and we ought to adapt -- we are not saying to the same extent that we might have reacted 30 years ago with cable, but that potential could exist.
220. COMMISSIONER McKENDRY: In your view, is there anything new about new media? You are talking about a transition -- that this is in a sense the logical outcome of the technology that has emerged in the world today -- to micro-broadcasting, to use your expression. Should we really be focusing on a distinction between new media and traditional broadcasting, or is it all really one and we are just talking about an evolution in the way that entertainment and information is communicated to the public?
221. MR. MORRISSETTE: New media involves programming services which are a parallel to existing broadcast programming services, but it is a lot more too; it is evolving, and the clear direction of how the industry in an economic sense is going to shape up is unclear.
222. MR. BEUTEL: Obviously, we do see some differences in the evolution. There is an evolution of existing programming services that forms a major component or a component certainly of new media, but there is and are other areas that do form it and provide access to, as we mentioned in the oral brief, other content providers in Canada and around the world, and for Canadians to access information from around the world, which is a positive, a tremendous positive.
223. So, depending on where you are in the value chain and what position you occupy, for us, for example, there are a lot of similarities between what we do currently on more traditional media and what new media will allow us to do. Obviously, it will allow us to expand our market, the people whom we are reaching and how we serve them, but for others who were never in the broadcasting or any other kind of media before the evolution or the existence of new media, it does provide them that opportunity to play in this field.
224. MR. MORRISSETTE: Just to add, there are aspects of new media which just cannot be regulated. The World Wide Web is virtual and it cannot be regulated. E-commerce activities I think would be very difficult to regulate. The virtual retail store, shopping on the Web, would be very tough to regulate. The virtual post office would be very tough to regulate.
225. So some of the far-reaching aspects of what new media is all about cannot be regulated, but clearly many of the aspects could be, and that's what we are suggesting today.
226. COMMISSIONER McKENDRY: Thank you for that, and in your final argument I think it would be very helpful, to the extent you can be clear about which parts of it are and which parts of it aren't -- I think I have a good understanding from our discussion today, but to the extent that you can be more specific, that would be helpful.
227. Now I take it, based on your comments about broadcasting and new media, you wouldn't agree with AOL's statement -- and I will quote from them. They say:

     "New media is not a substitute, but rather is supportive and complementary to existing broadcasting services." (As read)

228. I take it from your view that in fact it is a substitute.
229. MR. MORRISSETTE: It is a new form of broadcasting that has evolved technologically. As I said earlier, we have gone from broadcasting to narrow-casting and now to micro-casting on demand. So it is that natural evolution that we refer to.
230. So, in many ways, we agree with what AOL Canada has said -- and, by the way, they do carry The Weather Network on their front page.
231. COMMISSIONER McKENDRY: Let me just end up by asking you to clarify a couple of your specific recommendations to us.
232. In your written submission, Recommendation 8 asks us to consider recommending that incentives be provided to leaders of new media distribution, the ISPs and content aggregators, to provide preferred placement and promotion of Canadian content.
233. I have two questions for you. One, what did you mean by "leaders"? And, two, what incentives did you have in mind?
234. MR. MORRISSETTE: The incentive really is in the form of the expectations that we were discussing earlier.
235. COMMISSIONER McKENDRY: It is the last recommendation in your written submission.
236. MR. MORRISSETTE: Yes, and I think the word "leaders" is perhaps inappropriate because it is to provide shelf space for Canadian content services in a predominant, preeminent and priority position. We are not limiting it, we want to showcase Canadian first in this country, and then get people access to anything else they want around the world.
237. MR. BEUTEL: If I could just add to that as well, just in terms of the incentives, some of our recommendations, like some of the presenters earlier today, do talk about incentives in terms of tax, tax incentives as well as deductibility, so that there is the encouragement for a vibrant industry in Canada. So there is both the expectations and I guess the positive incentives for investment.
238. COMMISSIONER McKENDRY: I noticed that you did make some recommendations with respect to funds and tax incentives, as did others.
239. We have asked this question to the other parties and we should ask it to you as well: Where would these funds come from?
240. MR. MORRISSETTE: We don't really have the answer to that, and quite frankly we view the creation of a fund as being significantly down the priority list as it relates to helping to have this industry grow in Canada.
241. Our priority list would be first and foremost the CRTC establishing its jurisdiction and clearly communicating to all the participants the expectations. The second priority would be the tax category of incentives, one targeted to advertisers in Canada having a benefit for promoting Canadian sites first, similar to the magazine industry. Secondly in the tax category would be tax credits to apply against investments in technology development applied to new media.
242. The amounts are significant. We are not a large company, we are a very focused company, and I think we know where we want to be three years from now. But to get there, our annual new media investment spending activity is several million dollars, and that is without a clear economic model as we sit today. We are just totally convinced that it is going to be a significant part of our business down the road and we will find an appropriate economic model over time.
243. These investments are a major commitment and a very high risk commitment for a company our size. So to have a tax credit incentive program for the Canadian government in a sector which will create a huge number of jobs if we cover all aspects of new media, right from the consulting side to the content creation to the Web site on-line building to the e-commerce creation activities to the operations of all of these services to the packaging companies to the ISPs -- we are talking about billions of dollars of economic activity and many, many, many jobs. The Canadian government has to recognize that this is going to be one of the most important sectors in Canadian communications industry going forward.
244. I think it is absolutely essential, as we have done in every other sector in the Canadian communications industry, that from the government, the CRTC, to the key players in the industry we make sure that Canada does what it has to do to win in its own market. To not do so I think would be a shame.
245. MR. PERREAULT: If I could also add, Mr. McKendry, the Commission's role in this is extremely essential, and I would hate to leave today without having this little point.
246. I just got a copy of a survey done by the Quebec government and there is less than 16 per cent of the households in Quebec that are connected to the Internet compared to 24, 26 per cent across Canada. Thirty per cent of the households connected to the Internet in Quebec are anglophones, and these people surf the Net a lot. When we go to francophones in Quebec, they don't surf at all. They retrieve information, chat, e-mail, what have you, and it is pretty clear that the lack of francophone content is basically stopping Quebeckers, francophones from accessing this new media wave.
247. So the role of the Commission and the expectations -- it should be pretty clear. As a company -- and sometimes it could be a disadvantage to our company -- everything we do, we do both in English and French. We have two Web sites: English and French. Everything we produce on the Web sites is totally bilingual. If we are doing it in English only, it would probably be a lot further down the road, a lot more bells and whistles, fancy stuff and what have you, but it is a choice that our company has made.
248. When we look at this survey that was published a few weeks ago and we see that 60 per cent of the population of Quebec has never surfed the Net because they can't understand English, as a country we have to do something about this, and I think that the Commission has a key role to play. In the expectations, it should be said pretty clearly that you do expect francophone content to be produced, and it should be of high quality.
249. COMMISSIONER McKENDRY: Thank you for that point. Perhaps you could file a copy of that survey with us.
250. MR. PERREAULT: I will.
251. COMMISSIONER McKENDRY: Thank you very much. Those are my questions. Thank you for taking the time to answer them.
252. THE CHAIRPERSON: Thank you, Commissioner McKendry.
253. I think Counsel Pinsky has a couple of questions that will take us through to a break, not to put too much pressure on you.
254. MS PINSKY: Thank you, Mr. Chairman. Just a couple of questions of clarification.
255. In your oral presentation you stated that many information services already include video and audio content and that these are examples which would clearly fall within the definition of "programming services".
256. First, can I just clarify that you would see these services also as falling within the definition of "broadcasting"?
257. MR. MORRISSETTE: We are referring to services in new media, Internet, World Wide Web, which include video and audio content, and for that reason we view them as programming services, and for that reason we view them as falling under the Broadcasting Act.
258. MS PINSKY: Thank you.
259. With regard to your suggestion that aggregators position Canadian content in a preferred and preeminent manner, what type of content would benefit from that showcase obligation? Would you suggest that all Canadian content or only Canadian content with this video and audio component that you are referring to?
260. MR. MORRISSETTE: We are referring to all the major categories of Canadian content. It is not just Canadian programming services, but there are other content services and other categories of services. Information is one area, but there are other types of e-commerce activities and what have you. It seems to me priority ought to be given to a Canadian-based e-commerce organization over a foreign-based one. People can access the foreign service, but going to a Canadian service would obviously create some benefits.
261. It is interesting, one of the senior officers in our company recently purchased an automobile through the Internet, a new car; I won't say what make. He did all his homework, got all the specs through the Net, got the price, and then he compared it, going to any dealer in the greater Toronto area. By far it was the most attractive price. He completed the purchase through the Net and then went to the local dealer and picked up his car. All the paperwork was ready, but the entire transaction was done through the Net.
262. We are going to see more and more of this activity in more and more categories. And, if we are talking about a major transformation to many different industrial sectors and commercial sectors in the Canadian economy, which involves lots of jobs in its own right, I think that showcasing Canadian content services should also include those other elements, those other categories.
263. MS PINSKY: Thank you.
264. Finally, when do you think you would be in a position to file a copy of the survey with the Commission?
265. MR. MORRISSETTE: I will just do a few copies right now and file it with you immediately.
266. MS PINSKY: Thank you.
267. THE CHAIRPERSON: Thank you, counsel.
268. Thank you very much, gentlemen. We appreciate your coming here today.
269. We will take a 15-minute break now and reconvene at 4:05.

     --- Short recess at / Courte suspension à 1550

     --- Upon resuming at / Reprise à 1608

270. THE CHAIRPERSON: Madam Secretary.
271. MS SANTERRE: Thank you, Mr. Chairman.
272. The next presentation will be by NetStar Communications Inc.

     PRESENTATION / PRÉSENTATION

273. MR. BROWN: Good afternoon, Mr. Chairman, Commissioners, colleagues, ladies and gentlemen.
274. My name is Paul Brown and I am Vice-President, Business Affairs at NetStar Communications. On my right is Ken Murphy, Vice-President, Production for the Discovery Channel, and he is also responsible for the Netstar new media businesses. Ken has the big job. On my left is Jeffrey Elliott, Managing Director, NetStar Interactive, and he heads up the day-to-day operations of NetStar's Web sites. Jeffrey has the best job. On Jeffrey's left is Chris Johnston, founding partner in the law firm of Johnston and Buchan, and he is with us today to answer any legal questions. Chris has the difficult job.
275. My job is to tell you that NetStar is very pleased to participate in this unique and constructive approach to examining the challenges and promises of new media. We believe that Canadian new media can develop into strong and viable businesses, able to compete directly in the international marketplace.
276. The promise and the opportunity are there. But that's a long way away. And getting us to that point, as a country, is going to require hard work, risk taking, encouragement and support.
277. NetStar has been involved in new media in terms of Web site development since 1994. From the broadcasting perspective, we are one of the originals. NetStar was one of the first television broadcasters in North America to create and operate a Web site when we launched the Discovery Web site in December 1994; the TSN and RDS Web sites soon followed. All three have a very strong Canadian focus, a strong connection to our network programming and are among the most popular sites in the country.
278. Netstar has taken a unique approach to creating and operating its new media activities, and we hope that our experience will provide you with useful information and practical suggestions. Jeffrey Elliott will briefly outline how he works to integrate our television programming with the Web sites and he will also relate some of his happier moments on the job. Next, Ken Murphy will talk about our perspective on the development of the business and how the government can provide incentives that would foster the viability of new media in Canada.
279. MR. ELLIOTT: This is the NetStar approach.
280. At NetStar, we have approached the Internet with a broadcasting perspective and we try to fully integrate our Internet production with our broadcast operations. Our philosophy is to closely link our original Canadian television programming with our Web site content. This allows our viewers to reach behind the screen to enhance their overall viewing experience and to interact directly with the network programming and personalities.
281. The Discovery Channel Web site, exn.ca, expands Discovery's focus on science, technology, adventure and nature. For example, aviation is an extremely popular theme on the Discovery Channel, as it is on our Web site. So we have developed a partnership with the National Aviation Museum to tell compelling Canadian aviation stories and showcase their magnificent collection of vintage aircraft on exn.ca. Viewers are able to further satisfy their appetite for aviation information and entertainment, which to us appears to be unlimited.
282. For RDS and TSN, the new media focus is on yet another type of insatiable Canadian interest -- the love of sports. While both tsn.ca and rds.ca are unique in their approach to the markets they serve; they share an emphasis on Canadian teams and players, and provide in-depth statistics, team and player profiles and the opportunity to interact directly with the networks and their personalities. Our experience is that this is the type of content our viewers are looking for in our Web sites.
283. You may be wondering about the impact on our viewership with all our efforts to link our television programming with our Web sites. Are we losing viewers to the Net? Despite this very close linkage, to us there does not appear to be any decline in television viewership from viewers going to our Web sites instead of to the television. We believe the changes in the viewership in the industry over the past few years have been as a result of the introduction of new programming services, not new media.
284. In our first four years we have stumbled and we have soared. I would like to briefly tell you about three important firsts:
285. - TSN and tsn.ca pioneered the first interactive curling broadcast in Canada and in fact the world. Today, interactive curling is our most popular interactive Internet television sport. Over 500 e-mails every hour are received by the television control room where selected questions are answered on air, and we have graphic virtual end-to-end coverage as well as having athletes join viewers on line after the telecast for a chat.
286. - Last April Discovery Channel and exn.ca produced Canada's first live cybercast from space. Using live video, exn.ca held a live interview with Canadian astronaut Dave Williams from the space shuttle Columbia.
287. - Thirdly, RDS and rds.ca was the first French-language Canadian sports broadcaster to conduct a daily poll through the Internet for use in its sports news show "Sports 30 Mag". rds.ca generates between 2,000 and 3,000 respondents each day from its poll.
288. The message here is that the key to staying ahead in the new media game is experimenting; trying new things and constantly assessing whether they are working. We are still in the early stages of development, as Ken will address.
289. MR. MURPHY: As you have learned from Jeffrey, we have had some strong successes to date, but we are still in the first, or the developmental phase, in the growth of the Internet. In this phase, the focus is on research and development to determine how to financially support the production of original Canadian content on an ongoing basis. Phase two in the growth of the Internet is what we are all working toward -- business viability. The final phase we refer to in our submission is convergence, which will occur when there is true integration of television and new media. Our view is that we will reach true convergence when the technology is absolutely transparent to the consumer; when the consumer's TV and the computer are one and the same. While this process may have begun, in our view it is a long way off.
290. The main focus of those of us invested heavily in Canadian Internet content development is on how we move to the next phase, to business viability, to ensure Canada can establish a leading edge position and strong voice on the Internet.

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291. As outlined in our brief, we have several recommendations:
292. - First, manpower development is key. The single largest cost we incur in the creation of new media content is in the area of personnel. While there is clearly a major focus on hardware and software associated with the Internet, we need trained people to create the original content that will make our Web sites successful in a global environment. We recommend a refundable tax credit to support and encourage a strong Canadian talent base.
293. - We also truly believe that certain aspects of the development of the Internet should be considered R&D under the Income Tax Act. What we do meets the criteria: experimentation in a risky environment with an uncertain outcome.
294. - This is also a capital intense undertaking, with a fast replacement cycle. We recommend a new tax treatment that recognizes this reality.
295. - Of course, the other half of the equation is revenue. We need to encourage advertisers to support Canadian sites by extending section 19 of the Income Tax Act to apply to the Internet.
296. - Finally, in view of the important cultural and economic impact of the Internet in Canada, Statistics Canada should track industry developments and consumer behaviour related to the growth of the Internet in Canada.
297. We believe that these practical recommendations will go a long way to ensure a strong Canadian voice in this emerging global medium.
298. MR. BROWN: It is important to provide a framework and appropriate incentives that will enable Canadian new media to develop. What we don't think should be happening is direct regulation of new media. In responding to the Commission's questions regarding jurisdiction, we stated that much of the content of the Internet does fall within the broad definition of the Broadcasting Act. However, we believe an exemption order would be a consistent and appropriate way to ensure the development of new media in Canada.
299. Because we are dealing in an environment that is changing very quickly, we don't think it is realistic to try to look too far into the future with any degree of certainty. Our view is that the Commission should call the parties together again in 18 months to share information, reassess realities and identify the issues facing new media. We would welcome the opportunity for this type of forum to ensure Canadians are working together to be seen and heard in the global world that is new media.
300. Thank you for the opportunity to speak today, and we welcome your questions.
301. THE CHAIRPERSON: Thank you, Mr. Brown. So far, Mr. Johnston's job hasn't been too difficult --
302. MR. BROWN: I am sure you will find a way to challenge him.
303. THE CHAIRPERSON: -- so we will see if Commissioner Pennefather can resolve that.
304. COMMISSIONER PENNEFATHER: Thank you, Mr. Chair.
305. Good afternoon, gentlemen. Perhaps I will, but I think I will start in another area.
306. Thank you for your presentation this afternoon, which I think summarizes very well and articulates well what you have presented in your main submission, so I will turn to that quite frequently.
307. The area I would like to start with, not surprisingly, is your work and your attitude to new media from your position in the broadcasting milieu. It is important, I think, to take advantage of your presence here to explore in a little more detail how and why you have developed your Web sites and what impact they have on your operations.
308. I would then like to turn to some of your other specific recommendations, taking your three components of development, economic viability and convergence, and talk to you of course about your approach to the regulatory environment and just ask a couple of clarifications there.
309. Finally, if you will, I would like to ask you just a couple of general questions on the new media environment, specifically on funding, on children and the Internet -- with your work particularly with Discovery but obviously with TSN and RDS as well, I think you may have knowledge of that community out there -- as well as a couple of other areas regarding access to the Internet.
310. So, if we could, you describe yourself as a creator of new media for the Internet, linking this content to the full range of your broadcasting activities. What have been the benefits to your broadcasting activities in doing this and has one form of broadcasting, if I can call it that, influenced the other in terms of style and presentation and audience?
311. MR. MURPHY: The first decision we faced in approaching the development of new media was what is this thing? What is it likely to evolve into? We looked around and saw that a number of broadcasters, particularly in the United States, deemed it more closely associated with publishing. We felt, though, that our viewers have come and would continue to expect from us certain modes of programming, certain clearly-defined niche programs and that that would naturally stimulate an appetite for further information, for further entertainment in those clearly-defined niches, not only in a general sense but in a very practical day-to-day sense. A compelling and interesting program on a particular aircraft, for instance, out of our "Flight Path" series, was likely to stimulate some interest that we could then fulfil via the new media off line, in their own time, or in certain cases in parallel with the broadcast.
312. So that was the first conceptual approach to developing the Internet.
313. What benefit has it brought to our broadcast operation? In essence, I think it serves to fulfil that appetite and fulfil that need, more closely associate our services with a clearly-defined niche programming services as the source for science and technology for instance in the case of the Discovery Channel and, in the case of le Réseau des sports and TSN, as the primary source for sports in Canada.
314. So I think it has benefitted from a brand extension and from a perception that it is a good place to go, a reliable and fun place to go for certain types of information and entertainment.
315. COMMISSIONER PENNEFATHER: Do you find that the Web site programming is changing the way you program Discovery itself, for example?
316. MR. MURPHY: In certain instances it has. For instance, very early on in exn.ca we had a series of pilots that were focused on exploring the phenomenon of the Internet growth; indeed, we allowed our Internet viewers -- our viewers in general but particularly our Internet users -- to help us decide which of those pilots was turned into a series. We had this program called "Cyberwar". So there was an example of a direct influence on the programming and the direction of the television service.
317. It tends to flow the other way at this point, as a generalization, though. We will focus on what is compelling television and then we will ask ourselves, how do we best support that programming via new media, via the Internet.
318. COMMISSIONER PENNEFATHER: Is the new media content more information or is it more entertainment programming? How are you designing it and why?
319. MR. ELLIOTT: We are actually designing the content based on what our viewers want. I think that that's an important distinction, is that we have a much greater connection with the audience than we had in the past. I can cite a specific example of how we got into the interactivity from an information point of view and I will use curling, as I pointed out earlier in my oral presentation.
320. We were hit quite by surprise by the number of people, quite frankly, that were on line while we were having a curling telecast on the TSN site. We provided lots of in-depth information there and we assumed that people were going there, but literally by accident we asked one day for people to send in e-mails and we were dumbfounded by the amount that we got. That was the beginning of the hook for us to sort of going that way.
321. To answer your question, there are two things that people come to our Web site for. It is information but it is also the opportunity to interact and have their voice and their opinion heard on our networks.
322. COMMISSIONER PENNEFATHER: So, at this stage of the game, it isn't -- I can use the sports or Discovery, but it isn't replacing the program, it is an addition to, a backup to.
323. MR. ELLIOTT: We believe it is enhancing what they are already seeing. If they are interested in that particular programming strand or theme, we want to have them surf within our own program, as it were, as opposed to going somewhere else. We want to provide them with as much information as we can if that's the content area that they are interested in.
324. COMMISSIONER PENNEFATHER: But are you feeling the need to add more bells and whistles, as was said before, more entertainment production values to what you are presenting on the Web site?
325. MR. ELLIOTT: Not necessarily. It depends, because you have a firm direction for each project that you do, but there is sometimes a tremendous amount of information that, simply because of the constraints of television, doesn't have the opportunity to go to air. So we can now provide that information that the viewer might want.
326. I will give you something. When we were doing the Canada Games, we provided a whole host of background information, from venue times to places where you could go eat, in addition to all the information about the Canada Games. In that instance, that was something that television wouldn't cover. So we were using it as a way for our audience to get additional information about that particular event.
327. COMMISSIONER PENNEFATHER: Obviously, it is very interesting to get an update on precisely what is happening because we can conjecture, and you have too in describing a future of convergence where there is no difference. Obviously, that's where my questions may be leading at some point, where we are trying to see if what we describe as new media or digital media in and of itself, in addition to being what you have described as a way to enhance viewers enjoyment of the main broadcasting service, becomes in and of itself programming.
328. MR. MURPHY: I will relate a brief story about the early days of exn.ca. I continually pushed that it looked far more like television than, for instance, like a magazine, and that involved moving images and big, bold, full-framed images. I was repeatedly pulled back into reality by our Internet users who said, "Look, you are too far out ahead. Either my browser doesn't support it, my PC is too slow, or more commonly the bandwidth just doesn't support what you are trying to do."
329. So, as much as we might want to for the foreseeable future, we are limited from duplicating on the Internet the television experience. That's why we stress in both our written and oral presentation that we think that's well down the road, after for instance the full-scale deployment of digital television and after there have been, we think, enormous changes in the distribution systems.
330. COMMISSIONER PENNEFATHER: In the here and now, though, I am struck by the fact that throughout your submission you refer to not only your work but generally speaking to new media content creation and the programming industry in Canada, to original Canadian Internet programming.
331. Are you describing then new media as programming and can you tell me why you are describing it as programming? What are the elements that make it programming? And you refer to it quite often as such throughout your submission.
332. MR. MURPHY: You earlier touched on the question of is it information or is it entertainment; is it content or is it programming. These are, if you will, distinctions that we wrestle with every day.
333. Our use of the word "programming" is designed to capture the notion that ultimately we are in the information and entertainment production and dissemination business, driven by our viewers' desires and our viewers' needs. We think that "programming" captures that notion perhaps more evocatively than "information content provider", which, simply from a stylistic point of view, has kind of potentially a stale, purely information connotation to it that we don't think really captures what we are trying to do in the Internet, which is a vibrant, dynamic content or information and entertainment service perhaps best summarized by a programming service, an Internet programming service.
334. COMMISSIONER PENNEFATHER: Is it a program in terms of the definition we have of "program" in the Broadcast Act?
335. MR. JOHNSTON: Finally.
336. COMMISSIONER PENNEFATHER: Here we are.
337. MR. JOHNSTON: As you well know, the definition of "program" is extremely broad. Virtually any intelligence that is designed to enlighten, entertain and inform -- it captures just about anything. So what you have to look at is what is excluded.
338. We know that material that's predominantly alphanumeric is excluded. The representative from IMAT today said that about 80 per cent of the traffic is e-mail; so 80 per cent is excluded. But I think much of the material that was described in the brief would fall under "program" to the extent that there are some moving video and audio accompanying and so on.
339. COMMISSIONER PENNEFATHER: So the three examples and several special events that you have described to us would fall under that definition.
340. MR. BROWN: I think most of it would. We are not trying to evade it; I think it is programming, yes.
341. COMMISSIONER PENNEFATHER: No, we are just trying to clarify, because I have noticed how often it was used and I wanted to really understand, from your point of view, why you were using that term. It comes through, in many different ways, your recommendations.

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342. Just staying on this for a moment, practically speaking, what kind of production costs are we talking about for a Web site program, and how does that compare to, say, a traditional program? I know they are hard to compare, they may be apples and oranges here, but relatively speaking, what are we talking about?
343. MR. MURPHY: We have a team of full-time Internet professionals across our three Web sites. It is very difficult to extract, to the extent that that staff is a fixed cost over a period of time, what is the particular costs associated with this program or content offering. I really wouldn't know how to go about doing that other than to say we are spending X dollars per year on our overall content offering over the three networks.
344. I don't know if that's answering your question.
345. Perhaps I can focus in, before I turn it over to Jeffrey, on one example. We felt very strongly about covering, for both the television service, Discovery Channel, and exn.ca, the Pathfinder mission to Mars. So we sent a reporter down to the jet propulsion laboratory specifically to cover it for exn.ca. So we were able to identify the costs associated with that, bringing the feed back and so forth.
346. I wish we were able to do more of that and therefore I would be able to give you a more concrete answer on a program offering-by-program offering basis, but those tend to be the exception at this stage.
347. MR. ELLIOTT: I would tend to agree with Ken. You look at all the resources that you can get. Right now there is one extreme where we are sending people to other sides of the country -- actually, we just had someone come back from Morocco -- to something that we cover ourselves, where there is no cost to it and it is somebody's kilometres down to a stadium to cover an event for us for the night. So it can really vary from one extreme to the other.
348. COMMISSIONER PENNEFATHER: And integrated with your operations, as I understand it.
349. MR. ELLIOTT: Absolutely. Absolutely. Wherever we can piggyback on existing infrastructure, we do. For instance, in Morocco, we had a television crew going over to cover the Eco Challenge. We gave someone an extra assignment of taking some extra note taking and digital pictures for us as part of their assignment. So, in that instance, there are times when it doesn't cost you any more money; there are other instances where, in the case of going to California for the Pathfinder, that's an expensive proposition.
350. COMMISSIONER PENNEFATHER: What about, then, the revenue side? Are we making money?
351. MR. ELLIOTT: We are starting to, certainly, yes, absolutely --
352. COMMISSIONER PENNEFATHER: I see.
353. MR. ELLIOTT: We are one of the founders of the Internet Advertising Bureau of Canada and we hold a position on the board. We are very active in helping to establish a meaningful revenue stream through advertising in this country.
354. COMMISSIONER PENNEFATHER: You make considerable comment in your submission about the daunting gap -- I quote -- "between costs and revenues".
355. MR. ELLIOTT: Yes.
356. COMMISSIONER PENNEFATHER: And you are quite concerned about whether that gap will ever be closed.
357. So, if we could branch out a bit to the new media industry in general, what are your comments on how we can close that gap? I think you express considerable concern about advertising in Canada for Canadian product.
358. MR. MURPHY: I just want to clarify, if I might, your question "are we making money". We have sources of revenue. We are not making money the way that term is usually used to describe a profit situation.
359. We do have a daunting gap. The reality has been for us that the initial impression when we launched back in 1994 was that we might have a model based upon subscription revenue. That was quickly dispelled. It appeared then, as it appears now, that advertising and sponsorship will be the model for the foreseeable future.
360. It is one thing for us to reach that conclusion. It is quite another for all of the norms required in the industry in terms of measurement, in terms of establishing value, in terms of even the jargon. That, frankly, has taken a number of years and we think will continue to take some time for clients, for agencies and ultimately content delivery folks and programmers to agree on what the measures of success are.
361. In addition, we see that, while we are struggling with some of those norms, there are some dominant foreign sites, particularly in the United States, who are able to offer a comparatively lower risk opportunity for advertisers to the extent that they can deliver large numbers of impressions because they are extremely well funded. That's a concern that we have and one of the concerns we address in our submission to you.
362. COMMISSIONER PENNEFATHER: You recommend, then, in paragraphs 52, 53, that section 19 of the Income Tax Act should be amended to apply to advertising in new media applications such as electronic publishing and on-line services. This is taken from the IHAC report directly.
363. Electronic publishing and on-line services, does that cover the kind of programming services we have been discussing so far, or is that a narrowing of scope?
364. MR. BROWN: I think that was an older definition and I think we would go beyond that now.
365. COMMISSIONER PENNEFATHER: Yes, because you used that specific quote, and I wanted to be sure what you intended by the amendment to section 19.
366. MR. BROWN: I will let Ken finish, but we used that quote to say that I think this area had been visited and a recommendation had been made, but we have a broader view.
367. MR. MURPHY: Our intention was not to make a distinction between our activities and those described a year or so ago. We used the word "programming" again for our own reasons and to try to provide a more evocative description of what we are doing. It is not meant to be a distinction or a limiting phrase.
368. COMMISSIONER PENNEFATHER: Perhaps you could clarify that in a follow-up because it is an important component.
369. I would like to turn now to another aspect of the present and the future, but before I do that I was just concerned to understand your development phase and your second phase.
370. At the very end of your submission you say that we are in the early development stages of new media, so we should therefore reconvene in 18 months. We will come back to that point. Then you say earlier that you would prefer that we address the second phase, which is economic viability.
371. Where are we at exactly in your estimation, so I am clear on what impact your recommendations will have and why you made them.
372. MR. MURPHY: Our intention was to, frankly, try to stay away from large issues that come out of the notion of true convergence and to say, look, we need to take this in some bite-size steps or bite-size chunks. In order for there to be convergence, there has to be a viable, sustainable medium to converge with, and we are not yet there. In fact, I think that most Internet content producers and developers are all, as we have heard this morning, struggling to find the appropriate long-term business model, and that really should be the focus, in our view, of this process and resulting recommendations to allow there to be a solid, strong, viable Canadian voice on the Internet.
373. Then, as to the deployment of digital television and true convergence -- and we acknowledge we set the bar very high in terms of what constitutes true convergence in our view -- let's deal with those issues down the road.
374. COMMISSIONER PENNEFATHER: I would like to come back to that, because you did mention again this morning that your recommendations for economic viability will ensure a strong Canadian voice in this emerging environment. I think the discussion earlier today in and around that premise, how much opportunity we have and how many challenges we have and how to approach them, is of great concern, and I would like to come back in the conclusion.
375. In terms of your recommendations in the immediate, you make some very important points about training and skill development. Unfortunately, you got me on this section because you refer to it as manpower, gentlemen.
376. MR. BROWN: Guilty.
377. MR. MURPHY: (Off microphone).
378. COMMISSIONER PENNEFATHER: Excellent. From what I saw in terms of the programmers, I know that's the way you act, but the term just slipped out, I guess.
379. In terms of the development phase, you are talking about the lack of experienced personnel and you make a recommendation regarding a refundable tax credit similar to other government employee training programs. To what programs are you referring?
380. MR. MURPHY: There have been a number of provincial programs that I have been aware of but we haven't participated in that encourage, for instance, the development of youth employment and focused incentives in that direction. So it was really more a general statement that incentives for specific training that will meet economic or cultural goals are not necessarily new and that we should be looking very much -- if I might digress, there is a tendency to look at the Internet from a technological perspective, and we very much want to put the focus here on Canadian personnel who eventually, with whatever tools they have depending upon where we are in the stage of evolution and development, will be the storytellers.
381. We shouldn't forget that we need experienced and qualified people to work the technology but ultimately tell those stories.
382. COMMISSIONER PENNEFATHER: I was going to ask what specific skills you are talking about. What you have just said is a skill, if you will, telling stories, or writing, which could apply to all of our cultural activities. Could you be a little more specific about the particulars of new media and what we are looking for?
383. There is an assumption I think out there that all the young people in Canada are very computer literate, that that talent is there, that there are reams of young people ready and waiting for the industry in this country.
384. MR. ELLIOTT: I can cite an example in one particular area, which is our systems administration. This is the position that is sort of under the hood, tinkering with the motor, so to speak.
385. That has been a very difficult position for us to keep fill for a number of reasons. One, the programming language itself is a unique space system that we use for one of our Web sites. There is not a lot of people out there with that particular skill set. So that's one area.
386. The other area is, when you finally get the person, the guy down the road wants that skill set as well. So he comes up and offers double what your employee is being paid and, unless you are prepared to keep that cycle going, it is very difficult.
387. So we are in a position, right now, of trying to find really good employees -- which we do right now; we have an excellent team -- and keeping them happy and keeping them within our organization and keeping our costs at a reasonable level. But there is at least a six- to an eight-month ramp-up period when you are training an individual such as this to do that job.
388. So what we are trying to avoid is getting into a situation of training over and over again for the same position, which is very expensive.
389. COMMISSIONER PENNEFATHER: But, if it is storytelling we are talking about, where are the people coming from? Is it just out of Sheridan or Waterloo that you are looking for people, or are we looking for those who, like in the film business, will be scriptwriter -- now the script is differently presented but it is basically the same talent?
390. MR. ELLIOTT: The line starts to blur in production, and you can't sort of look at it in the same way that you look at television because the systems administrator is just as important in the process as the scriptwriter. You have to have a good story, but if nobody sees it or if a particular application that's required to tell that story isn't able to go on the Web site, then you are shooting yourself in the foot, you can't tell your story.
391. So scriptwriting and production, that side is definitely a very important component of the overall recipe, but there are other new skill sets that we are having to develop that are equally as important to telling that story.
392. MR. MURPHY: If I might, it is also the combination of skill sets that's required. For instance, we have a number of highly trained journalists working on exn.ca. On the other hand, we had to quickly add to their skills and their level of confidence -- HTML code writing and some graphics preparation and so forth -- because, unlike conventional television production, where it is somewhat compartmentalized with experts and proven career paths into being, for instance, an editor versus a cinematographer versus a scriptwriter, in the area of new media we have such a small team, we have such limited resources that that person has to, if you will, be a jack-of-all-trades. So it is not only being good at one thing but being good at many things.
393. I will perhaps illustrate another example. I sit on the University of Regina Journalism Program, on their Advisory Board. We have had a number of debates, how does the storytelling differ for effective storytelling on the Internet where, for instance, you might not be able to have the conventional triangle of a story with the lead and you move down to level of details, keeping in mind now that that viewer or that consumer of information can go where they want to go in that story at their own pace and can frequently go off on tangents. That's the whole nature of the interactivity versus a journalist traditionally laying out a story, you start at the beginning and you end at the end. That kind of normal expectation doesn't exist necessarily on the Internet.
394. So we are finding our way through what is effective storytelling, and our goal is to share our learning with the post-secondary institutions to try to guide them and try to influence them in terms of what our needs are and what our learning has been.

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395. COMMISSIONER PENNEFATHER: This brings me to the questions related generally to funding. It brings me there because it seems like a familiar story in some ways to not be considering investment in the future vis-à-vis personnel who will in fact be the creators and be those who produce the product finally.
396. As you know, a number of intervenors have suggested various funds or funding mechanisms, which could perhaps include development of people power as well as technology, but what is your comment on the various funding mechanisms? Are tax credits enough, or do you think there should be funds or other forms of funding mechanisms to support new media production?
397. MR. BROWN: At this time I think we believe that the income tax relief for advertising and the tax credits are the things to do. We realize that money is short and we wouldn't want to see in this process the funding that already goes to conventional film and television be usurped for this process.
398. Of course, we would all like more money, but I don't think in reality it is there right now.
399. COMMISSIONER PENNEFATHER: So you would keep funds that are specifically for film and television separate.
400. What about the new media funds already established?
401. MR. BROWN: The new media funds are very attractive, and we would like to see more of them, but we would keep a very clear and distinct separation.
402. COMMISSIONER PENNEFATHER: Have you any comments about the particular needs of the French-language programming in this country for new media? This was brought to our attention in the previous presentation vis-à-vis use of the Internet, but what is your experience in terms of production of content in the French language?
403. MR. MURPHY: We are very proud of our success in the Quebec marketplace. We heard this morning that it is comparatively underdeveloped in contrast to the rest of Canada. We think that's generally true. However, we have had good success with RDS, if you will -- a strong voice in a small pond of French services, at least at this stage.
404. I am going to turn it over to Jeffrey to speak more specifically about our RDS site, but, like the submission from Pelmorex, we think that it is essential, if we are going to continue to support our specialty services and maintain a national voice, that we invest in the Quebec marketplace and nurture that marketplace. We think ultimately that will best be done by having compelling French-language content that will stimulate demand.
405. MR. ELLIOTT: There is also a number of things that we are doing to help them grow as well too.
406. We found that the English market is a little bit ahead of the French market, so we are using the knowledge that we have gained. As we have all heard, the industry is evolving so rapidly, so there is an advantage there that we are able to use on RDS to help. I will give an example as far as the advertising community is concerned.
407. Our development of our rate card, our development of our strategy for selling on the Internet is something that we share and we use as the French market is being developed. So, in a way, we are taking some of this crystal ball effect that we get from the United States, that we get into Toronto, and then over to RDS.
408. COMMISSIONER PENNEFATHER: I wanted to turn to the other side of the equation. We have talked now about the new media industry as we have about other cultural industries in this country in terms of production and we have talked about what you are doing to produce content, what the new media producers are doing and hoping to do. But, on the access side, do you feel that there are barriers to access to new media content in this country, and particularly to Canadian media content?
409. MR. MURPHY: We specifically stated in our written submission that we don't believe there is an access issue, because one can effectively argue that a Canadian Internet customer or user can get access to virtually any site in the world. We think it is far more subtle than that and it is a matter of prominence and eye-level display, if you wish.
410. We do not see a problem at this stage. We referred to the issue in our submission more as an attempt to raise awareness that there could potentially be an issue down the road of gate-keeping, if you will, or a lack of a clearly defined Canadian presence on portal or ISP sites. We don't see that as an issue now. Again, it is something that I think we all have to monitor very closely.
411. My personal belief is that ultimately the success of an ISP or a portal is driven by what their users and customers want, and there is a long history of consumers wanting relevant Canadian content. Yes, there are issues with drama and so forth, but I believe that, for instance, weather information provided by Pelmorex is far more compelling than weather information provided from some other country. Science information that focuses on Canada's contribution to the International Space Program and Canadian astronauts probably strike a cord more so than a strictly NASA perspective.
412. With that in mind, I believe that ISPs and portal sites will tend to see having Canadian content primarily displayed as very desirable from a purely business perspective. Time will tell, though.
413. COMMISSIONER PENNEFATHER: In that mode, though, you do make a recommendation in paragraph 62 which might indicate you are not as comfortable that they will by virtue of the good business plan, by saying that "Canadian ISPs who create Internet content for their showcase browser should commit to providing fair access and comparable profile to relevant Internet user-driven, non-related Canadian content providers."
414. What form would this commitment take?
415. MR. MURPHY: I think that's the difficult question to answer because it speaks to the regulatory mechanisms and jurisdiction and things that frankly I am going to, if necessary, further refer to Chris.
416. I think it starts, though, with an awareness of the issue on the part of the Commission, on the part of content providers and ultimately on the part of Canadian Internet consumers and users. I think that's the effective place to start.
417. I hesitate to look to a mechanism to solve a problem that isn't yet there.
418. COMMISSIONER PENNEFATHER: But, even so, you do see and are putting on the table the possibility that some step of one kind or another might have to be taken because it is your concern that gatekeeper roles may evolve.
419. MR. MURPHY: They may evolve. However, our experience has been, at a very practical, day-to-day level, that often times content provider associated with an ISP or a portal site is doing everything they can to provide effective content from wherever they might find it. If we, for instance, look at a science and technology listing on a portal site and see that exn.ca isn't there, our experience has been, you pick up the telephone, you point that out and you say, "You know, we provided terrific service." "Oh, yes", the next ting you know, the next day, we are prominently displayed -- perhaps not number one; we would always like to be the first choice, but our experience so far has been that they responded very favourably to those kinds of requests.
420. COMMISSIONER PENNEFATHER: Although, from previous comments today, that may be changing in terms of the impact financially on content providers and how they can have access to the Internet, to portals, to ISPs, whatever mechanism they would prefer, both for the promotion and carriage of their product; it may become more difficult to them financially.
421. I guess you are still on the side of saying that will resolve itself with economic viability steps taken to assure a stronger industry.
422. MR. MURPHY: I think that's true, although I would be quick to point out that, in and of itself, an ISP or another portal site suggesting or demanding, if you will, payment for prominent display, in and of itself, is not necessarily a bad thing any more than someone who wishes to promote a site by way of television/radio exposure, billboards, magazines and so forth; it is not a negative thing that they have to go out and spend money to market and establish a presence.
423. So I think it is all a matter of degree. If there is good, solid value that, for instance, a site might derive from the dramatically increased exposure that comes with -- and it remains to be seen whether that will in fact be the result, but suppose that were the model, that, my goodness, I pay X dollars and my traffic goes through the roof, there could be a very strong business case to be made that that kind of payment is sound from a purely business perspective.
424. COMMISSIONER PENNEFATHER: Let me then turn in fact back to you, Mr. Johnston, if that's where this question will take you, and look at your approach to regulation in your submission in light of the environment you described. If I may summarize, and then if you could elaborate, your suggestion for an exemption order is contained in paragraph 76, and I would like you to elaborate on that, particularly what undertakings you were referring to and what conditions would apply. This is paragraph 76 of your written submission.
425. Paragraph 76 is one of the paragraphs dealing with the rationale for an exemption order, which actually starts with paragraph 75.
426. MR. JOHNSTON: I guess if you start from the argument that there is material being delivered over the Internet that does fit within broadcasting, then it seems to me that there are a number of reasons why the Commission should do something.
427. First of all, there is a significant sanction in the Act for carrying on a broadcast undertaking without a licence. I don't think that should be floating out there in cyberspace. I think the Commission should deal with that if it is satisfied that there are elements of broadcasting going on here.
428. Secondly, from the material that I have read, the submissions that have come in, I don't have a sense, if there is an impact on conventional broadcasting by these programs, that it is material. Under section 9(4), if the Commission is satisfied that the broadcasting undertaking -- that the licensing of it would not contribute in a material way to attain the objectives, then, it is mandatory that the Commission shall exempt. So I think it is time to deal with that.
429. I agree with Mr. Morrissette that the Commission should clarify its jurisdiction. I think it should clarify it in that way.
430. That being said, what kind of an exemption order should be issued? In my view it should be a blanket order with no conditions at this stage except perhaps -- not a condition, but the length of time that the exemption order would prevail until there was a revisiting of it, say two or three years, something of that nature. to let the Commission study on an ongoing basis the impact that some of this programming is having on the conventional services to look at some of the expectations or guidelines that Mr. Morrissette mentioned, to look at the degree to which the players are prepared to develop further -- some of them have already developed, but develop further industry codes.
431. The reason I think that's the way to go is I think it is premature to begin to set conditions for exemptions in this field. I think it is something that needs to be looked at. There is also the practical difficulty that if somebody doesn't live up to a condition, what do you do? Do you enter into a licensing mode? Again, it is a very complicated and far-reaching step to take, and I think it is premature.
432. COMMISSIONER PENNEFATHER: Thank you for your clarification.
433. Just so that I am absolutely clear, in that paragraph 76, in the last sentence, when you say, "At this stage in their development, the licensing of undertakings providing multimedia programming", what kind of undertakings would that refer to, just so I am clear?
434. MR. JOHNSTON: Let me take an example of something that is fairly common now as I understand it, and that's the packaging of audio services of a specialized nature. One can access services that you can select, specific niches of music that are prepackaged, that are delivered via the Internet. That's an undertaking, in my view. Something transmitting, receiving, this is a form of a broadcasting undertaking.
435. But, as yet, there is no indication that that is having a serious impact on radio licensees. It may be having an impact in time on the pay audio services; that raises another issue, and that is competitive parity.
436. We think in terms of should new media be regulated, should it be licence-exempted and so on, but we may also have to think of the other side of the equation: At some time in the future, if this kind of activity is having a material effect on the licence broadcasting system, should we be looking at forms of deregulation on that side? So it just not one side of the equation; I think one may have to look at the other in time.
437. There is a very interesting paper that was prepared for the FCC, "Digital Tornado", that you may have encountered. That was a key point that was made in that paper, one of the key points -- it isn't so much a matter down the road of regulating the Internet but making sure that, by not regulating it, you haven't put the regulated system at a severe competitive disadvantage.
438. COMMISSIONER PENNEFATHER: Thank you for that clarification. This is the beginning of a very long discussion. Those options are important, but they relate obviously to some of my interest in your presentation on your programming of new media within your current activities and those relationships.
439. I assume this is behind your final comment on a hearing in year 2000 in terms of reviewing. You say that the purpose of that would be to review certain initiatives which should have already been undertaken.
440. Is there any further comment you want to make on that proposal?
441. MR. BROWN: I think I am responsible for that, and people wonder why, but I really think from what we have heard today that things are moving very quickly, we are going to see much more consumer acceptance of the Internet, and perhaps out of this proceeding there will be proposals. So, in a very short time, it is time to re-look.
442. You will have established some benchmarks and now you will have a basis for re-examination, and I think it will be appropriate.
443. COMMISSIONER PENNEFATHER: Final comment -- children and the Internet. Very briefly, there have been a number of comments on this aspect of new media and the Internet. Whether we are referring to programming that is designed specifically for the Internet or programming available through other means, it certainly has an impact, and there have been a number of suggestions in that regard.
444. What is your comment on various approaches that can be taken regarding offensive comment available on the Internet? Is this through self-regulation or are there other measures that you feel should be undertaken?
445. MR. ELLIOTT: No. We believe that self-regulation, and as far as pornography and other offensive material that falls under the Criminal Act, we believe that there are already mechanisms and systems in place to look after that. I know ourselves, for our Web sites, we are very strict as far as the kinds of content that we allow on. We look at everything beforehand.
446. COMMISSIONER PENNEFATHER: All right, thank you very much.
447. Thank you, Mr. Chair.
448. THE CHAIRPERSON: Thank you.
449. I believe counsel has a couple of questions to keep Mr. Johnston employed here.
450. MS PINSKY: Thank you, Mr. Chairman.
451. I would just like to follow up on a couple of comments that you have made in response to Commissioner Pennefather's questions. In particular you were discussing the type of content that you would consider to be programming, and I think the discussion centred on the definition of "programming". I think you specified that you would consider that services delivered over the Internet that contained video or audio would be programming. You did say that?
452. MR. JOHNSTON: Yes.
453. MS PINSKY: What I would like to clarify is, do you consider that that type of content would be broadcasting?
454. MR. JOHNSTON: For broadcasting, as you know, you need three elements; you need a program, you need a transmission of that program, and it has to be for reception for the public; and I think, for certain material coming over the Internet, that you have all three elements involved.
455. MS PINSKY: Could you be a bit more specific in what type of material? In your written submission I believe you stated that streaming video and streaming audio would fall within that definition, and I wonder if you could elaborate with respect to other types of programming.
456. MR. JOHNSTON: I think the example I gave of the packaged music programming would fall within that. I think, as you are aware, many, many radio stations now broadcast live on the Internet; that would be broadcasting.
457. The Commission actually has already addressed situations on video on demand and video games and those exemption orders. Presumably the Commission came to the conclusion that that type of material, stored material that can be summoned up, pulled up by the technology, constitutes broadcasting and therefore issued exemption orders.
458. So I think that material that consists of moving video, audio packaged programming that is now receivable on the Internet would be broadcasting.
459. MS PINSKY: Thank you. And, with respect to the scope of the exemption order, Commissioner Pennefather was asking about the type of undertaking that would fall within that order, and I think you referred to a type of programming undertaking. Is it NetStar's position that distribution undertakings as well would fall within the scope of your proposed exemption --
460. MR. JOHNSTON: I didn't just catch the last bit of your question.
461. MS PINSKY: Would it be NetStar's position that distribution undertakings as well as programming undertakings would fall within your proposed exemption order, or would you limit it to programming undertakings?
462. MR. JOHNSTON: I think both. As you pointed out very well -- and there was a very good analysis in a paper that you did -- it is very hard to fit the definitions of "programming undertaking" and "distribution undertaking" into some of what is happening on the Internet. For example, when material is stored in a server, the person who is responsible for that -- is that programming? Or, when they relay it on, does that turn it into a distribution undertaking?
463. The only thing I would say about that is that "broadcast undertaking" is defined to include a program undertaking, distribution undertaking and network. So I think, as you pointed out, one may have to describe a broadcast undertaking in an Internet context a little differently than the Act now describes something that may be a hybrid or a combination of the distribution and the programming function. But I don't think that's a barrier to issuing an exemption order. I think there is some kind of undertaking that's taking place, and whether you define it as distribution or network I don't think really matters.
464. MS PINSKY: Okay. Finally, related to that and related to what I believe you stated your position was, that the exemption orders should contain no conditions, just following up on your proposal in your written submission that Canadian ISPs that create content for their showcase browsers should commit to providing fair access and comparable profile to relevant Internet user-driven, non-related Canadian content providers, I was wondering how that fit in within your proposal for an exemption order.
465. I guess, firstly, would you consider that those ISPs would be just broadcasting distribution undertakings?
466. MR. JOHNSTON: Perhaps, but I would not write into an exemption order at this stage an access commitment. I think that's part of what has to be looked at in this time frame of two to three years before the exemption order is revisited. I would also point out, as you are well aware, to the extent that an ISP is considered to be a broadcasting distribution undertaking for these purposes, there is a provision now relating to undue preference in the BDU regs. Similarly I note that, on the telecommunications side -- we haven't got into that -- where it is not programming the Commission has been careful on its forbearance orders to retain powers to deal with unjust discrimination, undue preference.
467. So I think the tools are perhaps there now for the Commission to act in those cases.
468. MS PINSKY: Thank you very much.
469. Those are all my questions, Mr. Chairman.
470. THE CHAIRPERSON: Thank you, counsel.
471. Thank you very much, gentlemen.
472. Madam Secretary, we will now turn to the last party for today.
473. MS SANTERRE: Yes. I would like to invite the Specialty and Premium Television Association, l'Association de la télévision spécialisée et payante, à présenter leurs commentaires.
474. THE CHAIRPERSON: Good afternoon, Ms Logan. The microphone is yours.

     PRESENTATION / PRÉSENTATION

475. MS LOGAN: Thank you.
476. My name is Jane Logan, and I am the President and CEO of the Specialty and Premium Television Association, l'Association de la télévision spécialisée et payante. With me today is Jay Kerr-Wilson, SPTV's Director of Policy and Regulatory Affairs.
477. Mr. Chairman, Commissioners, thank you for this opportunity to appear before you at what promises to be a voyage of exploration for all parties. As with SPTV's brief, our comments are focused on Internet-based products and services which take broadcasting beyond traditional boundaries. As you know, we represent Canada's specialty and premium television industry. We are the fastest growing sector of broadcasting, and generally the new kids on the block given that half of Canada's specialty and premium television services on air today are less than five years old. So it is a new experience for me to describe our industry today as traditional broadcasters, but new media makes old media of the rest of us very quickly.
478. TVSP ne s'est pas amenée ici avec tout un bagage technique ni une boule de cristal pour vous prédire ce que le monde aura l'air d'ici cinq ou dix ans, mais nous aimerions expliquer comment le secteur de la télévision spécialisée et payante tire actuellement parti des nouveaux médias. D'un autre côté, nous présenterons aussi certaines de nos préoccupations.
479. Enfin, nous aimerions nous soumettre quelques propositions concernant le rôle que le gouvernement pourrait jouer pour créer le milieu le plus favorable possible à la croissance de ce secteur. Notre but est d'aider à faire avancer la mise en place d'un secteur fort et rentable pour les nouveaux médias qui soit en mesure d'offrir une contribution à la fois culturelle et économique au Canada.
480. Our industry is an early and enthusiastic adopter of Web sites to promote and enhance television services to niche audiences. Our members include leaders in the field of on-line database and interactive Web site development. You have already heard from some of the most advanced broadcasters today, our members The Weather Network, MétéoMédia, TSN, Discovery and le Réseau des sports, and they operate what are among the most popular Web sites in Canada.
481. Pour l'ensemble de nos membres, les sites Web représentent un outil de promotion et de mise en valeur de la marque essentiel pour attirer un auditoire plus vaste vers leur service télévisuel. La clé pour les sites de télévision qui se spécialisent dans les créneaux est de demeurer fidèles aux goûts de leurs téléspectateurs en leur offrant des produits qui rehaussent leur programmation.
482. A number of innovators are integrating on-line activities with traditional broadcasting. Many services see the Web as an additional outlet for their product, and they add value by creating programming that interacts with viewers on line, such as "Gallagher's" on TSN, "Dish it Out" on Life Network and "Génération W" on Canal Famille. Newsworld and Le Réseau de l'information feature video newsclips, as does TSN, and as you have heard Discovery offers its daily science news program "@discovery.ca" streamed live on its Web site.
483. These services have not become a new way of watching television, however, and they have not yet provided a viable business case justifying the investment even if Web sites are great for building audience loyalty and enhancing brand equity.
484. Our issues and recommendations fall in four areas.
485. The first, which you have heard a lot about today, is access. Many other intervenors share our concern about the ease of access to Canadian content, and whether all Canadian Web pages will have appropriate shelf space on aggregator sites.
486. In the world of millions and millions of Web sites, navigation tools and menu systems will be critical for accessing information. SPTV has put forward the concept of a super-Canadian Web ring as a starting point to find a way to gather and display links to Canadian sites, organizing them like a master library. The goal would be to create a tool allowing people to easily find and access Canadian content and materials on the Web without in any way restricting access to foreign sites. Perhaps this kind of vehicle could become a main default page for Canadian ISPs or perhaps, with sufficient promotion, Canadians would gravitate to it naturally.
487. Today Yahoo Canada, Sympatico and Canoe each have listings enabling people to find Canadian material. These are helpful and may be a starting point for future, comprehensive and well-indexed efforts.
488. MR. KERR-WILSON: Our second and third issues go together hand in glove. They are the preservation of a Canadian rights market for broadcasting material and the potential for the Internet to develop into a broadcasting system that is parallel to the traditional one in which we operate today. There are currently technical limitations to the distribution of television programming over the Internet. But as bandwidth constraints are overcome in the future, our world of niche television programming services could be duplicated, expanded and enhanced on the Web.
489. This is of concern to traditional broadcasters, including our members, because we license the exclusive rights to exhibit programs in Canada. What is the value of exclusivity to our subscribers or advertisers if the same program is available through the Internet? How will Canadian programmers afford worldwide rights if that becomes the selling practice?
490. However, Internet services are not substitutes for traditional broadcasting services today. The extent to which they may become direct substitutes in the future is unclear. The biggest impediment is probably not technology, but more likely the business case for any rights holder to offer television programs or films over the Web, as this might severely constrain the rights holder's revenue from traditional sources.
491. Because of this huge uncertainty, it is inappropriate to decide today whether regulation of broadcasting in new media will be necessary to ensure a Canadian presence in the long term. This is why SPTV recommends that the Commission affirm its jurisdiction over the true broadcasting component of new media, while taking a light regulatory hand in this initial developmental period. Until all of us understand which business models develop for the distribution of traditional broadcasting on the Web, we cannot begin to understand what regulation, if any, might be necessary.
492. Some intervenors go further than recommending no regulation for new media; they call for the end to regulation of traditional broadcasting, such as Canadian content levels on television. We do not believe that 60 years of public policy, which has created a healthy independent production industry and vibrant private and public Canadian broadcast networks, should go out the window. Our broadcasting system is worth preserving, and we are not yet sure if it is truly threatened.
493. MS LOGAN: We would like to echo the call by NetStar and others and recommend a review of new media by the Commission again in 18 months or two years. At that point threats, opportunities and especially solutions should all be clearer.
494. The fourth and final issue area we would like to address is the role of government today. What we need in today's new media environment of pioneering, experimentation and R&D are incentives, and not regulation, to stimulate further growth. Our recommendations for the further development of new media content are mechanisms which have worked well to ensure critical mass and skill sets in the independent film and video production sector and in the creation of Canadian content for television. In particular, we ask that you recommend that federal tax credits be made available to support the creation of Canadian new media content.
495. Similar incentives are essential for research and development and for new media training, as you heard earlier, so that there is a large pool of talented and qualified individuals adding to Canada's knowledge base. We also request that you recommend to the government tax incentives for advertisers who purchase advertising on Canadian Web sites. This will help to create the business case that is missing today.
496. We appreciate the opportunity to make these comments and would be pleased to answer your questions.
497. THE CHAIRPERSON: Thank you, Ms Logan and Mr. Kerr-Wilson. I will turn the questions over to our Ms Wilson.
498. COMMISSIONER WILSON: Ms Logan, I believe we met a few weeks ago at the TV Policy Hearing.
499. MS LOGAN: We did, indeed.
500. COMMISSIONER WILSON: I probably won't keep you quite as long this afternoon.
501. What I would like to do is go through each of your areas of concern -- you say three in your submission, but it kind of looked like four to me, so I am calling it four.
502. MS LOGAN: Four, yes.
503. COMMISSIONER WILSON: I will look at the support mechanisms that you have suggested and then explore the notion of the super-Canadian Web ring as a way of ensuring that Canadian content has an upfront position on the Internet. I will probably refer to a couple of comments that other people have made just as they tie into comments that you have made in both your submission and your oral comments.
504. The first area of concern that you outline is the pre-loading of American choices on browser software that's included with most computers sold in Canada. I was just wondering if you had given any thought to how this issue might be dealt with considering the relative lack of market power versus the U.S., which is where most of this browser software is developed.
505. Are you familiar with any Canadian navigation systems? You raise it as a concern; so I am just wondering how would you deal with that? Did you give any thought to that?
506. MS LOGAN: We certainly gave it a lot of thought. I bought my new computer less than two years ago and it came pre-loaded with great software, and I thought, wow!, Internet access. It says, "Sign up here if you would like personalized weather information and news information; just put in your ZIP code." Clearly, they are selling U.S. information. They had a nice file on government which would have been helpful to me except it got me immediately into the U.S. Senate. It really came to us the critical thing with millions and millions of Web sites is trying to find, even when you know where to go, how to get there quickly.
507. It was that kind of discussion that led us to the concept of a super-Canadian Web ring, something that would be highly promoted and begin to solve this access difficulty of how can we ensure that Canadians can find Canadian sources of material easily.
508. COMMISSIONER WILSON: You can establish your own parameters. When you go in you can establish which home page your Web browser is going to open on and you can choose various things that will all come to you automatically from the Internet. So I am just wondering, is that the idea that you would have for the super-Canadian Web ring, that one aspect of that that you would promote is how people can actually set it up so that whenever they go into the Internet they end up on that page?
509. MS LOGAN: I think that's a very good idea. We put the idea forward not as a finished concept by any means but very much as a starting point, with the goal of trying to ensure that Canadians, or anyone in the world, could find good Canadian material easily.
510. COMMISSIONER WILSON: So you didn't have any specific remedies to the issue of the browsers, the pre-loaded browsers, the American browsers.
511. MS LOGAN: No.
512. COMMISSIONER WILSON: It just sort of led into that.
513. MS LOGAN: No direct recommendations for manufacturers. We looked at this other route for creating access.
514. COMMISSIONER WILSON: The second area of concern is the notion, if access to the Web is available only through dominant Canadian ISPs who also produce and promote content, that a gate-keeping situation could arise. We have actually heard this suggested by a number of the other parties who have presented today.
515. I am just wondering if you are referring to any situation in particular right now or is it just a concern about something that could develop.
516. MS LOGAN: This is a concern about something that could develop, and we do note that other intervenors have shared this concern.
517. I think we see a content distribution model in the United States that includes a whole lot of vertical integration and consolidation, and major distributors will naturally, it would appear, wish to develop proprietary content to make their service more attractive and then, in developing that proprietary content, depending on the business case that develops, they may wish to certainly not highlight competing sites to that proprietary information that they have invested in.
518. COMMISSIONER WILSON: Or charge for access to that.
519. MS LOGAN: Yes, they may certainly charge for access, and of course the question for Canadians becomes, if it is pay to play, can we afford to be in the game sometimes.
520. COMMISSIONER WILSON: So, when you raise that concern -- I guess that's the second. I am starting to understand, I guess, that the concerns that you have raised all led you to the suggestion that we should have this super-Canadian Web ring.
521. MS LOGAN: That's right. That's right.
522. COMMISSIONER WILSON: So you are not suggesting some kind of regulatory mechanism to deal with that.
523. MS LOGAN: We are not suggesting any regulatory mechanisms in this early, initial phase of the development of the new media industry and broadcasting in new media. The content certainly under development, the business case for creating great content certainly hasn't solidified. The distribution systems are developmental, and everything out there is R&D and experimentation; some may be one-offs and others may become the accepted way of doing things. So it would in fact be very premature to start suggesting rules for this situation that's undergoing tremendous change and development.
524. COMMISSIONER WILSON: I believe Ken Murphy from Netstar said he hesitated to suggest a mechanism to correct a problem that's not yet there.
525. MS LOGAN: Indeed.
526. COMMISSIONER WILSON: I thought that was a good phrase.
527. The third area of concern that you raise is the whole issue of the protection of the rights, the Canadian rights market for broadcasting material. I find this one a little more challenging to think about. When you consider the whole nature of the Internet, you have something that has no geographic boundaries or borders, how would you do this?
528. MS LOGAN: We have raised it as a concern, but certainly today it is by no means clear if it will develop into a problem. There needs to be at least two elements before we have what becomes a parallel broadcasting system to the traditional broadcasting system we know today in Canada -- parallel system on the Web.
529. First, there needs to be the technology that allows huge amounts of bandwidth, et cetera. So technically there are a lot of issues that have to be resolved before we could see the carriage of long form programming.
530. The second thing -- and, as Jay said earlier, the element that may well be the show stopper is the business case, because until people learn how they are going to make money on the Web they are not likely to engage in the business of giving away free what they can sell elsewhere.
531. So, yes, we raise the rights as a possible issue, but we very much feel that we are in a period of uncertainty and there are as many people today who believe that the day will never come when there is true broadcasting extensively on the Web as believe it is imminent. We don't know.

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532. COMMISSIONER WILSON: One of the statements that you make in your submission on page 4 is that ideally the distribution of broadcast material by new media will be incorporated into the orderly marketplace of rights exploitation. How would you see that rolling out?
533. MS LOGAN: The orderly marketplace for rights exploitation -- if we take film, for example, someone who owns the rights to a film generally releases it first in theatres; they get the theatre revenue and they promote the heck out of it, which creates a demand for it at the video store and for pay-per-view at television. They make a certain amount of money from the video release and more money from pay-per-view, at which stage they may also release it for viewing in airplanes, for example, and other areas. Then they may sell the broadcasting rights to a specialty television channel or to a conventional television service.
534. COMMISSIONER WILSON: Where would the Internet fit into that?
535. MS LOGAN: Hopefully way down the food chain because, if you were to make a product extensively available right off the bat, why would anyone pay to see it in a theatre? Why would anyone rent a video? Why would anyone buy a pay television service or pay to watch it at pay-per-view? If they could get it easily over the Internet, why would anyone pay for a specialty television package?
536. COMMISSIONER WILSON: That's interesting, I actually think that the whole notion of the orderly marketplace is being challenged. The most recent example that struck me was the release of the second part of The Lion King directly on video, not into the theatre. So it seems to me there are some experiments taking place with whether or not they can make as much money by skipping that one step.
537. MS LOGAN: Sometimes the theatre component is skipped and you have Movies of the Week, for example, directly on to television, or movies that aren't considered strong enough to debut in a theatre go directly to video, especially the kiddy stuff, some of the Aladdin movies, where they have a big enough following that they feel that will drive it.
538. But, generally, this orderly marketplace ensures that the rights holder can actually maximize revenue, and they sell of course not only Canadian rights, but rights for every other geographic unit they can possibly sell to.
539. COMMISSIONER WILSON: In your Phase I recommendations where you talk about the need for regulation, your first recommendation says that the Commission should affirm its jurisdiction over new media broadcasting. This is very much the same recommendation that NetStar has made and that Pelmorex has made as well.
540. Really, there are I guess two camps. If you read the range of submissions that we have received in this proceeding, there is the one camp that says, "No way this is broadcasting, it is based mostly on technology, it is the one-to-one versus one-to-many; the one-to-one transmission of this information is definitely not broadcasting" -- and I guess that goes to the whole definition of the word "public" in the Act, what constitutes public. Then the second camp really is that regardless of the technology, if it looks like broadcasting and acts like broadcasting, it must be broadcasting; the effect of it is broadcasting because it is being distributed to such a wide audience maybe in a slightly different way.
541. I am just curious as to how you came to the sort of certainty that it is broadcasting when you consider the other argument.
542. MS LOGAN: As broadcasters, we are in a good position to understand our product. I think Chris Johnston earlier on the NetStar panel described the three criteria that must be satisfied to have a broadcast program, and we very much accept that definition.
543. Jay, do you have something to add?
544. MR. KERR-WILSON: In coming to our position, we are also looking at what the Commission had done before and on the genesis of the most recent version of the Broadcast Act, and it seems that, clearly, Parliament's mind had turned to the one-to-one concept in defining "program" because it included a definition of "program" which includes pay-per-view and video-on-demand undertakings, and the Commission has since exempted video-on-demand and the video game services.
545. So I think, when we look at the precise wording that Parliament has chosen to enact and the kinds of services that the Commission has chosen to exempt from regulation, it seems to be implicit in those actions that being a one-to-one or a transactional relationship between the programmer and the audience member doesn't necessarily mean it is not programming or it is not broadcasting, it just means it is not mass broadcasting; it is broadcasting to the convenience of the audience member.
546. COMMISSIONER WILSON: I want to look now at the support mechanisms that you have recommended. They are on page 8 of your submission. You have recommended a number of incentives, mostly tax incentives and additionally that the public fund be made available to support development of new media content, and they range from tax incentives for creation of new media to research and development, human resource training programs and purchase of advertising on Canadian Web sites.
547. There are a number of parties to this proceeding who argue that there really isn't any need for any form of public intervention to assist in these areas because it is much cheaper to create and there are no barriers to market entry, and they also claim that there is an adequate supply of Canadian content available on the Internet.
548. Obviously, that's not your position if you feel that tax incentives need to be put into place and a public fund set up -- not at the expense of the Broadcasting Fund, but --
549. MS LOGAN: Exactly.
550. COMMISSIONER WILSON: -- a separate public fund.
551. MS LOGAN: The reality that our members who are broadcasters deal with is that they are investing heavily in R&D and in staff and training to create Web sites, many of which are very exciting and are moving what Canadians know and do forward, but the business case isn't there. The incentive to motivate more corporate investment in this field doesn't exist, and they are investing because they believe and their staff members tell them some day this will pay off. Eventually, though, it is hard to sustain the investment in the Canadian content development without a business case, without showing that these will be stand-alone businesses some day that will pay for themselves.
552. To get us to that stage, tax credits and funding would be very, very useful incentives.
553. The other mechanisms, which are the tax credits for advertising, would also help build the business case whereby the sites are supported by commercial interests.
554. You have asked, should the government put money into this kind of thing, and I think there is a very strong public policy objective that is met by the investment in the training of Canadians, the creation of this strong pool of human resources that are qualified, the knowledge base.
555. We look at some of the projects the government has undertaken and they have a tremendous impact in moving this country forward in the information age and ensuring that we can be real players. Industry Canada, for example, has invested in the Strategis site, which is a site aimed at small and medium business, and it lists all kinds of corporate information, but it has been a tremendous tool because it also includes Statistics Canada data, and people from around the world and Canadians can go there and find Canadian suppliers for product, they can check what the latest export trends are, they can have a look at consumer demand. It has become a very powerful tool for spurring the development of that sector of the industry.
556. So, because the Internet is really the communications backbone of the information economy, I think government measures at this stage to ensure that Canadians play a full role will pay off down the road.
557. COMMISSIONER WILSON: That leads us actually to -- you are talking about the Industry Canada involvement in the Strategis site to your super-Canadian Web ring, and your final recommendation is that the Commission should endorse the creation of this Web site to serve as a central clearinghouse or focal point for Canadian new media content.
558. I don't know how much you have thought about the mechanisms of such an initiative in detail, but I wonder if I could ask you a couple of questions just to get an idea of how it would work. For example, who would control it?
559. We had one suggestion this morning that the CBC was the logical controller of the site because they were already doing something that was very much like that, but have you thought about who would be in charge of it?
560. MS LOGAN: It may be that there is a market rationale for the ISPs to be involved in this and create it because it will be good accessible content that will drive the value and appeal of their services. It may be, as I said earlier, that government sees a public policy objective, failing the interest in the private sector, for moving forward.
561. I thought the suggestion about the CBC was interesting, and then we heard from Professor Clement I think who talked about the Health Canada site under development, and it could be that what it might take to promote Canadian sites would be groupings of aggregator sites or aggregator sites that are linked and that the CBC site is for culture and the Industry Canada site is for business, and we have others that develop and they are linked.
562. I think the big frustration today in surfing the Net -- certainly my frustration is you know the material is out there, but it can take you 20 minutes to find the site. So we need to use a very low tech description, sort of a Dewey decimal system, an indexing system for the intelligent navigation of Canadian Web sites, and that will help Canadians, it will help foreigners.
563. This is a beginning point, though. As I said, it is not a final concept, and I would really look forward to seeing what Internet service providers might say. They are the experts and they may have a better way to accomplish the same goal. I wouldn't presume to tell them their business.
564. COMMISSIONER WILSON: How would you see such a site being funded?
565. MS LOGAN: I think there are a couple of possibilities. Professor Clement suggested this could be a public policy initiative and it might be funded by government; so that's one possibility. It might be something, as I said, that ISPs decide to do because it does enrich the value of their service and it could be an extremely useful contribution.
566. Those are two suggestions.
567. COMMISSIONER WILSON: If a fund were set up to pay for the super-Canadian site, would you see it working in a similar way to the Canadian Television Fund, where you have criteria established in order to define what Canadian new media content is, determine whose content would be attached?
568. MS LOGAN: Yes, I think there would have to be a screening mechanism so that we did indeed ensure the sites were predominantly Canadian, if that's how you want to label it.
569. COMMISSIONER WILSON: I just want to ask you three more questions, two of which are related.
570. On page 7 of your submission you suggest that Canadian ISPs should provide preference for Canadian menus or navigation systems, and I am just wondering if you think that this is something that requires regulation, because we have heard it argued today -- in fact, Pelmorex said in their oral remarks today that showcasing Canadian content services while providing access to services on a global scale was a win/win scenario for all participants in the value chain. Canadian content maximizes traffic.
571. We heard NetStar say the same thing, that there is probably a pretty strong business case, and it reminded me actually of the notion of conventional broadcasters providing local news and local programming as a way of building their brand loyalty and keeping people tuning in, because that's what forms the connection and the rapport.
572. So I am just wondering what you were referring to when you said Canadian ISPs should provide preference. Do they need to be forced to do that, or do you think there is enough interest in it for them to do it themselves?

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573. MS LOGAN: Again, we raised access issues as a concern; the business models, the distribution models are still under development.
574. I like Pelmorex' idea actually: Set it as an expectation that you expect this behaviour. Perhaps the ISPs will come forward with their own access code of conduct. Then, when we come back in review in two years or so, let's see how we are doing. Let's use today as a benchmark, where in fact problems don't exist, and see where we are over time, because it is entirely possible that the market may look after this and, of course, it is entirely possible that consumers may absolutely insist and continue to insist on access to everything, no holds barred, or that the very strong promotion of good Canadian aggregator sites makes it a non-issue.
575. COMMISSIONER WILSON: One of the other suggestions that was made with respect to funding the creation of new media was, a number of parties to this process have said that broadcasters should be able to credit expenditures on Canadian new media production towards their expenditure commitments for Canadian programming for conventional television, and I am just wondering what your view is on that suggestion.
576. MS LOGAN: I think that's quite an interesting proposal. Certainly a large part of what is done with Web sites today is promotion, is pure promotion of the channel, and whether we count that as Canadian content or not I think goes back to issues reviewed at the Television Policy hearing, because SPTV members are not looking to reduce their on-air commitments or spending through this mechanism.
577. On the other hand, a lot of work is being done quite legitimately to develop material, content that enhances the program itself. So perhaps there is room indeed to include some of the spending, some of the R&D that truly enhances the programming, and perhaps with a cap.
578. I think we should look at that, but we are not asking in any way to have the pure promotion part of these Web sites included.
579. COMMISSIONER WILSON: Thank you very much.
580. Those are my questions, Mr. Chair.
581. THE CHAIRPERSON: And I think those are all our questions for the day. Thank you very much.
582. MS LOGAN: Thank you.
583. THE CHAIRPERSON: That concludes our list of parties appearing today. So we will resume our hearing tomorrow morning at nine o'clock.

--- Whereupon the hearing adjourned at 1750,

to resume on Tuesday, November 24, 1998

at 0900 / L'audience est ajournée à 1750,

pour reprendre le mardi 24 novembre 1998 à 0900