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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)
December 3, 1998 Le 3 décembre 1998
Volume 9
tel: 613-521-0703 StenoTran fax: 613-521-7668
Transcripts
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.
tel: 613-521-0703 StenoTran fax: 613-521-7668
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
Vice-Chairperson,
Telecommunications /
Vice-président,
Télécommunications
Françoise Bertrand Chairperson of the
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
Daphne Fry Manager of Convergence
Policy / Responsable de la
politique sur la
convergence
Diane Santerre / Secretaries / Secrétaires
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)
December 3, 1998 Le 3 décembre 1998
Volume 9
tel: 613-521-0703 StenoTran fax: 613-521-7668
ii
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE
Presentation by / Présentation par:
CATAAlliance 2308
Information Technology Association 2329
of Canada / Association canadienne de
la technologie de l'information
Internet Advertising Bureau of Canada / 2375
Bureau de la publicité internet
Association of Canadian Advertisers 2440
Canadian Marketing Association / 2472
Association Canadienne du marketing
Directors Guild of Canada / 2510
La Guide Canadienne des réalisateurs
tel: 613-521-0703 StenoTran fax: 613-521-7668
2308
1 Hull, Quebec / Hull (Québec)
2 --- Upon resuming on Thursday, December 3, 1998,
3 at 0900 / L'audience reprend le jeudi
4 3 décembre 1998, à 0900
5 9895 THE CHAIRPERSON: Good morning,
6 ladies and gentlemen. We will return to our proceeding
7 now.
8 9896 Madam Secretary.
9 9897 MS BÉNARD: Thank you, Mr. Chairman.
10 9898 The first presentation will be by
11 CATAAlliance, Mr. David Paterson.
12 9899 THE CHAIRPERSON: Good morning, Mr.
13 Paterson.
14 PRESENTATION / PRÉSENTATION
15 9900 MR. PATERSON: Good morning, Mr.
16 Chairman, ladies and gentlemen. Thank you for the
17 opportunity to make our presentation here this morning.
18 9901 The CATAAlliance has more than 1,000
19 members, in all aspects of the high-tech sector. Most
20 are in information technology and communications, but
21 biotechnology, aerospace, and advanced manufacturing
22 technology are also well represented. We do not
23 believe that we have a single member who does not use
24 the Internet in some aspect of their business.
25 Internet use ranges from simple e-mail through Web
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1 sites, to products and services which are totally
2 dependent on the growth of the net for their success.
3 All of our members will be affected if the CRTC takes
4 any steps which in any way handicap their use of the
5 net. Rather than address the concerns of particular
6 Internet players, we wish to present the views of the
7 broad range of industries which CATA represents.
8 9902 The scope of this proceeding extends
9 well beyond the CRTC's traditional purview. The
10 Internet is a global phenomenon, not Canadian. It is
11 not broadcasting, it is an entirely new way of
12 communicating. It affects the entire economy, not just
13 the broadcasting industry and its suppliers. It is
14 evolving at tremendous speed. A previous intervenor
15 suggested that a new vocabulary is needed, that the old
16 one does not serve when discussing the net. We agree
17 entirely. Attempting to apply the terminology of the
18 old media to the new ones will only lead to problems.
19 Even apparently simple concepts like time are different
20 on the Internet. Time is measured in Webyears, which
21 are only two or three calendar months long.
22 9903 CATA members' initial response when
23 these proceedings were announced in July was to express
24 extreme concern that the CRTC wanted to regulate the
25 Internet. They view regulation as something which
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1 would be extremely damaging to Canada's position in the
2 burgeoning world of the global Internet. Anything
3 which interferes with the pace of technological change,
4 prescribes Canadian content, or raises costs handicaps
5 Canada in the race for success on the Internet. We are
6 grateful that the CRTC has addressed the implications
7 of the new media through this open forum, which allows
8 intervention by concerned parties from all sectors of
9 the economy.
10 9904 As a first principle, CATA members
11 question the need for CRTC intervention. They do not
12 perceive any shortage of Canadian content on the net.
13 There are hundreds of sites offering Canadian content
14 and products of all kinds. Many of these products are
15 regarded as world leaders, the best in their class.
16 Access is not a problem, as Web sites are easy for a
17 content provider to establish. Success is dependent on
18 the creativity of the provider, on the attractiveness
19 of their product to the consumer.
20 9905 Some content providers report that it
21 is difficult to finance development of new media
22 content. The situation resembles that of the software
23 industry a decade ago. There is a learning curve in
24 investment, as in all professions. Until investors
25 become sufficiently familiar with the dynamics of a new
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1 business, it is hard to raise money. Once that
2 happens, money begins to flow, to sound management
3 teams backing business plans that promise a solid
4 return to investors. The Canadian software industry is
5 now awash with money. Providing public funding is not
6 a panacea, it will not confer success on content for
7 which there is only a tiny market. As Dennis Bennie,
8 the co-founder of Delrina, has pointed out, "There are
9 thousands of great ideas, but only a few great
10 companies."
11 9906 Our members' greatest fear is that
12 the CRTC will decide to tax the Internet. Content
13 providers have suggested a scheme similar to that which
14 prevails in broadcasting, a 5 per cent tax on ISPs'
15 revenues which would go into a fund for the development
16 of Canadian content. That would raise the cost of
17 access for everyone doing business on the net. The
18 current taxes on broadcasting affect only a small
19 fraction of Canadian companies. A tax on the Internet
20 will affect the fastest growing part of the economy.
21 It will be a further competitive handicap, atop the
22 higher communications charges Canadian users face,
23 compared to their American competition. There are
24 already several government programs to fund new media
25 development, most prominently the $30 million
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1 Multimedia Fund launched by Heritage Minister Copps in
2 June. The need for further support from an Internet
3 tax is not obvious.
4 9907 It would also contradict government
5 policy. In a speech at ITAC SOFTWORLD '98 in
6 September, the Prime Minister said, "A revenue neutral
7 taxation regime will ensure that you are not taxed
8 twice." On September 29, Revenue Minister Dhaliwal, in
9 responding to his Advisory Committee on Electronic
10 Commerce, said, "We're not interested in creating new
11 taxes that will create new barriers for electronic
12 commerce." To protect the integrity of the existing
13 tax system and ensure full compliance, four technical
14 advisory groups have been established to assist the
15 Minister. Canada will also consult other countries, so
16 that Canadian tax policy harmonizes with policies
17 around the world.
18 9908 There are a host of practical
19 questions about regulating the Internet. One is simply
20 whether it is technically feasible to apply Canadian
21 regulations to a global system. The other is speed, as
22 the Web evolves at warp speed. Between the
23 announcement of these proceedings at the end of July
24 and the presentation of your report in April, three
25 Webyears will have elapsed. Regulating anything that
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1 moves that fast appears beyond the resources of any
2 organization.
3 9909 CATAlliance's key concern is the
4 potential impact of CRTC regulations on electronic
5 commerce. We are all familiar with the forecasts of
6 phenomenal growth for e-comm. IDC predicts that global
7 electronic commerce will grow from U.S. $33.5 billion
8 in 1998 to U.S. $435 billion in 2002. The Gartner
9 Group reports that 70 per cent of Internet traffic is
10 business to business. Canadian businesses are anxious
11 to participate in that growth. Several of the leaders
12 in e-comm are Canadian. Canada has an export driven
13 economy. Among our members, it is not unusual for more
14 than 90 per cent of revenues to come from foreign
15 markets. Internet taxes and regulations which places
16 Canadians at a competitive disadvantage in global
17 e-comm will slow the growth of the entire economy.
18 9910 While the CRTC is examining the
19 situation of new media in Canada, many countries have
20 set out to attract Internet businesses to their shores.
21 Ireland, Bermuda, The Bahamas and Barbados have been
22 cited by previous intervenors during your hearing. The
23 United States, the leader of the Internet, has a
24 natural attraction for Web businesses. Any obstacles
25 placed in the paths of Canadian new media businesses
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1 will make these venues more attractive. They will
2 divert creativity, investment and employment away from
3 Canada. A Web site can be moved with a click of a
4 mouse and the impact is not trivial. The Gartner Group
5 reports that the cost of a passive Web site is U.S.
6 $3,600 to $7,200 per year, basic e-comm Web sites U.S.
7 $40,000 to $96,000, and full blown transaction
8 processing sites U.S. $200,000 and up. E-comm can
9 create many jobs.
10 9911 I know of a Web site which was
11 recently moved from Vancouver to Bellingham,
12 Washington. Many intervenors have cited other
13 examples. While some policy analysts dismiss such
14 reports as anecdotal, statistically invalid. In the
15 world of Webyears, by the time a statistically
16 significant longitudinal series of anecdotes is
17 compiled, the game is over, and it is too late to
18 correct the problem.
19 9912 In your deliberations you must never
20 forget that any action representing the Internet will
21 affect the entire economy, not just the broadcasting
22 business. Phenomenal growth is forecast for the
23 Internet and electronic commerce. Canadian businesses
24 of all kinds are positioning themselves to seize a
25 share of that growth. To do so, they must have a level
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1 playing field. Taxes or regulations which handicap
2 Canadian businesses on the Internet will reach far
3 beyond the CRTC's traditional constituency. They will
4 affect almost all parts of the economy. Jobs and
5 investment will flow to other countries. It is
6 essential that the CRTC lift the cloud of uncertainty
7 that has formed since these proceedings were announced.
8 It must be made clear that nothing will be done which
9 will damage the competitive position of the Canadian
10 industry.
11 9913 The Prime Minister announced the
12 Canadian Electronic Commerce Strategy on September 22.
13 Its objective is: "For Canada to be a world leader in
14 the development and use of electronic commerce by the
15 year 2000." We respectfully submit that the CRTC can
16 support this objective by accepting the advice of many
17 of the intervenors who have appeared here, and
18 concluding that regulation of the Internet is beyond
19 the scope of the Broadcasting and Telecommunications
20 Acts. Thank you.
21 9914 THE CHAIRPERSON: Thank you, Mr.
22 Paterson.
23 9915 I will turn the questioning to
24 Commissioner Grauer.
25 9916 COMMISSIONER GRAUER: Thank you, Mr.
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1 Chairman.
2 9917 Since you have made your views very
3 known with respect to the role of the CRTC and the
4 jurisdiction of the Broadcasting Act with respect to
5 the Internet I don't need any questions of
6 clarification there. So, in not using our time going
7 through those things, it's not a lack of interest on
8 our part, but your views are on the record and well
9 known. I am very interested in exploring some other
10 areas in your submission.
11 9918 Could you give me an idea of who some
12 of your members might be, just so I have a larger and
13 smaller?
14 9919 MR. PATERSON: The largest members
15 are IBM, Bombardier, Pratt & Whitney. It extends
16 through -- well, you could no longer classify
17 Newbridge, of course, as a medium-size company. But it
18 extends across the information technology sector
19 through newer companies, like Entrust Technologies.
20 The ones that are of particular interest in the e-comm
21 business, for example, are Entrust Technologies,
22 Impacta Media in Montreal and then it goes on
23 through -- down to we have a newly formed effort to
24 attract people in the SOHO business, the small
25 office/home office, the individual practitioners, which
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1 is building up at a rapid pace.
2 9920 All of these people, without
3 exception, are users of the net in their business.
4 9921 COMMISSIONER GRAUER: We have heard
5 from some. IBM was here last week and made a
6 presentation to us.
7 9922 Just so you understand, part of what
8 we are doing in this proceeding as our Chair Colville
9 said on the opening day, is that we also need to be
10 looking at how the Internet will impact on traditional
11 broadcasting and telecommunications, so that we have a
12 sense of how to monitor those developments.
13 9923 Secondly, in having a public forum,
14 we will be looking at recommendations we can be making
15 to government in ways that they can also be helping in
16 the development and support of these new emerging
17 businesses. So that's the framework in which I would
18 like to pursue some questions.
19 9924 One of the things that IBM talked
20 about when they were here is they referred to a Boston
21 consulting group report on e-commerce. The Boston
22 consulting group was not able to include Canadian
23 transactions or e-commerce in their report because
24 there isn't enough activity taking place here.
25 9925 Now, I know you have referred to the
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1 size of the e-commerce market in the United States or
2 the total of it I guess by OECD estimates, and then you
3 refer to high broadband costs already handicapping
4 Canadian industry, on the second page of your report.
5 9926 So, I have two questions. First, do
6 you have any explanation for why Canada is lagging the
7 U.S. in the development of e-commerce, and if you think
8 the high broadband costs might have anything to do with
9 it?
10 9927 MR. PATERSON: Basically, I believe
11 that the reason that Canada has lagged behind the
12 United States, there are areas in the economy where we
13 are ahead. There are, unfortunately, much broader
14 areas where we are behind.
15 9928 The banking industry, the financial
16 industry in Canada has a very highly regarded position
17 in the world of e-commerce. The Canadian banks have
18 made much more progress in the use of the net than
19 their American counterparts have.
20 9929 In the broader area of business to
21 consumer Internet activity, we have definitely lagged
22 behind. There are not the attractive Web sites, there
23 are not the efficient business models in Canada that
24 there are in the United States and it's hard to explain
25 that, except I think in the context that we have --
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1 Canada has often lagged behind the United States in new
2 retailing ideas.
3 9930 I can't picture this happening in the
4 United States either, but a lady who was interested in
5 collecting Pez packages started a company called E-Bay,
6 which has just exploded. It is this sort of an
7 imaginative thing where the Americans tend to be a
8 little bit ahead of us and that I think is the
9 explanation for that.
10 9931 On the question of the higher costs,
11 it has been identified to me as the reason why Canadian
12 Web sites -- Canadian companies operate Web sites in
13 the United States. It's simply cheaper to do it down
14 there.
15 9932 COMMISSIONER GRAUER: I see.
16 9933 MR. PATERSON: The example -- the
17 Vancouver example which I quoted, the site was moved to
18 Bellingham because the broadband communications was
19 available down there.
20 9934 COMMISSIONER GRAUER: So it was
21 directly related to the cost of the broadband
22 facilities?
23 9935 MR. PATERSON: Right.
24 9936 COMMISSIONER GRAUER: We have had
25 some suggestions, in fact from some of the large ISPs,
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1 U-Net, Internet Direct, the ISP Group I think they call
2 themselves, and others that we should look at -- I
3 don't know how familiar you are with the
4 tele-communications regulations, but that we might
5 allow ISPs access to unbundled loop rates and
6 co-location.
7 0920
8 9937 They have argued that in fact their
9 inability to access these networks the last mile has
10 really inhibited -- has kept the costs high and has
11 inhibited the development and application of
12 technologies, fax, Internet, telephony and some other
13 products which might in fact really contribute to the
14 further development of e-commerce.
15 9938 I am just wondering if you have any
16 comments on that.
17 9939 MR. PATERSON: I am not intimately
18 familiar with the telecom's regulations and I don't
19 believe I am qualified to answer that sort of question.
20 9940 COMMISSIONER GRAUER: Okay. I think
21 you are the first that has told us that the Canadian
22 software industry is now awash with money. I am
23 interested in that and I appreciate your point on
24 public funding.
25 9941 We have had many recommendations here
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1 which talked about broadening the existing tax
2 incentives, stimulating R&D and encouraging investment
3 in Canadian new media companies.
4 9942 We heard from IMAT, we heard from
5 Torstar. I can read you the recommendations, but I
6 wonder if you have any comments on that? Do you want
7 to know what they said?
8 9943 MR. PATERSON: I have read a set of
9 transcripts which have followed the proceedings as they
10 went along.
11 9944 COMMISSIONER GRAUER: So you are very
12 familiar. Wonderful.
13 9945 MR. PATERSON: Basically, our view is
14 that there is an absolutely enormous market out there
15 which ought, we feel, to be a sufficient incentive.
16 Certainly it has been a sufficient incentive for some
17 of the intervenors who have reported here. It wasn't
18 Ms Hoffman herself, but her company was represented
19 here and made it very obvious that in their opinion,
20 there is no need for support.
21 9946 I have had a decade in dealing with
22 the software industry when I was with Industry Canada
23 until recently. Basically the problem is that unless
24 the entrepreneur can put together a decent business
25 plan backed by an adequate management team, the funding
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1 will not be available.
2 9947 The idea itself may appear
3 attractive, but there has to be a certain level of
4 business knowledge in the package to get it going.
5 There is a small scale funding problem at the less than
6 $2 million level venture capital.
7 9948 Two million dollars of venture
8 capital can be had for any decent deal right now. It's
9 when you are in the transition stage from your basement
10 to your first office in the back of the mall that you
11 need a quarter of a million dollars. That's where the
12 problem is.
13 9949 No one has ever been able to organize
14 that little market there. The Business Development
15 Bank of Canada has an active campaign under way that
16 was recently, in the last budget, given a substantial
17 piece of money to focus on precisely that area of the
18 market, but essentially it is a commercial decision.
19 It is based on sound financing principles.
20 9950 The question of incentives especially
21 designed for new media content producers, there are
22 numerous ones already available, as I cited. On the
23 tax side, not Revenue Canada but Finance Canada has an
24 extremely gloomy view of incentives based on the Income
25 Act. They quickly demolished the ones that sprang up
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1 when some of the traditional film financiers tried to
2 use the same scheme to finance software companies. I
3 don't think you should anticipate anything from there.
4 9951 I don't believe that new media
5 content development passes the rules for the SR&AD tax
6 credits.
7 9952 COMMISSIONER GRAUER: I don't believe
8 so.
9 9953 MR. PATERSON: I think that given the
10 great difficulty which the high tech industry of all
11 varieties has had with that whole program for the past
12 couple of years that either Finance or Revenue Canada
13 would be willing to -- they might be willing to look at
14 it, but I doubt very much if they would be willing to
15 launch something like that in the immediate future.
16 9954 The high tech associations have a
17 major program on under way with Revenue Canada right
18 now to try to straighten out the problems in the SR&AD
19 program. I think until that is dealt with, they might
20 be a little reluctant to look at another class of
21 applicants.
22 9955 COMMISSIONER GRAUER: We look forward
23 to hearing from them.
24 9956 What we are trying to do here in this
25 kind of an exploratory forum is look at a number of
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1 issues, part of which is the health of this industry
2 and its potential for future development.
3 9957 As someone has said here earlier, we
4 need to ensure we have a climate of innovation. So in
5 looking at these things, I think what we want to hear
6 is what are the kinds of things that people out there
7 in the business world think the government should be
8 doing to ensure we have a climate of innovation and a
9 climate in which these businesses can thrive and
10 develop.
11 9958 I am less concerned, frankly, at this
12 point about how the government would respond as opposed
13 to whether we come up with some suggestions from
14 industry that we think makes sense to pass on. That's
15 the context in which I was soliciting your views.
16 9959 MR. PATERSON: Our view on that issue
17 would be that the appropriate climate is one where
18 there is the absolute minimum of barriers to Canadian
19 companies in whatever business having an opportunity to
20 compete in the marketplace, whether it be the Canadian
21 market or the global market, that the incentives in
22 terms of the potential returns on investment, the size
23 of the markets, the broad scope.
24 9960 If you go online, you immediately
25 open yourself up to business opportunities around the
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1 world. The incentives are there. The mechanisms for
2 achieving success are open to any entrepreneur who
3 wishes to seize the opportunity.
4 9961 We don't see any great advantages
5 conferred on Canada by special measures designed to
6 meet the needs of individual sectors. We are looking
7 for a level playing field where everyone has an
8 opportunity to compete and perform.
9 9962 COMMISSIONER GRAUER: With respect to
10 any recommendations we might make to government or in
11 fact with respect to any of the regulations that are in
12 place, our regulations now, are there any barriers that
13 you think should be removed?
14 9963 MR. PATERSON: Beyond encouraging you
15 to recommend you encourage the greatest possible
16 competition in the telecommunications services, we
17 believe that things should be left alone as they stand
18 now, that no effort should be made to regulate the
19 Internet or attach conditions to the Internet or to use
20 the Internet as a source of funds.
21 9964 COMMISSIONER GRAUER: I just have one
22 more question. Our Chair, Commissioner Colville, asked
23 one group if we at the CRTC should consider as a policy
24 to pursue a policy of universal access or ubiquitous
25 access to broadband or high speed. Should this be a
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1 policy goal for us? I would just like your comments on
2 that.
3 9965 MR. PATERSON: I think it's an issue
4 which you should be examining as you go forward. It
5 isn't available now. There aren't a lot of providers
6 of services and products at this time which require it.
7 It does focus very much on your traditional
8 constituency, the entertainment world.
9 9966 I have not personally seen WebTV, but
10 I gather it's not exactly an inspiring experience if
11 you are getting it over a modem, but it works
12 reasonably well on cable.
13 9967 The very high speed access is an
14 issue which affects that part of the world that uses
15 the Internet. It is an issue which I don't think is
16 going to go away because as progress is made in
17 Internet technology, it will become more widely
18 demanded. It's an issue that needs to be pursued.
19 9968 COMMISSIONER GRAUER: I guess I
20 should have been a bit more specific. I was actually
21 referring on the telecom side, as we move forward with
22 a competitiveness agenda if this as a policy which
23 informs our decisions and regulations will be wise.
24 9969 MR. PATERSON: Yes. I believe that
25 it would.
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1 9970 COMMISSIONER GRAUER: Thank you very
2 much.
3 9971 I don't know if you have anything
4 else to add. I appreciate you taking the time to come
5 here today.
6 9972 MR. PATERSON: Thank you. I enjoyed
7 the opportunity.
8 9973 THE CHAIRPERSON: Mr. Paterson, just
9 on the very last line, just to clarify for me a little
10 bit of the questioning that Commissioner Grauer did.
11 9974 When you say regulation of the
12 Internet is beyond the scope of the Broadcasting and
13 the Telecommunications Act, picking up a point that
14 Commissioner Grauer raised with you that in fact some
15 of the Internet service providers themselves suggested
16 that in many jurisdictions around the world they are
17 treated as telecommunications carriers for the purpose
18 of having the opportunity to interconnect with former,
19 incumbent telephone companies or cable companies or
20 whatever.
21 9975 In view of that aspect, would you
22 still take the view that Internet or ISPs should be
23 considered beyond the scope of the Telecommunications
24 Act?
25 9976 MR. PATERSON: I think that it's
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1 essentially a different type of business than regular
2 telecom companies pursue. I think you would want to be
3 extremely cautious about rolling them into it. I
4 understand that they are considered telecom carriers in
5 some parts of the world.
6 9977 THE CHAIRPERSON: Including the
7 United States.
8 9978 MR. PATERSON: I wasn't aware that
9 the United States was one of those countries.
10 9979 THE CHAIRPERSON: If that activity
11 was to overcome the problems that resulted in this
12 company moving from Vancouver to Bellingham, would you
13 see that as a positive thing that should be looked at?
14 9980 MR. PATERSON: If that approach would
15 solve the problem, that would definitely be a plus.
16 9981 THE CHAIRPERSON: Okay. Thank you
17 for your views here this morning.
18 9982 Madam Secretary.
19 9983 MS BéNARD: Thank you, Mr. Chairman.
20 9984 The next presentation will be by the
21 Information Technology Association of Canada,
22 Association Canadienne de la Technologie de
23 l'Information.
24 9985 Mr. Duncan.
25 PRESENTATION / PRÉSENTATION
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1 9986 THE CHAIRPERSON: Good morning, Mr.
2 Duncan.
3 9987 MR. DUNCAN: Good morning, Mr.
4 Chairman. As you are well aware, I am unaccustomed to
5 be sitting on this side of the hearing room.
6 9988 Good morning, Chairman and
7 Commissioners.
8 9989 ITAC is grateful for the opportunity
9 to contribute the views of Canada's information and
10 communication technology industry to this important
11 proceeding.
12 9990 You should know that from the very
13 day of the announcement of your hearing we have
14 supported this. We believe you have finally provided a
15 forum where this issue can be publicly debated.
16 9991 ITAC is the voice of the Canadian
17 information and communications technology industry.
18 Together with our partner organizations, we represent
19 more than 1,300 companies in the computing,
20 telecommunications, hardware, software, services and
21 electronic content sectors.
22 9992 This network of companies accounts
23 for more than 80 per cent of the 418,000 jobs, $70
24 billion in annual revenue, $3 billion in annual R&D
25 expenditure and $20 billion in annual exports that IT
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1 contributes to the Canadian economy.
2 9993 We would like to begin our
3 presentation this morning with a very, very short video
4 clip from the recent Canadian Information Productivity
5 Awards. It features the company that not only won in
6 its class but was judged best in show.
7 9994 We believe that it provides a
8 succinct answer to the first question this proceeding
9 has posed and that was what kinds of new media services
10 are either currently available or can reasonably be
11 expected to emerge in the future.
12 9995 Video, please.
13 --- Video Presentation / présentation vidéo
14 0935
15 9996 MR. DUNCAN: Thank you.
16 9997 Bid.Com is a Canadian success story
17 that effectively bridges the emerging domains of new
18 media and electronic commerce. It competes head-on in
19 the dynamic world of on-line auctions with rivals from
20 around the world. Over the past two weeks, it has been
21 the volume leader on the TSE, where its share prices
22 have quintupled since October 19. The Bid.Com home
23 page is one of the most frequently visited on the
24 Internet. As the clip showed, 30,000 visitors per day.
25 It employs 35 Canadians and engages the expertise of
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1 Canadian-based system partners such as Media Serve.
2 9998 Bid.Com is just one of many Canadian
3 companies who are early adopters of the exciting new
4 possibilities of electronic commerce. And e-commerce
5 is just one of many applications of the new media.
6 9999 I am now going to, I guess, disagree
7 with some of the comments that were made by the last
8 witness. E-commerce is a world in which Canada is
9 currently demonstrating significant leadership. This
10 leadership is manifest in major policy forums, such as
11 the recent OECD Ministerial Conference hosted by
12 Industry Minister Manley in October. But it is also
13 manifest in our economic activity. IDC, which does
14 survey Canadian e-commerce numbers, shows that Canada's
15 share of the $13 billion global e-commerce market in
16 1997 was 5.3 per cent, double our share of the world
17 GDP.
18 10000 We are world leaders in this area and
19 one of the reasons is that Canada has been able to
20 assert its leadership is from the fact that we enjoy a
21 relatively free and unregulated environment for
22 e-commerce to flourish. And more generally, this
23 relatively unfettered approach is serving Canada well
24 in other domains of the new media.
25 10001 New media companies are an
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1 extraordinarily dynamic force in the new Canadian
2 economy. ITAC believes that unnecessary regulations
3 would only hobble their potential. They would have the
4 unintended and unfortunate consequence of holding back
5 the introduction of leading-edge services into the
6 Canadian and global market. And this in turn would
7 inhibit customer choice and restrict the potential for
8 wealth and employment creation.
9 10002 This Commission has wisely elected to
10 forebear on regulation of the Internet up to this
11 point. Mr. Chairman, we are encouraged by your opening
12 statements that you are not looking to apply old
13 regulatory models to new media. This is indeed a wise
14 point of departure. The Internet and the rest of the
15 new media are like nothing else in our current frame of
16 reference.
17 10003 For example, the Internet is a
18 global, democratic forum for the exchange of
19 information of all natures and descriptions. It
20 embraces everything -- from teenagers complaining about
21 their parents in chat rooms, from parents complaining
22 about their teenagers in chat rooms, to astrophysicists
23 debating the nature of neutrinos. It is a chaos
24 system, as rich, diverse and inscrutable as humanity
25 itself. And it is dynamic, changing and expanding in
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1 functionality with each passing day. We have no way of
2 knowing what it will look like a year from now. We
3 only know it won't be identical to what we have today.
4 This mercurial quality makes regulation challenging, if
5 not impossible.
6 10004 The Internet presents other
7 challenges to regulation. It carries everything from
8 text -- in a multitude of languages -- to interactive
9 games, audio programs and video. And this, of course,
10 creates a puzzle for this Commission.
11 10005 Shouldn't a program carried to a
12 viewer on his PC be subject to the same scrutiny as one
13 brought to his television set? Repurposed content,
14 such as the many radio and television programs that
15 currently populate the home pages of Canada's
16 broadcasters, is already caught within the net of
17 regulation under the rules that govern broadcasting.
18 In other proceedings, this Commission must ponder
19 whether or not even this level of regulation is
20 appropriate.
21 10006 However, we do believe that
22 programming uniquely created for the Internet should
23 not be subject to the same regulatory scrutiny as
24 programming designed for broadcast.
25 10007 We believe that Canada's regulatory
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1 regime must keep pace with developments in the
2 marketplace of ideas and services. It must also keep
3 pace with the convergence of technologies. This pace
4 is far more rapid than anything we have experienced in
5 the past.
6 10008 Recent decisions taken by this
7 Commissioner reflect your deep understanding of this
8 imperative. In the face of globalization, you have
9 elected to forebear on many aspects of
10 telecommunications and cable television distribution.
11 The result of this enlightened approach is that
12 Canadians today enjoy and profit from one of the most
13 open communications markets in the world. Consumers
14 benefit from a wider choice of service and price
15 options. And the companies that deliver these services
16 are faster and more innovative than they were when they
17 were burdened by regulation. Over the past decade,
18 this Commission has made many positive advances toward
19 a regulatory regime in keeping with the demands of a
20 global, information-based economy. To regulate the
21 Internet or any other aspect of new media would be a
22 huge step backward on this progressive path.
23 10009 I said earlier that the Internet and
24 new media are as complex as humanity itself. This
25 means, of course, that not every message will be
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1 salutary or useful. Hate infects it as it infects
2 mankind. But anyone who's ever witnessed the speed and
3 ruthlessness with which hate is "flamed" in news groups
4 or chat rooms can be encouraged by the prospect of a
5 new standard of tolerance among net-heads and
6 cyberpunks.
7 10010 Nevertheless, there is offensive
8 content on the Internet and in new media. But Canada
9 has laws that address hate and pornography and those
10 laws are as applicable to new media as they are to
11 traditional media. New regulations uniquely applicable
12 to new media are unnecessary.
13 10011 It is our job in the information and
14 communication technology industry to act responsibly as
15 we develop this dynamic new resource. It is our
16 responsibility to ensure that the solutions and the
17 services we develop protect privacy, respond to the
18 legitimate concerns of individual consumers and user
19 and provide effective avenues for redress. We believe
20 that no one has a greater stake in ensuring that the
21 new public spaces provided by Internet and other new
22 media are hospitable, non-threatening environments for
23 users.
24 10012 We support the call for a voluntary
25 code of conduct expressed by the Canadian Association
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1 of Broadcasters and others. ITAC was a major catalyst
2 in the movement for light-handed privacy legislation
3 and consumer protection. Our experience over the past
4 decade strongly suggests that the best safeguards are
5 those developed by the players themselves.
6 10013 What, then, is the role of
7 government, and this Commission in particular, in the
8 exciting new world of new media? There is a huge job
9 to be done to ensure that this exciting new resource
10 reaches its potential.
11 10014 We believe that there are at least
12 seven actions that must be taken either alone or in
13 association with others to ensure a strong Canadian
14 share of voice in the world of new media.
15 10015 First and foremost, you must forebear
16 from regulation of new media. Instead, we believe you
17 must focus on framework issues such as privacy and
18 consumer protection.
19 10016 Second, you must monitor the
20 marketplace to ensure that what we celebrate as a free
21 and open environment remains that way.
22 10017 Third, access to capital continues to
23 be a huge stumbling block for new media, indeed for
24 most information technology entrepreneurship. This
25 should be your third focus. Public funds, such as
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1 Ontario's recently launched Multimedia Fund and
2 Heritage Canada's Fund, as well as private funds
3 operated by the telephone and cable companies, help.
4 But they would benefit from additional support. We
5 would also benefit from some new thinking. We would
6 suggest that tax incentives, such as those directed at
7 film production, would attract capital to new media.
8 10018 Fourth, government can serve as model
9 users of new media for delivery of government programs
10 and services. They can seize more readily perhaps than
11 the private sector the opportunities that are apparent
12 in new technologies. As model users they can lead the
13 way for the rest of us, improving the efficiency and
14 the effectiveness of service delivery. The federal
15 government has shown leadership in the use of
16 technology to conduct its business. The CRTC, with its
17 informative and up-to-date Internet site, is part of
18 this trend and this role must continue. Introducing
19 and speeding the introductory date of digital TV would
20 be another example of model users.
21 10019 A fifth area for action is developing
22 the skills resource to continue to fuel Canadian
23 innovation in new media. Centres of excellence in new
24 media, such as the Bell Centre at Centennial College,
25 the Rogers Centre at Ryerson, and at Sheridan College
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1 should be supported and emulated throughout Canada.
2 10020 A sixth area for your focus has got
3 to be the international arena. The Canadian government
4 must work to ensure a level playing field and
5 consistency of treatment for new media in all
6 jurisdictions. We want to avoid a situation where the
7 rules in Canada are inconsistent with the rules in
8 Germany. The world of new media is truly a world
9 without borders and our government must continue to
10 carry that message around the globe.
11 10021 And lastly, and above all, the most
12 important role for government is to keep the vision
13 alive. ITAC believes in and supports the vision of a
14 Connected Canada leading and prospering in a global
15 knowledge-based economy. There has been considerable
16 progress toward this goal. We can point to superb
17 initiatives like SchoolNet and the Community Access
18 Program as major advances that have been taken. But
19 there have also been false starts as well. The
20 industry has learned from them and continues to
21 advance. This Commission must continue to champion a
22 more rapid progress toward the realization of the dream
23 of a Connected Canada. Undue regulation of the new
24 media would simply not advance this objective.
25 10022 Thank you, Mr. Chairman.
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1 10023 THE CHAIRPERSON: Thank you, Mr.
2 Duncan, and welcome to our proceeding.
3 10024 When I read your original letter to
4 the Commission in the first round submission, you
5 talked about the Association wants to see this enormous
6 economic contribution enhanced, that being all the
7 activity around us, by "the application of a forward
8 look and policy framework for new media." Would the
9 seven points that you have highlighted at the end of
10 your presentation this morning, is that what you had in
11 mind when you talked about a forward looking policy
12 framework?
13 10025 MR. DUNCAN: They would constitute
14 part of the framework. I think expanding on the first
15 point, focusing on building the framework pieces, the
16 rules for privacy, the rules for consumer protection,
17 focusing on existing legislation and applying it
18 heavily to the new media, whether that's hate or
19 pornography. Those are all pieces of the framework,
20 yes.
21 10026 THE CHAIRPERSON: Maybe in a few
22 minutes then we will go down through those and see what
23 role we can play in this.
24 10027 I guess one of the -- you quoted the
25 comment at the outset of the hearing here and I notice
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1 a lot of the submissions that we received have talked
2 about -- and you have used the phrases in your
3 submission here this morning, unnecessary regulation or
4 the burden of regulation. I guess the Commission is
5 looking at this whole proceeding and this issue from
6 the point of view of trying to understand to what
7 extent some of this content may well be captured by
8 some of our existing rules. But I think we are as much
9 concerned about whether or not the current regulations
10 that we have might either do now or might inhibit the
11 development of the Internet and its content, whether it
12 be electronic commerce or other content and whether
13 that be broadcasting or telecommunications issues.
14 10028 So, I guess I am wondering whether
15 you have a sense of the regulations from that
16 perspective? I know that a lot of people have
17 expressed the concern that there is a considerable
18 amount of uncertainty in the marketplace with respect
19 to the role of the Commission, and I believe you and
20 your members have voiced some particular concern in
21 that regard.
22 10029 I would like to get a bit of an
23 understanding about to what extent you think this
24 uncertainty has been a problem and what we should be
25 doing about that to overcome that problem?
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1 10030 MR. DUNCAN: Uncertainty has affected
2 investment by multinationals in Canada. We have
3 examples and, unfortunately, because they are member
4 specific I can't name them, but we can, if necessary,
5 dig them out for you, of multinationals who have
6 decided not to invest in projects and products in
7 Canada because of the uncertainty.
8 10031 We have been quite specific about the
9 degree of uncertainty. There have been senior public
10 servants and members of this Commission who have in the
11 past voiced wonder as to whether or not the Internet
12 should be regulated. That in and of itself was
13 sufficient to affect investment decisions.
14 10032 The issue of whether or not we
15 believe you are caught within your own rules as to
16 whether you must deem jurisdiction over multi-media,
17 new media, I guess goes back to the foundation of why
18 we started to regulate. We began with the scarce
19 resource. We had to regulate in order to allocate that
20 scarce resource.
21 10033 After we started regulating we began
22 to add additional hooks to the fact that we were
23 already intervening in the market and for just cause
24 regulation of scarce resources was justifiable, and we
25 added Canadian content rules. We didn't start with
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1 Canadian content rules. We ended there.
2 10034 I look at -- sorry, now we are
3 dealing with the issue of should the Internet be
4 regulated and we are starting with Canadian content.
5 We are starting with the content issues. I think we
6 have backed our way into the problem.
7 10035 Part of the difficulty that I believe
8 you face and I believe is faced in the United States is
9 that given the existing forms of regulation, it's
10 easier to solve it by regulating anew. I believe that
11 is contrary to the position that this Commission has
12 taken for the last several years, decade plus, where
13 you have been going into the deregulation mode,
14 recognizing that competition in the marketplace was the
15 appropriate mode of control.
16 10036 THE CHAIRPERSON: I guess it is
17 probably fair to say that originally the Commission,
18 the government, got into the business of regulating
19 broadcasting because of a scarce spectrum, but in more
20 recent times the concern was probably as much an
21 economic one in terms of the question of access of
22 Canadian product, which was referred to several times
23 yesterday here as long-form programming and the
24 economic disincentive for that product to get access to
25 broadcast distribution technologies, whether they be
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1 using scarce resources or not and, in fact, the
2 Broadcasting Act, as you know, was changed in the early
3 nineties to include other forms of technology, whether
4 wire optical or -- and, in fact, I think the Act says
5 "or other technologies".
6 10037 Because of the economic problem
7 facing content creators, Canadian content creators
8 getting access to the distribution because the
9 economics meant it was always cheaper for a purchaser
10 of content to buy American product and put it on. And
11 so, the Parliament of Canada tried to overcome that by
12 making changes to the Broadcasting Act and providing
13 the Commission with the powers to deal with that issue.
14 10038 While it has often been characterized
15 I think as regulating content, it has been more a
16 question of trying to ensure that there is a Canadian
17 presence, whether it be recorded music or long-form
18 programming.
19 10039 I guess part of our concern has been
20 whether or not if you change the delivery technology
21 that economic problem with respect to that sort of
22 programming still exists, or whether by the nature of
23 the new technology you can overcome those problems. I
24 am wondering whether you would have a view on that?
25 10040 MR. DUNCAN: There are two aspects to
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1 the access issue. The first is access by the user and
2 the second is access by the content provider to a
3 distribution channel.
4 10041 In October of this year we
5 commissioned a survey of Canadian adults over the age
6 of 20 in terms of their access to the Internet.
7 Thirty-three point nine per cent of Canadian adults
8 four years after the advent of the Internet now have
9 access to the Internet; 23.8 per cent from their own
10 home.
11 10042 I think what we are seeing on the
12 Internet side is access by the user to this
13 distribution channel is growing faster than any other
14 technology that has ever been introduced in Canada.
15 10043 In terms of access by the content
16 provider, it is a whole new world. Any content
17 provider can put up its own Web page at trivial
18 expense. The cost is the production of the content.
19 That has not gone down. Internet content is as
20 expensive as producing a movie, producing a CD.
21 10044 I don't believe that trying to
22 regulate the distribution mechanism is going to have
23 any impact at all on the cost of producing the content.
24 In fact, if you truly believe that regulating the
25 distribution mechanism is important, and I do believe
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1 your Act says, "and any other distribution medium,"
2 Blockbuster Video should be licensed by you. It's a
3 distribution medium of content and it's heavily
4 American. Why don't you impose a requirement that the
5 first 10 films that you see when you walk into
6 Blockbuster be Canadian? Because you recognize, I
7 believe, that that is not a distribution medium that
8 you want to get into the business of regulating. I say
9 the same thing with regard to the Internet itself.
10 10045 The problem you have posed, which is
11 a very legitimate and I refer to it in my testimony, a
12 very legitimate issue, is how do we produce and promote
13 more Canadian content? That, I believe, is a
14 legitimate issue and should be addressed by government.
15 I believe you should be making recommendations and some
16 of the points I have raised in my seven point action
17 plan address that.
18 10046 I think we need new creative thinking
19 on how we promote Canadian content, but I believe we
20 have moved away from the concept of protecting it.
21 10047 THE CHAIRPERSON: Do you have a sense
22 of whether or not or when the Internet is likely to
23 have the capacity to be able to deliver broadcast-like
24 long-form programming?
25 10048 MR. DUNCAN: The answer again is an
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1 access issue. It can today on the canary backbone. It
2 will, even more so, on CA-Net 3, but that's restricted
3 access. At the moment that's academic institutions,
4 research institutions, et cetera. That is rolling out.
5 10049 Can I put a time frame on it?
6 Probably -- I'm in the midst of a conflict. It's
7 rolling out as fast as the communications carriers can
8 invest in the technology to deliver broadband to the
9 home and not nearly fast enough from the point of view
10 of the new media industry.
11 10050 It's a market pressure. The new
12 media industries need that broadband into the home and
13 the carriers have capital cost issues in terms of the
14 rate at which they roll it out.
15 10051 I think the move towards competition,
16 towards allowing all carriers to do that last loop is
17 going to speed up the rate at which it gets adopted.
18 Do I believe it's in the next three to five years to
19 get to 50 per cent of Canadian homes? No, I don't. Do
20 I believe it's more than 10? No.
21 10052 THE CHAIRPERSON: So somewhere in the
22 five to 10 year time range.
23 10053 Getting back to this uncertainty
24 question and around this broadcasting question. You
25 mentioned the video stores and we don't get involved
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1 with the video stores because it doesn't form a means
2 of telecommunications in the delivery.
3 10054 I guess one of the issues that has
4 been raised in the proceeding is whether or not -- not
5 so much whether or not we want to go out and grab this
6 from a regulatory grab point of view, but whether or
7 not with the current definition of program or
8 broadcasting some of the material that is carried or
9 might be carried over the Internet would be captured by
10 the current definition. I am wondering whether you
11 have any thoughts on that with respect to this
12 uncertainty question and what the Commission could
13 specifically do to clarify that?
14 10055 I am mindful in asking this question
15 of a former life, that we worked together in commenting
16 on early stages of this Broadcasting Act when you and I
17 both worked for the Government of Nova Scotia, so you
18 are not unfamiliar with this.
19 10056 MR. DUNCAN: The preferred conclusion
20 of this hearing would be that you do not -- or this
21 technology does not fall under the wording of the Act.
22 That would be a very clear, strong signal.
23 10057 The wording in my testimony was,
24 well, if perchance technically some of the product does
25 fall under the Act, that you immediately forebear and
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1 announce that that is your intention. That will send a
2 second signal, not as good, but a better signal than
3 the one that is out there now which is unclear.
4 10058 I think we are caught in -- Mr.
5 Paterson I think used some good language. We are
6 caught in definitions from the old technology and we
7 are trying to move them to the new technology. It's
8 time for a mind warp. New media delivered over the
9 Internet is not broadcasting. It's a different animal.
10 10059 THE CHAIRPERSON: I guess some of the
11 concern that was raised yesterday is the concern that
12 old media delivered over the Internet may be broadcast.
13 10060 MR. DUNCAN: But, as I said in my
14 testimony, the old media, if that is a program that has
15 been produced and is now put up on the Web page, has
16 already been regulated.
17 10061 THE CHAIRPERSON: If it's being
18 delivered by an existing licensed broadcaster.
19 10062 MR. DUNCAN: If it has been
20 broadcast.
21 10063 THE CHAIRPERSON: Yes.
22 10064 MR. DUNCAN: If it's CBC that
23 broadcasts -- does CBC do Canada A.M.? CTV does Canada
24 A.M. -- I'm sorry if they are in the audience. If CTV
25 broadcasts Canada A.M. and then puts that show up on
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1 its Web page, it has already been regulated. Don't
2 regulate twice.
3 10065 THE CHAIRPERSON: I guess the issue
4 is that if you were able to do Canada A.M. without
5 broadcasting it, just doing it on the Internet pipe is
6 that still broadcasting?
7 10066 MR. DUNCAN: A new way.
8 10067 THE CHAIRPERSON: And I think that is
9 what some of the parties were raising yesterday, and if
10 the definition then captures that, but that for
11 economic or other reasons there is no need to regulate
12 it, how do we treat the definitions in terms of
13 resolving this uncertainty problem and saying even
14 though it might be captured by the definition, we could
15 provide this interpretation.
16 10068 You mentioned the term "forebear".
17 We have the power to forebear on the Telecom Act and i
18 the Broadcasting Act we have the power to examine.
19 Some parties have suggested -- or the power to exempt,
20 but some parties have suggested that that wouldn't
21 necessarily relieve this uncertainty because you can
22 always lift that power in any event.
23 10069 MR. DUNCAN: I'm sorry, I made the
24 point, fall outside the Act is the strongest possible
25 signal you can send. Forebear and exempt is good,
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1 better than what we have today, but not as good as
2 saying it's your conclusion that it's outside the Act.
3 10070 I think we have to go back -- in
4 terms of your first point, we have to go back and
5 reconceive what a broadcaster is. We entered the
6 concept of broadcasting from the distribution point of
7 view. Broadcasters are really producers and buyers.
8 They are not distributors.
9 10071 They are today, over the airwaves and
10 down the cable channel, but that's not where they are
11 evolving to. If I was to look at CBC and link it to 10
12 years from now on the Internet, I don't know whether we
13 would have an engineering side to CBC, a distribution
14 side to CBC or the debt problems that we have with CBC.
15 10072 I do believe we would have a content
16 producer and buyer.
17 10073 THE CHAIRPERSON: Switching over to
18 the telecom side for a minute or two, as I indicated
19 and Commissioner Grauer did with Mr. Paterson earlier,
20 and the issue came up last week from a number of ISPs
21 about this question of getting access to high speed
22 broadband capability, do you have a view on that
23 question about whether or not we should be using some
24 of the powers under the Telecommunications Act?
25 10074 Telus last Friday suggested we should
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1 initiate a proceeding following this one to take a look
2 at that whole issue of how we could best ensure the
3 development -- I'm paraphrasing what they said and I
4 apologize if I am not quite capturing it correctly, but
5 to take a look at the whole question of high-speed
6 access and what we could do perhaps to encourage a
7 faster roll-out, by allowing for perhaps, and these are
8 my words, greater competition between the ISPs perhaps
9 and the cable companies and the telephone companies.
10 10075 MR. DUNCAN: I have a strong urge to
11 fall back into my prior role. Why is there a problem,
12 Mr. Chairman?
13 10076 THE CHAIRPERSON: I'm sorry, why is
14 there a problem?
15 10077 MR. DUNCAN: Why is there a problem
16 with the ISPs?
17 10078 THE CHAIRPERSON: Well, they claim
18 there is a problem in their inability to get access to
19 infrastructure, perhaps co-locate some of their
20 equipment in central offices of the telephone
21 companies, and again I am paraphrasing their position I
22 guess. Largely they are seen as customers of the phone
23 companies, rather than, shall we say, co-carriers, more
24 as partners I suppose in developing this infrastructure
25 in this country.
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1 10079 MR. DUNCAN: Co-carrier -- words like
2 "co-carriers," "partners" and whatnot are market words.
3 They are not regulatory words. If they haven't put
4 forward the appropriate business case, why would we
5 turn to regulation to force something? And if they
6 have a good business case, then why are the existing
7 carriers not responding?
8 10080 THE CHAIRPERSON: Well, I guess the
9 issue would be is this not unlike the situation of
10 either the interchange carriers or the local collects
11 getting access to the bottleneck facilities in order to
12 be able to compete and provide service?
13 10081 MR. DUNCAN: And there are regulatory
14 reasons why they can't get access?
15 1005
16 10082 THE CHAIRPERSON: They are suggesting
17 there are.
18 10083 MR. DUNCAN: Then let's deregulate
19 that part.
20 10084 THE CHAIRPERSON: Let's deregulate
21 it?
22 10085 MR. DUNCAN: Yes. Let's let two
23 companies come together with a business case and
24 provide a unique new service.
25 10086 THE CHAIRPERSON: Do you think if we
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1 deregulated the business the telephone companies would
2 provide that access?
3 10087 MR. DUNCAN: I didn't say the
4 telephone companies. The providers will. You have
5 multiple companies out there now.
6 10088 THE CHAIRPERSON: I'm sorry. Who are
7 the multiple companies?
8 10089 MR. DUNCAN: We have cable. We have
9 telephone. We have wireless. We have electricity
10 which is now carrying signals. Technologically, we
11 don't have an issue here. We have market players that
12 are doing weird things, but that's also true in some of
13 the regulated areas.
14 10090 THE CHAIRPERSON: So your view would
15 be that there is already enough competition in the
16 marketplace through having cable and the telephone
17 companies, LMCS, MMDS, satellite, that the ISPs should
18 simply present their business case to those various
19 players and there is no need to take any regulatory
20 action to ensure that they would have the sort of
21 access, say comparable access that we have ordered for
22 the CLECs to provide competition to local telephone
23 service.
24 10091 MR. DUNCAN: We walk down a long and
25 dangerous road, Mr. Chairman. I believe the framework
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1 is there.
2 10092 Do I believe it's happening in the
3 market yet? No. It's starting. I understand the
4 frustration from the ISPs, but do I believe you have
5 produced a framework in which competition will begin
6 and it has begun, is changing the market behaviour, is
7 changing the availability of services to individuals.
8 Yes, I do.
9 10093 THE CHAIRPERSON: So it's your view
10 that the existing framework is enough to accommodate
11 the concerns of the ISPs.
12 10094 MR. DUNCAN: I don't think I feel
13 comfortable saying that there isn't a technical issue
14 in the existing regulations that should be addressed,
15 but it should be addressed in the framework of we are
16 deregulating and we are letting market forces take
17 over, totally contrary to the entire discussion on
18 moving in to regulate the Internet.
19 10095 THE CHAIRPERSON: When you use the
20 term deregulation, because it was used last week by Ms
21 Langford from IBM, and we had a bit of a discussion
22 about that. She was using the term deregulation, I
23 think, when she was meaning we should create more
24 competition. We should take whatever steps we might
25 need in terms of taking a look a look at our regulation
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1 of communications in order to encourage more
2 competition.
3 10096 Are you using the term deregulation
4 in that sense?
5 10097 MR. DUNCAN: Well --
6 10098 THE CHAIRPERSON: Deregulation is
7 often used in that sense. Deregulation and
8 competition, those terms are often used synonymously
9 when I view them as being different.
10 10099 MR. DUNCAN: Yes. I'm having trouble
11 with the question. Deregulation simply says that there
12 will be less government intervention in market forces.
13 Market forces does not necessarily guarantee there will
14 be more competition.
15 10100 THE CHAIRPERSON: Exactly.
16 10101 MR. DUNCAN: It creates an
17 environment. I do believe that we are seeing the
18 environment where more competition is coming in where
19 you have been deregulating, but they are not
20 synonymous, no.
21 10102 THE CHAIRPERSON: Right. We have
22 taken the steps to put in place a framework that will
23 provide for competition.
24 10103 MR. DUNCAN: It allows for, but does
25 not guarantee.
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1 10104 THE CHAIRPERSON: Exactly.
2 10105 MR. DUNCAN: That's correct.
3 10106 THE CHAIRPERSON: Here's where I draw
4 the distinction between competition and deregulation.
5 I see putting in place that framework as being a
6 pro-competition policy.
7 10107 Somewhere down the road when we are
8 satisfied that the former monopolist has satisfied the
9 parameters for deregulation, we would then foreborn
10 from regulating tariffs of the former monopolist.
11 That's deregulation.
12 10108 MR. DUNCAN: I agree with that point.
13 Unnatural market behaviour is captured under other
14 legislation. The fact that you have deregulated does
15 not mean there may not be unnatural market behaviour.
16 10109 THE CHAIRPERSON: Right. If we look
17 at the seven components of the framework you have put
18 forward, seven actions that must be taken either alone
19 or in association with others to ensure a strong
20 Canadian share of voice in the world of new media, you
21 talk about first and foremost you must forebear from
22 regulation of new media.
23 10110 We have talked about this issue of
24 clarifying the uncertainty around the definition of
25 broadcasting and whether or not some of the activity on
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1 the Internet may be captured by existing framework. I
2 appreciate your position on that. You may want to
3 think about what particular action that we could be
4 taking when you prepare your final argument for this
5 proceeding.
6 10111 When you go on to say you must focus
7 on a framework of issues such as privacy and consumer
8 protection, were there particular issues that you
9 thought that the Commission should undertake in this
10 respect?
11 10112 MR. DUNCAN: No. I was hoping that
12 you would recommend in your final decision. There are
13 other actors who have true jurisdiction there. Justice
14 clearly on privacy, Industry Canada on consumer
15 protection.
16 10113 You are in the unique position right
17 now of being the only game in town. You have an
18 opportunity to express a view of how this should evolve
19 that includes actors other than the Commission. That
20 was why we supported this hearing from the very
21 beginning.
22 10114 THE CHAIRPERSON: We know there are a
23 number of actions that are already under way with
24 respect to this. I think Industry Canada -- I don't
25 know whether there's is seven point, but I think it's
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1 in that sort of range --
2 10115 MR. DUNCAN: Five.
3 10116 THE CHAIRPERSON: -- of initiatives
4 that they have undertaken with respect to privacy and
5 encryption and so on. I presume you are reasonably
6 satisfied with what's happening there with respect to
7 those issues.
8 10117 MR. DUNCAN: I will refer to an
9 article in yesterday's National Post where I responded
10 to a release by President Clinton and Vice-President
11 Gore to a new series of actions in the United States
12 dealing with e-commerce. I said, and it was quoted so
13 I will stand behind it:
14 "Welcome to the world, Mr.
15 Clinton. Canada has been there
16 for the last two years. We are
17 very supportive of the existing
18 framework that is coming out of
19 Industry Canada under Minister
20 Manley in the e-commerce
21 strategy, the connectedness
22 strategy."
23 10118 Yes.
24 10119 THE CHAIRPERSON: The second point.
25 You have said:
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1 "You --"
2 10120 I presume the CRTC.
3 "-- must monitor the marketplace
4 to ensure that we celebrate as a
5 free and open environment, that
6 what we celebrate remains that
7 way."
8 10121 Did you have something in particular
9 in mind here in terms of what we would be monitoring?
10 10122 MR. DUNCAN: Yes, I did. I believe
11 that this hearing has resulted in a significant
12 learning experience, not only for the Commissioners,
13 for the staff, but even for those of us who have been
14 testifying.
15 10123 There is a highly enhanced awareness
16 of what the current state of new media and Internet is.
17 I don't believe that that is something that should
18 happen at another hearing two years from now. I
19 believe that's something that should be an active part
20 of the daily life of all of the players.
21 10124 We must continue to be part of this
22 new media so that we understand how it changes, so that
23 we don't have a requirement to create a new forum to
24 start really from scratch.
25 10125 Looking for abuses, playing the role
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1 of monitor in terms of content, stimulating reaction by
2 other government agencies when the wrong kinds of
3 content appear, using the existing legislation that is
4 available to them. These are all, I think, very
5 legitimate roles for the Commission.
6 10126 THE CHAIRPERSON: One of the issues
7 that I don't think you have covered off here is the
8 whole question of rights with respect to content
9 creators.
10 10127 What's your view in terms of the
11 activity that has been under way dealing with those
12 issues? A lot of the parties that were here yesterday
13 were expressing concerns about whether or not their
14 property is going to be protected from a rights point
15 of view if it is used on the Internet.
16 10128 MR. DUNCAN: Would you like an eight
17 point plan instead of a seven point plan?
18 10129 We do have a position on the existing
19 copyright issues and the need to amend the Canadian
20 legislation to at least move up to the state of the
21 international agreements that we signed a year and a
22 half ago that dealt with databases.
23 10130 I think we have an additional new
24 challenge on how we protect copyright on the Internet.
25 I don't have a solution yet. I guess the one position
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1 we have taken is we are opposed to the concepts like a
2 bit tax to go into a copyright collective. That's not
3 just not an approach that we favour.
4 10131 I do admit there are increasingly
5 more complex and difficult copyright issues on the
6 Internet than there have been in all prior
7 technologies. Cut and paste is two buttons. At least
8 in the past we had to walk over to the Xerox machine
9 and turn the pages.
10 10132 The concept of copyright in finding
11 tools, including the collectives' approach to protect
12 it, we are highly supportive of that. We are just not
13 supportive of a broad based tax everything that goes by
14 approach. I didn't help you with that answer.
15 10133 THE CHAIRPERSON: Well, I guess we
16 have said on a number of occasions that copyright
17 doesn't fall squarely within our jurisdiction, although
18 as some parties have suggested kind of indirectly the
19 way we have dealt with broadcasting issues has
20 indirectly dealt with a number of issues.
21 10134 As has been pointed out to us, those
22 copyright issues are being addressed in another forum
23 in the government.
24 10135 MR. DUNCAN: Not fast enough. If I
25 was to ask you to make any statement on copyright, it
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1 would be that we speed up. The government by its own
2 admission has dealt with all modernizing copyright
3 issues except new technology. Well, it's time. The
4 new technology is here.
5 10136 THE CHAIRPERSON: The next few of
6 your suggestions are pretty clear. The sixth area you
7 talked about was the international arena. I'm
8 wondering what particular role you would see for this
9 Commission in the international arena in this respect.
10 10137 MR. DUNCAN: This Commission is
11 already active in taking the lessons it has learned and
12 the experience that it has had into the international
13 arena and talking to other jurisdictions that are
14 wrestling with how do you regulate both telecom and
15 broadcasting. That should continue.
16 10138 More importantly, the belief that
17 there should be a common open system at the core of
18 running and living in the Canadian new technology, that
19 belief should be spread into other jurisdictions.
20 10139 Whether that is consistency in
21 consumer protection, consistency in the treatment of
22 personal information, consistency in the access to the
23 technology, the messages are all the messages that we
24 are delivering here in Canada, but I believe should be
25 delivered and negotiated, if necessary, through
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1 international agreements internationally.
2 10140 THE CHAIRPERSON: Finally, you have
3 said that the Commission must continue to champion a
4 more rapid progress toward the realization of a dream
5 of a connected Canada.
6 10141 Is there anything beyond what we have
7 talked about here that we should be doing in that
8 respect?
9 10142 MR. DUNCAN: I think Minister Manley
10 has raised the bar. He has taken this vision, taken a
11 technical type discussion and converted it into a
12 social policy vision, an economic policy vision and he
13 has taken it to the general public.
14 10143 This Commission is not generally
15 known for talking to the general public. It's known
16 for talking to its licensees, to the government. Yes,
17 I do believe this implies an additional step for the
18 Commission.
19 10144 I believe it means going out in a far
20 more public proactive way in talking about why the
21 decisions you have taken technically have an impact on
22 my life, both economically and socially.
23 10145 THE CHAIRPERSON: I think we have
24 started to recognize that problem with the vision
25 exercise we went through about a year ago. I take your
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1 point. I think we have recognized that we have to do a
2 better job of that than we traditionally have.
3 10146 MR. DUNCAN: You have a wealth of
4 information, a wealth of experience, a view of how this
5 piece of our life which is becoming a critical point of
6 the Canadian economy, is evolving and how it can
7 evolve. Please deliver the message.
8 10147 THE CHAIRPERSON: Last point. What
9 about statistics? Commissioner Grauer raised the issue
10 with Mr. Paterson about this study that was referenced
11 to us. In fact, I think it was Ms Langford who raised
12 the issue last week about this study that the Boston
13 group has done.
14 10148 Canada's numbers weren't included in
15 that because our e-commerce numbers were so small that
16 we didn't show up on the radar screen.
17 10149 You on the other hand have provided
18 us with some numbers here this morning in your oral
19 presentation which suggest that we are 5.3 per cent,
20 more than double Canada's share of the GDP in terms of
21 global commerce on the Internet, I guess, the number
22 is.
23 10150 Is there a problem, particularly
24 given the newness of this business in terms of our
25 ability to get meaningful statistics so that one could
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1 then know where we stand and whether or not there are
2 problems inhibiting the development and where one might
3 take the look at focusing on resolving those problems?
4 10151 MR. DUNCAN: The absolute simple
5 answer is yes. We do have statistics. I'm sorry the
6 Boston group was referenced because they did not do an
7 analysis of Canadian numbers.
8 10152 IDC, International Data Corps, does.
9 I would be happy to provide you with additional
10 statistics to give you a feel for what's going on in
11 the market. This is activities by Canadian adults in
12 the months of August and September of this year, very
13 recent data.
14 10153 The number one piece of e-commerce
15 that we did not survey is the use of the Internet for
16 sex, pornography. The next two largest items are
17 hardware and software and related products.
18 10154 The next, and it should be of great
19 interest to this Commission, after the top three, is
20 fundamentally music. It's actually listed under music,
21 games and movies, but when you break it down, it's
22 fundamentally music.
23 10155 In the months of August and
24 September, 150,000 Canadian adults purchased music over
25 the Internet. The next largest, which was 100,000
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1 Canadian adults, purchased non-IT related publications.
2 The usual quote here is amazon.com. The next go
3 figure, the next, 90,000 Canadians in the months of
4 August and September purchased clothing.
5 10156 None of us when we forecasted what
6 would happen on the Intenet had clothing ranked as
7 number five. It wasn't on the horizon. That's true
8 because in the months of August and September a year
9 ago, about 5,000 Canadians purchased clothing, so from
10 5,000 to 90,000 in one year.
11 10157 We do have statistics on the Canadian
12 market, but we getting them by doing surveys. Again,
13 if you can make a statement in your final report,
14 Statistics Canada is not providing us with this kind of
15 information.
16 10158 It's the only piece of the economy
17 where industry has to go out and survey to find out
18 what's going on and then come back and tell government.
19 10159 THE CHAIRPERSON: A couple of points.
20 The numbers that you have just given us, are they out
21 of this study that you referenced this morning?
22 10160 MR. DUNCAN: They are, and I would be
23 happy to --
24 10161 THE CHAIRPERSON: Could you file
25 those for the record?
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1 10162 MR. DUNCAN: I will file. This is of
2 the Internet Growth and Security, A Joint Briefing by
3 ITAC and IDC Canada.
4 10163 THE CHAIRPERSON: Okay. Let me throw
5 the ball to you then. When you file your final
6 comments on this, if there are particular statistics or
7 a particular aspect of this that you think should be
8 focused on rather than just kind of a blanket statement
9 that Statistics Canada should do a better job in
10 arriving at these numbers, that might be helpful as
11 well.
12 10164 Commissioner Grauer.
13 10165 COMMISSIONER GRAUER: Thank you.
14 10166 I just have one follow-up question on
15 this discussion on e-commerce. I am trying to
16 reconcile these different reports.
17 10167 I read the Globe and Mail report this
18 morning, the OECD report on Canada, which cited
19 Canadians lagging in the adoption of new technologies.
20 It didn't give any detail. I have no idea what the
21 substance of the report is.
22 10168 I am just wondering for our purposes
23 as we move forward if there isn't some comparative data
24 that would be useful in some of these areas of
25 e-commerce. You have given us some of the real
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1 numbers.
2 10169 I think the questioning is not to
3 suggest that there is anything missing in the
4 government's agenda, but if in fact we are
5 proportionately lagging some other countries, maybe
6 there are some things we can be looking at in terms of
7 prescriptions that aren't already under way. Do you
8 have any comment?
9 10170 MR. DUNCAN: I have not read this
10 morning's Globe. I was busy reading my testimony for
11 you.
12 10171 COMMISSIONER GRAUER: I understand.
13 I was preparing as well.
14 10172 MR. DUNCAN: I am puzzled by the
15 reference to the lagging adoption of technology.
16 10173 Canada is by all measures considered
17 an early adopter of technology and I would be happy to
18 try and find the various studies that have shown that
19 in terms of credit card, ATM, debit card, telephone, et
20 cetera. I don't think the issue here is adoption of
21 technology.
22 10174 There is a concern over productivity.
23 That's a real problem because we are still measuring
24 productivity under the total factor of productivity
25 measures that really were very appropriate in a bricks
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1 and mortar and primary industries economy, but don't
2 seem to take into account any of the knowledge-based
3 economy issues.
4 10175 ITAC is worried about that. We are
5 talking internationally about how we find new measures
6 that will allow us to gauge our economic performance
7 against those of our new competitors as well as our old
8 competitors.
9 10176 I didn't answer the rest of what you
10 said.
11 10177 COMMISSIONER GRAUER: I guess it's
12 just whether or not there is comparative data between
13 Canada and the U.S.. I don't know if it's there.
14 10178 MR. DUNCAN: Okay. There is
15 comparative data. We will table the study done by
16 WITSA, World Information Technology Services
17 Association. That showed numbers in terms of gross
18 expenditure.
19 10179 On that basis, Canada fairly
20 consistently ranked seventh in the world. However,
21 that's the size of our economy so that's kind of where
22 we should rank. WITSA is currently adjusting that
23 report to include per capita ratios
24 10180 When you switch to per capita, we
25 generally rank about third in the world. If, for
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1 example, you take total expenditures on information and
2 communications technologies in the economy, we are
3 seventh. Per capita we are third behind the United
4 States and Japan. Yes, we will get some of that
5 comparative information for you.
6 10181 The concern that we have at the
7 moment, and it's early to get on a soapbox and talk
8 about it but it's not too early to start seriously
9 thinking about it, the trend is that our standing on a
10 per capita basis is declining. It's tending down, not
11 up. Early signals say that we may actually have a
12 problem, but at the moment no, we are ranked generally
13 about third in penetration rates and usage rates and
14 what not.
15 10182 We will get some of those statistics
16 for you.
17 10183 COMMISSIONER GRAUER: Thank you very
18 much.
19 10184 THE CHAIRPERSON: Commissioner
20 Pennefather.
21 10185 COMMISSIONER PENNEFATHER: Thanks.
22 10186 I just wanted to clarify a couple of
23 things. The list of uses of the Internet that you read
24 to us, those were transactions? In other words, is
25 that an activity that using the Internet to purchase?
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1 10187 MR. DUNCAN: That's correct. These
2 were purchases in the months of August and September by
3 Canadian adults.
4 10188 COMMISSIONER PENNEFATHER: So the
5 music reference was to the purchase of a disc or
6 record, not listening to the music.
7 10189 MR. DUNCAN: That's correct, but I
8 don't know that level of detail. If there was the
9 ability to purchase a soft copy, that would have been
10 included as well, but that was not listening. These
11 were actual purchases.
12 10190 COMMISSIONER PENNEFATHER: My other
13 question was in your written submission, you refer to
14 Canadian cultural materials on the Internet. What did
15 you mean by cultural materials? It is in reference to
16 the proliferation and success of Canadian cultural
17 materials of considerable importance to the culture
18 halls of Canada and the contribution. You go on, as
19 you did this morning, to talk about the best way to
20 promote this material.
21 10191 I am just curious what you meant by
22 cultural material.
23 10192 MR. DUNCAN: All forms of Canadian
24 content. It includes access to the library, the
25 museum, to books, to literature, to music to what we
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1 will be getting, versions of live theatre, this.
2 10193 COMMISSIONER PENNEFATHER: Right.
3 10194 MR. DUNCAN: This. Well, this is
4 live theatre. I would rank it also as entertainment. I
5 don't think you come under music, games and movies.
6 10195 COMMISSIONER PENNEFATHER: Thank you
7 very much for those clarifications.
8 10196 MR. DUNCAN: Okay.
9 10197 THE CHAIRPERSON: Counsel Pinsky.
10 10198 MS PINSKY: Thank you, Mr. Chairman.
11 10199 As part of the framework that you
12 have proposed that government adopt, you have indicated
13 that you considered that the CRTC and/or various
14 government departments should focus on framework issues
15 such as privacy and consumer protection.
16 10200 Do you have any particular consumer
17 protection issues that you consider ought to be
18 addressed?
19 10201 MR. DUNCAN: Yes. It's a
20 jurisdictional issue. It's currently a hot debate.
21 10202 On the Internet, if I purchase a
22 product -- let's pick from Cuba just to be difficult --
23 do the consumer protection laws of Cuba or of Canada
24 apply? What are my rights of redress and what if the
25 product never arrives? That's a framework issue.
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1 10203 There are arguments saying that
2 Canadian consumer protection laws should apply. That
3 causes huge issues with the vendors. There are
4 arguments that the Cuban laws should apply and that
5 causes equally huge issues with regard to consumers.
6 10204 I don't have a solution. I do
7 believe internationally we have to negotiate and find a
8 solution.
9 10205 The other day I suggested that since
10 I am likely to be paying for that purchase with my
11 credit card, why don't we just foist the problem on to
12 the bank. Not unreasonable.
13 10206 Livent went under the other day.
14 There was a lovely large headline that said "If you had
15 purchased your tickets directly from Livent or
16 TicketMaster or anywhere else with cash, you were out
17 of luck, but if you purchased with Visa or MasterCard,
18 you got your money back".
19 10207 It seems to me that's a model for
20 saying the consumer protection issue really is a matter
21 between me and my credit card issuer and it's up to the
22 credit card issuer to figure out what jurisdiction it
23 rests with vis-à-vis the supplier.
24 10208 It's not an unreasonable idea. It's
25 a little radical, but they have got deeper pockets than
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1 I do.
2 10209 MS PINSKY: Thank you.
3 10210 When will you be in a position to
4 file each of the IDC stats and the WITSA stats?
5 10211 MR. DUNCAN: The WITSA study we can
6 deliver today. The other statistics, please give me
7 some time. We will have to go back and do some
8 digging.
9 10212 MS PINSKY: I think the Independent
10 Data Corps.
11 10213 MR. DUNCAN: That's tendered.
12 10214 MS PINSKY: You have them with you.
13 Okay. No problem today. Thank you.
14 10215 The other ones you can perhaps
15 indicate to us a specific date when you would intend
16 them to file them so for the public record other
17 parties will know.
18 10216 MR. DUNCAN: Okay.
19 10217 MS PINSKY: Thank you.
20 10218 THE CHAIRPERSON: Thank you, counsel.
21 10219 Thank you very much, Mr. Duncan. We
22 appreciate your presence here today.
23 10220 MR. DUNCAN: My pleasure.
24 10221 THE CHAIRPERSON: We will take our
25 morning break now and reconvene at a quarter to eleven.
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1 --- Short recess at 1034 / Courte suspension à 1034
2 --- Upon resuming at 1050 / Reprise à 1050
3 10222 THE CHAIRPERSON: We will return to
4 our proceeding now.
5 10223 Madam Secretary, the next party.
6 10224 MS BÉNARD: Thank you, Mr. Chairman.
7 10225 The next presentation will be by the
8 Internet Advertising Bureau of Canada, l'bureau de la
9 publicite internet.
10 PRESENTATION / PRÉSENTATION
11 10226 MR. BOYD: Good morning.
12 10227 Mr. Chairperson, members of the
13 Commission, my name is Ted Boyd and I am the Vice-Chair
14 of the Internet Advertising Bureau of Canada. In
15 addition, I am the VP Director of New Media
16 Technologies at Young & Rubicam. On behalf of the
17 members of IAB Canada, thank you for the opportunity to
18 appear before you today. On my left is Gary Anderson,
19 General Manager, Internet Business Development at
20 Medialinx Interactive, and on my right is Graham Duffy,
21 President of CANOE. Both Gary and Graham are IAB
22 Canada Directors.
23 10228 Let me begin by introducing IAB
24 Canada. We are a non-profit volunteer organization,
25 comprised of advertisers, agencies and Internet
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1 publishers. IAB Canada is the national advocate for
2 marketing and advertising on the Internet. We also
3 aspire to bring structure and standards to the on-line
4 advertising industry in Canada. To this end, IAB
5 Canada is the only body in Canada that has taken upon
6 itself the task of researching the Canadian on-line
7 advertising industry. For the purpose of these
8 hearings, the views of IAB Canada are significant in
9 that they reflect shared opinions of a wide range of
10 stakeholders who frequently share differing views on
11 many other subjects. This agreement stems from a
12 common recognition of the needs of on-line advertising
13 and the benefits it offers Canadian new media.
14 10229 Before proceeding further, it is
15 important to first describe what IAB Canada understands
16 new media to mean for purposes of this presentation.
17 First, IAB Canada is only addressing the issue of
18 regulation of the Internet and is not to be taken to
19 have made any comments regarding new media content that
20 may be delivered by some other delivery mechanism such
21 as CD-ROM or DVD-ROM.
22 10230 Second, IAB Canada notes that the
23 development of the Internet results from the union of
24 two distinct sectors. The first, new media
25 infrastructure, consists of the routers, protocols and
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1 transmission paths that make up the Internet. In other
2 words, it is the roadways and traffic signals that make
3 up the information highway.
4 10231 The second, new media content and
5 services, consists of the video, audio, graphic and
6 textual content that is carried over the new media
7 infrastructure. Using that familiar information
8 highway analogy again, it comprises the vehicles that
9 travel on the highway. For purposes of these
10 proceedings, IAB Canada takes no position on the
11 regulation of new media infrastructure and my comments
12 here today should be understood to apply only to new
13 media content and services.
14 10232 Given this focus, IAB Canada observes
15 that new media and on-line advertising are
16 demonstrating a mutually supporting relationship. As
17 the Internet grows it attracts an increasing number of
18 advertisers. As advertising revenue is injected,
19 further growth of the Internet is encouraged. IAB
20 Canada's latest research indicates that Web-based
21 advertising revenues in Canada continue to double from
22 $9.5 million in 1997 to $8.0 million in just the first
23 half of 1998. This growth is forecast to continue with
24 revenues expected to total $20.7 million in 1998 and
25 $37.7 million in 1999. Notably, this advertising is
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1 not being driven primarily by computer-related goods
2 and services. Traditional consumer goods and services
3 companies are being drawn to this new medium, with
4 companies from the financial services sector
5 contributing the most.
6 10233 I would like now to address the area
7 of regulation of new media in general. To appreciate
8 IAB Canada's position on regulation, it will be useful
9 to examine, in a very crude way, advertising dynamics
10 and Internet economic reality. At its most basic,
11 advertising dollars will be spent where the message of
12 the advertiser can be communicated the most effectively
13 to the greatest number of people at the most reasonable
14 cost. Therefore, as more people go on-line and as
15 technical improvements permit more creativity in the
16 crafting of messages, more and more advertisers are
17 being drawn to the Internet.
18 10234 Perhaps not unexpectedly, the sites
19 that attract the greatest number of visitors are also
20 attracting the greatest amount of on-line advertising
21 revenue.
22 10235 With respect to Internet economics,
23 as others have described and will describe in greater
24 detail, there are only a few ways to generate revenues
25 over the Internet; subscription, pay per use,
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1 e-commerce transactions, sponsorship and advertising.
2 Very few commercial Web sites are able to operate
3 successfully without the assistance of advertising.
4 Any that seek to offer universal access to their site,
5 other than purely transactional sites, must have
6 advertising or sponsorship to be commercially viable.
7 That suggests that the healthy and competitive growth
8 of Canadian new media is inextricably linked to a
9 healthy and competitive on-line advertising industry.
10 10236 Now, let's consider the potential
11 impact of regulation on this dynamic relationship. As
12 many others in these proceedings have observed, the
13 Internet is indeed a global medium. It is not
14 technically possible to restrict Canadians from
15 accessing content that originates elsewhere. It is
16 also not possible to keep content developers from
17 moving their operations to other jurisdictions or to
18 require service providers that cater to Canadians to be
19 based in Canada. In addition, other jurisdictions,
20 most notably the United States, have taken a regulatory
21 hands off approach to the Internet.
22 10237 As a result, the imposition of
23 regulation in Canada that adds costs or administrative
24 burdens or that causes delays in implementing business
25 strategies will encourage content developers or
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1 distributors to establish operations elsewhere, most
2 likely in the United States. If this content is
3 available from the United States, then Canadians will
4 visit these American sites to locate the content they
5 seek. The more that Canadians visit these sites, the
6 more attractive they will become to Canadian
7 advertisers.
8 10238 As a result, Canadian advertising
9 dollars will flow out of the country along with the
10 content and distributors, making it difficult for
11 remaining Canadian sites to attract the necessary
12 revenues to operate. Even in the existing environment,
13 almost 70 per cent of participants in IAB Canada's
14 Internet Advertising Survey are aware that Canadian
15 advertising dollars are being spent in the United
16 States.
17 10239 I don't wish to be seen as
18 overstating the case. Even in light of regulation,
19 some companies will, of course, choose to remain in
20 Canada and, presumably, some will develop content that
21 is sufficiently attractive that Canadians will visit
22 and thereby attract some of the advertising budgets of
23 Canadians advertisers. But this is not enough. I
24 believe all of us participating in these proceedings,
25 including the Commission itself, are interested in the
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1 development of a thriving Canadian new media industry
2 that materially contributes to the economic and social
3 fabric of the country. IAB Canada, and clearly many
4 others in these proceedings, believe that this cannot
5 happen if the regulatory environment actively
6 encourages industry participants to operate elsewhere.
7 10240 Accordingly, IAB Canada endorses the
8 position that the CRTC not regulate the Internet.
9 10241 I would now like to take a moment to
10 address the potential introduction of new regulations
11 on Internet advertising in particular. However, rather
12 than explore the negative economic impacts of this,
13 which are similar to those just discussed, I would like
14 to turn this issue on its head. Rather than ask "why
15 not regulate?", IAB Canada suggests that the proper
16 question is "why regulate?"
17 10242 Regulation should, of course, be
18 designed to address some perceived problem or abuse.
19 To the knowledge of IAB Canada, nothing has been
20 introduced in these proceedings to suggest there are
21 any issues that cannot be addressed within the present
22 framework. Existing legislation, such as the
23 Competition Act and the Trade-Marks Act, offer
24 comprehensive regimes that are directly applicable to
25 the Internet.
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1 10243 In addition, the advertising industry
2 has been very effective in self-regulation and will
3 continue to be so. Codes of conduct, complaint systems
4 and accepted dispute resolution mechanisms have been
5 developed by the advertising industry and function very
6 effectively.
7 10244 As one example of the industry itself
8 addressing important issues, IAB Canada is working with
9 the industry to develop standardized measurement
10 criteria to ensure that ad performance can be
11 adequately analyzed and compared. This will make it
12 far easier to advertisers to justify Internet
13 advertising expenditures and, thereby, attract the
14 revenues that the new media needs to grow.
15 10245 The last matter I would like to
16 discuss is the type of support needed to help the new
17 media industry and the on-line advertising industry to
18 grow. I will not be proposing any specific mechanisms,
19 but, instead, will identify the kinds of support that
20 IAB Canada sees as necessary.
21 10246 At a very general level, IAB Canada
22 supports any initiative that encourages the production
23 of Canadian Web content. Given what I have said
24 previously regarding the negative incentives flowing
25 from regulation, a clear policy statement from the
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1 government that it is committed to an unregulated
2 environment would encourage investment in Canada.
3 Other types of support may be more proactive, including
4 tax credits or accelerated depreciation periods,
5 grants, loans or lines of credit.
6 10247 Advertising on the Web, which, as I
7 suggested earlier, is necessary to achieve universal
8 access, would be encouraged by ensuring a level playing
9 field with other media. Some program to provide
10 on-line advertisers with the same encouragement as
11 offered in section 19 of the Income Tax Act would be
12 extremely beneficial. Ensuring that appropriate
13 research is conducted will also be invaluable to
14 produces, publishers and advertisers. Accordingly, IAB
15 Canada would greatly appreciate the assistance of
16 StatsCan or Strategis in performing such research.
17 10248 Finally, assistance is required in
18 the training and retention of competent personnel to
19 stem the costs of talent migrating to the U.S. This
20 assistance should not be restricted to content creators
21 but also marketing professionals, since the success of
22 the industry is largely dependent upon its ability to
23 market itself to Canadians and indeed to the world.
24 Programs that could encourage this might include labour
25 tax credits, tax incentives for training programs and
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1 funding or support for intern or mentor programs.
2 10249 These kinds of support for new media
3 are important. As an industry in its infancy, it
4 requires all the support possible to acquire the
5 strength it will need to compete. For that growth and
6 strength to be acquired, and for new media to be
7 universally accessible, new media must receive the
8 support of a strong and healthy advertising community.
9 If the Commission has any questions about how IAB
10 Canada feels that can be accomplished in addition to
11 the comments I have made, I will be happy to answer
12 them. We thank you for your consideration of our
13 comments here today.
14 10250 THE CHAIRPERSON: Thank you very much
15 for your presentation.
16 10251 I will turn the questioning to
17 Commissioner Wilson.
18 10252 COMMISSIONER WILSON: Good morning,
19 gentlemen. Thank you for being with us this morning.
20 10253 As you probably are aware, there has
21 been a lot of discussion about the role of advertising
22 on the Internet in this new environment, not only from
23 the point of view of finding viable business models for
24 new media, but more importantly for us I think in terms
25 of the examination that we are doing here as an
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1 indicator of just how significant this medium will be
2 for the country on a going forward basis.
3 10254 What I would like to do is start by
4 reviewing some of the information that you provided in
5 your written submission, following by a couple of
6 questions about the data that you presented which was
7 prepared by Ernst and Young. Then, I would like to
8 pose some questions, some more general questions to you
9 about advertising that have arisen out of submissions
10 made by other parties and just try and get your views
11 and solicit your expertise in that area.
12 10255 The first thing I want to do though
13 is ask you about your organization because I know that
14 you have said that it's a young organization. When was
15 it founded?
16 10256 MR. BOYD: In its current form,
17 December of last year.
18 10257 COMMISSIONER WILSON: So almost a
19 year old?
20 10258 MR. BOYD: That's correct.
21 10259 COMMISSIONER WILSON: How many
22 members do you have?
23 10260 MR. BOYD: We have 32 members now,
24 which while in absolute terms may seem small is highly
25 representative of the industry, in that we are a
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1 tripartite organization representing publishers,
2 advertising agencies and advertisers. We include on
3 that list organizations such as CANOE, Simpatico, the
4 Globe and Mail, Southam and agencies such as Young &
5 Rubicam, McLaren and McCann, advertisers such as Molson
6 and so on. So, we are fairly representative of the
7 industry and growing rapidly every day.
8 10261 COMMISSIONER WILSON: How did you --
9 when you were in the process of setting up your
10 organization, how did you go about identifying who your
11 members should be?
12 10262 MR. BOYD: It was really quite a
13 co-operative effort. The genesis of the group really
14 arose from publishers and agencies sitting down and
15 discussing what they had in common and how we might
16 actually get knowledge out to the world in general here
17 in Canada about this marvellous thing called the
18 Internet and about how it can build brands and build
19 relationships with consumers. It evolved from that
20 point on.
21 10263 COMMISSIONER WILSON: Just out of
22 curiosity, since we have been having an ongoing
23 discussion about the vocabulary surrounding the
24 Internet, where did the term "Internet publishers" come
25 from?
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1 10264 MR. BOYD: That's an interesting
2 question. I suppose you could say that that arose out
3 of the fact that when one is coding HTML you are
4 actually typing at a computer, so the natural analogy
5 might be publishing, but I suspect that over time that
6 term may evolve.
7 10265 COMMISSIONER WILSON: Yes. I was
8 curious because lots of other parties have talked about
9 the new media in terms of audience. They have applied
10 some sort of broadcasting terminology and this was the
11 first time I had seen this spin on it.
12 10266 MR. DUFFY: If I can go a little
13 further, when we first started up most of the players
14 from the content side, if you like, were really the
15 print publishers out there and so, for instance, Sun
16 Media from the CANOE side, Canada.Com, Southam, the
17 Globe and Mail.
18 10267 In Canada, up until just recently, I
19 think you saw the announcement by CBC that they were
20 going to spend I believe 2 per cent of their operating
21 budget on new media, most of the broadcasters haven't
22 been heavily into this medium at that time, so a year
23 ago we were heavily into print and that's really just
24 the essence of it. It will change over time.
25 10268 COMMISSIONER WILSON: On page 2 of
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1 your submission you talk about the different types of
2 advertising popular on the Internet and apart from the
3 banner ad which you say is responsible for 59 per cent
4 of the total industry revenues.
5 10269 You talk about experiments with
6 buttons, interstitials and advertorials. I come from a
7 TV background and I know what interstitials are in the
8 TV medium, but what are they in the Internet
9 environment?
10 10270 MR. ANDERSON: Typically, banners, as
11 you know, are typically different in size.
12 Interstitials tend to be full pages that appear all of
13 a sudden before content is actually loaded. They tend
14 to be full pages, but they don't have to be. So, it's
15 more than just a banner. It's a full page that appears
16 before content is actually loaded onto the browser.
17 10271 Then there are sponsorships which is
18 again like traditionally, they are sponsoring content
19 that is already there or you are sponsoring new content
20 that is made for the advertisers.
21 10272 Advertorials, I don't think I have to
22 mention, are basically the same as what you would get
23 in traditional media.
24 10273 COMMISSIONER WILSON: Okay. Thanks
25 for that.
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1 10274 Also on page 2 of your submission you
2 state that IAB Canada endorses the position that the
3 Internet should be left to develop free of restrictions
4 that may be imposed by domestic regulation. You go on
5 to say that many of your members have developed five
6 year strategic plans respecting the Internet and that
7 those plans have been predicated on an unregulated
8 environment.
9 10275 We have heard from many intervenors
10 about how rapidly the Internet is evolving under the
11 new media environment. The ISP group, for example,
12 said that they revisit their business plan every six
13 months, and another intervenor suggested that the
14 growth rate in the Internet is similar to dog years,
15 one year equals seven years. So I am curious about how
16 it is possible for your members to plan in five-year
17 increments with a medium that is growing so fast.
18 10276 MR. BOYD: I think I would like to
19 ask the two gentlemen with me to field that question,
20 since it is probably more relevant to them.
21 10277 COMMISSIONER WILSON: It just seemed
22 a little out of sync with everything else in terms of
23 the rapidity of the growth taking place.
24 10278 MR. DUFFY: I suppose I can answer it
25 from the point of view of the company I work for. This
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1 is a business for us. We entered it as a business, not
2 as a hobby or anything.
3 10279 Our company, like a number of
4 companies out there, has long-range projections, but we
5 also have short-range projections. When we first
6 started with CANOE some two and a half years ago, we
7 had some broad-range plans and some objectives and
8 long-term goals. We still have those long-term goals.
9 However, along the way we have certainly changed some
10 of the ways to get to those long-term goals. We still
11 believe in advertising as the key medium or the key
12 revenue driver out there. The way we get to it has
13 certainly changed and evolved over the past couple of
14 years.
15 10280 MR. ANDERSON: If I could add to
16 that, this medium has been partially unfairly
17 criticized as being a medium where there is no business
18 cases to it and that is not entirely true. There are
19 business cases and we have to look at where in this
20 medium we can start seeing some break-even points.
21 10281 So, for our site, for instance, the
22 Simpatico site, we looked at it and we do do five-year
23 forecasts. What do we think the industry is going to
24 be in five years? What is our percentage we think we
25 can take from that? What is the work that we have to
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1 do and the personnel that we need to accomplish that.
2 Then, at what given point do we think we will be able
3 to break even on our investment.
4 10282 So, I think that we do -- I think
5 what you are hearing is that absolutely the evolution
6 is very quick and we do tend to change tactics on how
7 we are going to reach these objectives very quickly and
8 that happens in three and six-month increments very
9 much so. We do do business cases that are very quickly
10 six month business cases and then we revisit them after
11 six months, but the end goal as to what we want to
12 achieve and when we want to finally come to that
13 break-even point is something that we still maintain.
14 10283 So, I think when you are seeing these
15 five-year numbers, they are very - for all of us it's
16 something where we want to measure ourselves because
17 this is not an industry where you just keep throwing
18 money at it. There is a time where each of us are in
19 our own P&L and there is a time when we are going to
20 have to start to make a profit.
21 10284 COMMISSIONER WILSON: Okay.
22 10285 On page 3 at paragraph 9 of your
23 submission you state that:
24 "...in the face of a 'hands off'
25 approach in other jurisdictions,
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1 the imposition of regulations in
2 Canada could have a detrimental
3 effect on the Canadian
4 industry."
5 10286 We have heard a lot, as I am sure you
6 are aware, about the potential effect of regulation on
7 the growth of this new economy and you mentioned it
8 this morning in your opening remarks about what kinds
9 of things could happen if regulation were introduced.
10 But I am curious about what other jurisdictions you are
11 referring to.
12 10287 MR. BOYD: I would think in
13 particular we are referring to in some cases print. I
14 am just trying to find the paragraph here.
15 10288 COMMISSIONER WILSON: Sorry,
16 paragraph 9:
17 "...in the face of a 'hands off'
18 approach in other
19 jurisdictions,...."
20 10289 I assumed that what you meant by that
21 was that other jurisdictions around the world had taken
22 a hands off approach to the whole notion of regulation
23 of the Internet. I am just wondering if you could tell
24 me what other jurisdictions you were talking about?
25 10290 MR. BOYD: Specifically, the U.S., as
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1 I think we referenced in our speech as well. They
2 generally have taken a fairly hands off approach in the
3 development of new media and the Internet in general in
4 terms of regulation.
5 10291 So the jurisdiction we would be
6 referring to in that case would be the United States
7 primarily.
8 10292 COMMISSIONER WILSON: Okay.
9 10293 Also on page 3 of your submission,
10 you indicate that 68 per cent of the respondents to
11 your survey believed that some Canadian advertising
12 revenues flow to the U.S. in the present environment.
13 As part of the survey that you did with Ernst & Young
14 did you gather any empirical evidence of this, or I
15 mean did any of your member agencies or advertisers
16 tell you that they are placing advertising on U.S. Web
17 sites or is this just sort of an instinct that you
18 have? They said that they believed that there is
19 advertising going there.
20 10294 MR. BOYD: I appreciate your point.
21 10295 I think when we were having a
22 conversation yesterday Gary raised the point that he
23 was at Yahoo two days ago and there was a banner ad up
24 for a large financial institution of Canadian origin.
25 So, if one examines popular properties in the United
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1 States, one does come across --
2 10296 COMMISSIONER WILSON: And that wasn't
3 Yahoo.ca?
4 10297 MR. BOYD: No, it was not Yahoo.ca.
5 It was Yahoo.com.
6 10298 We do not have empirical evidence
7 that would measure that quantity. That is something we
8 are looking at for a 1999 initiative, but it is not
9 something we have in hand right now. But again, if one
10 looks at properties in the U.S. it's --
11 10299 COMMISSIONER WILSON: I was actually
12 just going to ask you if that was the kind of
13 information you might gather in future surveys from
14 your own members to find out.
15 10300 MR. ANDERSON: It is actually -- in
16 future surveys we want to go more in depth and that's
17 one thing we would like to talk to you about, you know,
18 helping get more involved in some of these things.
19 10301 In terms of remembering who the
20 people are that are answering and that took part in the
21 survey, in the Ernst & Young survey, is people that
22 really live this industry. It is the Web publishers
23 that are making -- they are betting that they are going
24 to make a business on this industry. So, we tend to
25 live not only in the industry, but look very much as to
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1 what is going on with advertisers, where are they
2 placing their messages. Now, are they placing them on
3 American sites, so though we don't have absolute data,
4 in accordance with the Ernst & Young survey that was
5 just the 70 per cent of the people that answered the
6 survey said, "yes, we know that there is money going
7 down south."
8 10302 COMMISSIONER WILSON: I think that
9 would be really useful for us, I think for anybody who
10 is interested in new media, if you were to gather that
11 kind of information.
12 10303 MR. ANDERSON: You know, Martha, you
13 are bringing up a great point and this all comes down
14 to research. I think we had this question in earlier
15 comments about research and said it's quite amusing
16 when you look at research on the Internet because the
17 numbers that seem to be flying around seem to be from
18 one side of the fence to the other and you just don't
19 know who to believe any more at certain times.
20 10304 We as publishers, we are very
21 competitive on one side, but on the other side for us
22 to grow our business we had to get together with the
23 agency people, with the advertisers and say what is the
24 market in Canada? What is the real market and what is
25 the real potential?
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1 10305 We really would look towards having
2 the government -- having the CRTC provide assistance,
3 provide incentives to do more research and more
4 Canadian research. That is, it is absolutely necessary
5 that we have more and more Canadian research.
6 10306 Right now this research is being
7 funded by volunteer organizations, where we are getting
8 together and we are privately funding this type of
9 research. It is vital that any help that we can get to
10 expand this research and to be able to have our own
11 research and not have to rely upon American research,
12 because that's what we have today, and we are taking
13 American research and we are trying to figure out what
14 the Canadian number is. Is it 1 per cent? Is it 10
15 per cent? Is it 5 per cent? In this medium there is
16 no way you can do that. There is no right or wrong
17 percentage to take.
18 10307 So, that's why you are seeing so many
19 different numbers coming out, where, you know, is
20 e-comm $700 million in 1997 or it didn't make the
21 charts on another survey. You have to balance it
22 somewhere in the middle. We would, as an industry,
23 look for support in helping this grassroots environment
24 really take off by really working on the research more
25 in Canada.
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1 10308 COMMISSIONER WILSON: You said this
2 morning and you said also in your submission that you
3 would really like to be able to get StatsCanada and
4 Strategis involved in doing this kind of research.
5 Have you yourselves made an approaches to either of
6 those organizations and talked about what the needs,
7 what the developing needs are of this medium?
8 10309 MR. BOYD: As yet we have not made
9 any direct contact, but that is something we have
10 discussed as an executive committee and the research
11 committee of which Gary is the co-Chair, along with
12 Rocco Rossi of Torstar will be actively investigating
13 in the year ahead.
14 10310 There is one particular research
15 project on the books for 1999 that I think is critical
16 to the success of the industry in general and that is
17 the efficacy of on-line advertising in general. So, in
18 other words, what is the effectiveness of on-line
19 advertising? How effective is a banner in terms of
20 building brands and awareness? That is something we
21 would very much look to StatsCan and Strategis to help
22 with.
23 10311 The only data, as Gary pointed out,
24 we have right now is of U.S. origin and it's important
25 to have a Canadian context there.
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1 10312 COMMISSIONER WILSON: Certainly, we
2 are in a position to make suggestions to government
3 about the kinds of initiatives that we think would be
4 important, but I think that it helps for them to hear
5 directly from the stakeholders as well. So, I was just
6 curious about whether or not you had had any
7 conversations with them.
8 10313 A number of parties to this
9 proceeding, including yourselves, have supported
10 amendments to the Income Tax Act under section 19 to
11 provide incentives for Canadian advertisers, but others
12 have actually suggested, I think it was ITAC and AT&T
13 Canada Enterprises, that this type of initiative could
14 be at odds with commitments made in the context of the
15 GATTs. I am just wondering if you had explored that
16 notion as a group at all, or if it was just sort of
17 a -- you know, maybe we could do this.
18 10314 MR. BOYD: I don't think any of our
19 members would profess to be Income Tax Act experts.
20 10315 COMMISSIONER WILSON: Or
21 international trade experts.
22 10316 MR. BOYD: Of international trade
23 experts. We have enough on our plates just trying to
24 build a business currently here in Canada, but I will
25 say that to the extent that incentives can be offered
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1 for Canadian advertisers to advertise here in Canada
2 with content that is of world stature, if I can put it
3 that way, we are fully behind that and to the extent
4 that section 19 does that we fully endorse it.
5 10317 I think there are a number of complex
6 issues that would have to be examined prior to
7 introducing these kinds of incentives and we would love
8 to work with you in that regard.
9 10318 COMMISSIONER WILSON: Okay. I take
10 your point on that.
11 10319 In your section in your written
12 submission on the regulation of on-line advertising on
13 page 3, you state:
14 "IABC is of the view that the
15 Internet should be as
16 universally accessible as
17 possible."
18 10320 Then, on page 4 you state:
19 "...IABC supports the
20 introduction of mechanisms that
21 encourage the production of
22 Canadian Web content, that will
23 create additional opportunities
24 for the on-line advertising
25 industry. As noted earlier,
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1 this will in turn promote
2 universal access."
3 10321 Now, there have been a couple of
4 different kinds of access discussed during these
5 hearings, both access by individuals to the Internet
6 and by new media creators to portals or whatever term
7 you want to apply, content aggregators. I am just
8 wondering if you could, as the first part of my
9 question on this, explain to me what you mean by
10 access?
11 10322 MR. BOYD: We, as an organization,
12 the IABC is not directly concerned with access. Our
13 various members have positions that in some cases
14 differ quite dramatically, many of whom have presented
15 at separate times in front of this Commission, so we
16 tend to leave the question of access to our individual
17 members. I think our mandate here today is really to
18 talk about building a vibrant on-line advertising
19 industry and we would restrict I think our mandate and
20 our remarks to that field.
21 10323 COMMISSIONER WILSON: Except that you
22 do make the point in your submission, and I guess the
23 point that is made in your submission is that there is
24 some kind of a link between a robust Internet
25 advertising market and universal access and what I am
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1 trying to do is understand what that link is, what you
2 think that link is.
3 10324 MR. BOYD: We are actively
4 encouraging in the context of those remarks Canadians
5 coming on to sites such as Simpatico or CANOE or
6 Torstar and building traffic levels that would actively
7 encourage the increase of on-line advertising revenue.
8 I think access in this case is probably aimed more at
9 driving traffic and raising traffic levels on those
10 sites, not specifically in terms of perhaps the context
11 you mean it.
12 10325 COMMISSIONER WILSON: Okay. I was
13 trying to think if there was some kind of an
14 opportunity there because we have been talking about
15 connecting individual Canadians to the Internet and
16 Industry Canada has a number of programs that they are
17 running in terms of support and access. So, I was
18 curious about that point.
19 1120
20 10326 You have provided some interesting
21 information and we have seen it before as well from
22 some other parties comparing the advertising revenues
23 from the Internet in Canada versus those revenues
24 generated in the U.S.
25 10327 Of course, the revenues in Canada are
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1 much lower. I think they are about 1 per cent of the
2 revenues in the U.S.
3 10328 I am just wondering if you have done
4 or if you have seen any comparisons vis-à-vis the level
5 of Canadian and U.S. revenues proportionate to
6 population or proportionate to the revenues in
7 traditional media. How do they line up?
8 10329 You can put a graph together as you
9 did that shows, you know, the bar chart with the bar
10 way up there for the U.S. and the bar almost
11 non-existent for Canada and say "This is not a good
12 story". You have to look at it and place that in
13 context. I'm just wondering if you have done that.
14 10330 MR. DUFFY: In traditional media, it
15 is running around 5 to 6 per cent traditionally, the
16 total Canadian advertising market to the total U.S.
17 market. We are right now on the online side of only
18 around 1 per cent, as you stated, so we are behind the
19 U.S. It is very clear.
20 10331 It is really a big part of the
21 overall investment down in the U.S. I mean the
22 Internet and a lot of very bright, talented people in
23 the U.S. that started really the Internet and drove it
24 very heavily. There are a lot of investment dollars
25 that are going into the U.S. venture capital funding
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1 and that. They are well ahead in this whole market.
2 10332 As a result, they are driving more
3 advertising dollars. We feel by creating a vibrant
4 Canadian industry, really building a commercial market
5 for advertisers here if they can sustain that, if they
6 can drive a real business, it will feed on itself
7 further and we can close that gap, as it were, and
8 increase it to 2, 3 per cent basically there.
9 10333 COMMISSIONER WILSON: In what time
10 frame?
11 10334 MR. DUFFY: Time frame. It's going
12 to take a period of time. I don't know if we will ever
13 close the gap, quite frankly. The U.S. market, the
14 amount of funding that they have there and the amount
15 of mass that they have in this market -- it is a global
16 market that we play in here. We may never close that
17 particular gap.
18 10335 Certainly I think right now as it
19 stands when you look at our market at 20 million that
20 we are projecting this year versus their market which
21 is over a billion, we have got a long ways to go. We
22 have only just really scratched the surface there.
23 10336 MR. ANDERSON: I think when you look
24 at a traditional, we have to put things in relative
25 context as to numbers.
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1 10337 The advertising market in the States,
2 depending again on who you believe, you are looking at
3 about $190 billion U.S. marketplace and in Canada the
4 advertising market is somewhere about $9 million.
5 That's bringing back Graham's point of being somewhere
6 around that 5 per cent ratio in traditional media.
7 10338 It's very easy to say "Ya, but you
8 are not doing so good in online. It's only 1 per
9 cent". In absolute terms, the thing when you really
10 get down to it, it's only a $20 million market in
11 Canada. It's very small. We are only forecasting to
12 go to 37.7.
13 10339 We would love to see that percentage
14 increase obviously. We would love to see more
15 advertising dollars spent in Canada by advertisers. We
16 wouldn't even have -- I just want to point out that
17 without bodies like this, these tri-party organizations
18 like the AIB, we would not even have those numbers.
19 10340 We probably would be sitting here
20 today and saying we are 5 per cent, that the Canadian
21 market is 5 per cent of the America online market and
22 that would be wrong. This brings me back to my
23 research question.
24 10341 The more research that we can do in
25 this marketplace, the more that we can understand where
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1 we as an organization, tri-party organization, with
2 government involvement, as Canadians how can we grow
3 this marketplace? What programs, what incentives can
4 we put into grow the marketplace.
5 10342 That I think again is what we have to
6 focus on. What is the Canadian market?
7 10343 COMMISSIONER WILSON: That actually
8 brings me to my next question and that's about your
9 forecast advertising revenues.
10 10344 You have quoted in your oral remarks
11 this morning and it appears in your Phase II submission
12 the update that Ernst & Young did for you.
13 10345 What I was curious about was that in
14 your Phase I submission you forecast for 1998 $22.9
15 million and for 1999 you forecast $56.9 million. Then
16 in your Phase II submission, after Ernst & Young did
17 their update on the previous survey, you have revised
18 these forecasts downward.
19 10346 The first number really isn't that
20 significant. You go from 22.9 to 20.7. But, the
21 second one is quite significant. You go from 56.9 to
22 37.7 million. What happened? What accounts for that
23 drop?
24 10347 MR. BOYD: I would like to ask the
25 co-chair of the research committee to field that one.
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2406
1 10348 MR. ANDERSON: It is quite a job. It
2 was actually quite surprising to all of us. But it was
3 surprising in one way and not surprising in another.
4 10349 Again looking back at our five year
5 plans, we were doing five year plans and we had
6 anticipated this marketing moving at a certain pace per
7 year, doubling, tripling, those types of things. These
8 are Web publishers that have gotten together and this
9 is how they have seen the marketplace and how they see
10 it evolving.
11 10350 The dollars just have not appeared as
12 fast as we thought. We were hoping that we would have
13 more money and the more money would be spent on
14 Canadian sites. The dollars and what are not as big as
15 we thought. We are still very much in an experimental,
16 an exploratory stage.
17 10351 Advertisers that are advertising
18 today are not coming out with big, large, six figure
19 plus campaigns. They are experimenting. They are
20 experimenting on different ways of advertising. They
21 are experimenting on spreading their dollars around.
22 They are experimenting on Canadian and American sites.
23 10352 We are very much in a very embryonic
24 stage of this whole industry. What you are seeing is
25 you are seeing a readjustment of numbers from Web
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2407
1 publishers. Though we still have that long term
2 forecast, what you have just seen is the first step
3 where we said let's get more realistic about how fast
4 this is really growing.
5 10353 COMMISSIONER WILSON: While we are on
6 the subject of numbers, I am just wondering if you
7 could tell me. I think you said in your submission
8 that advertising accounts for the lion's share of the
9 revenue that Web publishers bring in.
10 10354 What are the other sources of
11 revenue? Are any of them involved in e-commerce in a
12 meaningful way?
13 10355 MR. BOYD: In the short term,
14 advertising and sponsorship have been driving the vast
15 majority of publishers' revenues, but I think it's fair
16 to say, and Graham and Gary can certainly comment as
17 well, that e-commerce will become an increasingly
18 component of publishers' revenues. That is something
19 that is unfolding before our very eyes.
20 10356 In fact, Gary, you may want to share
21 some thoughts on that as well.
22 10357 MR. ANDERSON: E-commerce has not
23 taken off as fast as we even thought it would, but the
24 multiple revenue streams, like any business, we must
25 have multiple revenue streams.
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2408
1 10358 Advertising seems to be the first
2 revenue stream because it makes the initial sense. You
3 have a lot of people. You have good content and an
4 advertiser wants to put his message beside that.
5 10359 We want to get into more e-commerce
6 and e-commerce has to really start flourishing in
7 Canada. It has not yet. We need to get more and more
8 in depth in more sites out there, such as the Globe
9 Chapter sites, such as the Indigo site, these types of
10 e-commerce sites on line that are Canadian sites where
11 there is Canadian delivery of products and where people
12 aren't ordering there books off of Amazon and our
13 Canadian dollars are not flowing to U.S. sites.
14 10360 I think we need to see a lot more of
15 that.
16 10361 COMMISSIONER WILSON: Were you here
17 when the previous intervenor was here?
18 10362 MR. ANDERSON: Yes, I was and he
19 mentioned about amazon.
20 10363 COMMISSIONER WILSON: He also talked
21 about the numbers for e-com in Canada.
22 10364 MR. ANDERSON: Right.
23 10365 COMMISSIONER WILSON: He said that
24 they were very good in fact.
25 10366 MR. ANDERSON: I find it very
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2409
1 interesting, the numbers, because if you took his
2 percentage, it worked out to something like -- my quick
3 calculation was somewhere around $700 million. I think
4 what he meant with the IDC, and we would love to go
5 through the report, was that $700 million was spent by
6 Canadians on sites in the world. That's what was
7 happening.
8 10367 It's not $700 million being spent on
9 Canadian sites. I think the $700 million is an
10 interesting figure, but I don't think that he meant
11 that $700 million was spent on Canadian sites, because
12 if it is, then Graham and I are going to go back and
13 really take a look at what is happening with our
14 companies.
15 10368 MR. BOYD: I would also like to
16 comment that we have to draw a line between the
17 consumer based e-commerce and business to business
18 based e-commerce. I think that the vast majority of
19 e-commerce to this point, if you will, it has been
20 driven successfully. If you look at the case of Dell
21 or other such organizations, it has been very much
22 business to business based.
23 10369 Dell is now on the consumer side,
24 claiming $600 million U.S. a day in online sales which
25 is a pretty significant number. I think that will be
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2410
1 going forward. I have some data as well from A.C.
2 Nielsen that we just got in last week that indicated 17
3 per cent of Canadians claim to have made some kind of
4 online purchase. This is fresh data from their most
5 recent survey.
6 10370 That's a 60 per cent year over year
7 increase, 1998 from 1997. Again, how do we define
8 e-commerce? This is not necessarily using a credit
9 card over the Web. This is perhaps ordering over the
10 Web and then paying by cheque and then calling in a
11 credit card number or perhaps even ordering by fax.
12 10371 I think there's a lot of hyperbole
13 and we have to be very careful about how we throw the
14 term e-commerce around.
15 10372 MR. ANDERSON: Just to finish up on
16 my point about multiple revenue streams, let us not
17 forget that e-commerce and advertising are just two
18 revenue streams. There are multiple revenue streams
19 that can be taken into effect in this.
20 10373 They just haven't appeared yet. They
21 haven't been successful yet. Premium content, charging
22 for content, for access to content, besides -- you
23 heard of the porno sites that are in the marketplace
24 and the gaming sites that are out there.
25 10374 You have the Wall Street Journal, the
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2411
1 New York Times. These sites have been very good at
2 charging for content. I think you are going to start
3 seeing that more and more. I mean we are building. A
4 lot of stuff is free but free will only last for so
5 long. As there becomes more interesting content, you
6 are going to start seeing premium content or content
7 being paid for.
8 10375 I think we will also start seeing
9 other types of revenue streams coming in. Some of them
10 we don't even know about today. Just by limiting
11 ourselves and saying it's just advertising, it's just
12 transactions, I think we need to keep an open ears and
13 eyes as to what is happening on this medium because the
14 consumers right now are getting a pretty good ride.
15 10376 They are getting a lot of this
16 content for free. They are getting a lot of access
17 that's free and it's very good, but you are going to
18 have to see multiple and more revenue streams coming in
19 because no company can sustain on just one revenue
20 stream only.
21 10377 COMMISSIONER WILSON: That is
22 certainly I think the great appeal of the Internet,
23 that there is so much available for nothing. I am just
24 curious if people start developing business models that
25 are charging for premium information, will people just
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2412
1 go some place else where they don't have to pay?
2 10378 MR. ANDERSON: That information needs
3 to be unique. If the information is unique and people
4 want to -- the beauty of this medium is that it is not
5 a broadcast medium. It is not a push medium. The
6 beauty of the medium is that it is a pull medium. It
7 is us, the consumers, the people that are at the
8 household, we go out and we pull down the information
9 that we want. That's the beauty of it.
10 10379 If there's something there that I
11 really, really want, I may pay for it. I may choose to
12 pay for it. It's my choice as to whether I want it or
13 not. That's what makes this medium so unique.
14 10380 MR. DUFFY: The essence of IAB Canada
15 or most of the members focused in and came together
16 really from an advertising perspective in all of this.
17 There are a number of members that are looking at
18 alternate revenue streams, but for the most part, a lot
19 of our focus and time and attention over the last year,
20 it has been a very short time and we have a lot to do,
21 but we very much focused in on the whole area of
22 advertising and driving advertising.
23 10381 We feel that is the key market for us
24 because that is a lot of our roots and where we come
25 from. There are other members and non-members out there
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2413
1 and there are other groups out there like the big .coms
2 that are doing very well trying to build a commerce
3 that we haven't focused heavily in on that one.
4 10382 COMMISSIONER WILSON: One other quick
5 question on your survey results. You state that of all
6 of the advertisers on the Internet, financial services
7 by far outweigh all of the other advertisers.
8 10383 I'm just wondering if you have any
9 theories about why this is the case. Is there some
10 kind of natural fit? I think the previous presenter
11 said they have very deep pockets. Maybe they just have
12 more money than everybody else.
13 10384 MR. BOYD: I think that's probably a
14 little simplistic to say it's just that they have deep
15 pockets.
16 10385 COMMISSIONER WILSON: I was just
17 joking.
18 10386 MR. BOYD: I understand. From an
19 advertiser's point of view, the Internet offers a
20 really unique double-edged whammy, if I can put it that
21 way.
22 10387 Firstly, it is a great place to build
23 brands, but it's also a great place to acquire
24 customers and to build customer loyalty. The financial
25 services industry right now is in a variety of ways
StenoTran
2414
1 experimenting with changing the relationships that they
2 have with consumers and the Internet is a very good way
3 for them to reach consumers through another channel.
4 10388 I think what we are seeing is a fit
5 that is really quite unique.
6 10389 MR. ANDERSON: Not to pick on the
7 financial industry, the top three sectors were finance,
8 automotive, technology. Those three sectors and those
9 three industries are going through the biggest change
10 in their traditional business because of the Internet.
11 10390 Because of the Internet, being able
12 to banking online, trade stocks online, research cars
13 online --
14 10391 COMMISSIONER WILSON: Online banking
15 actually saves them a lot of money.
16 10392 MR. ANDERSON: Absolutely. What I am
17 saying is their industries are going through such a
18 complete turnaround because of the Internet they are
19 the first ones that have to be on the Internet, that
20 have to be exposing themselves to the people and to
21 changing their business models.
22 10393 Technology, we have companies like
23 Aighead, which was a retail software distribution house
24 in the States with over 80 locations, that closed down
25 all their locations and now has opened up on the
StenoTran
2415
1 Internet. Software distributed by retail just doesn't
2 make sense when you can do it via this new medium.
3 10394 The reason that these three
4 industries have come out first and foremost as the
5 biggest spenders is because they are going through the
6 most radical change. Their distribution models are
7 changing.
8 10395 COMMISSIONER WILSON: Finally, in
9 your Phase II submission you filed only the Executive
10 Summary of your update. Do you have the entire survey?
11 Would you be willing to share it with us?
12 10396 MR. BOYD: Absolutely. We would be
13 happy to provide it to you.
14 10397 COMMISSIONER WILSON: Okay. That
15 would be great because I would be interested to see
16 some of the detail on that.
17 10398 Now I want to go to the more general
18 questions about advertising stemming mostly from the
19 Telus submission which was last week.
20 10399 One of the recommendations that Telus
21 made in its submission was that the traditional
22 broadcasting regulatory regime should effectively be
23 dismantled because as advertising migrates to new
24 media, traditional broadcasters will lose sufficient
25 revenue that they won't be able to fulfil their
StenoTran
2416
1 regulatory obligations.
2 10400 The point that Telus stressed to us
3 was that the Internet gives advertisers opportunities
4 that they don't have in other media. For example, the
5 opportunity to combine not only the advertising part
6 but the commerce equation, the actual buy or point of
7 purchase part of the commerce equation.
8 10401 How strong a driver do you think this
9 factor will be, that sort of unique feature of
10 advertising on the Internet? How strong a driver do
11 you think that will be in moving advertiser dollars to
12 the Internet?
13 10402 MR. BOYD: Let me point out that the
14 direct television advertising business is a pretty
15 lively and growing business as well, the 1-800 call to
16 action that one sees on a television commercial, so the
17 Internet is by no means the only medium where that can
18 take place.
19 10403 I think the fact that the dual nature
20 that I referred to in my last answer of the Internet,
21 that one can achieve branding and this call to action
22 or customer acquisition, and then build relationships
23 that are maintained on an ongoing basis is a very key
24 differentiator for the Internet.
25 10404 I think it's probably premature to
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2417
1 suggest that it will be the death of any particular
2 other medium, if I can put it that way. In fact, it
3 may turn out to be some kind of hybrid. I think it's
4 such a nascent industry with all due respect that it's
5 very difficult at this point in time to gaze into a
6 crystal ball with any kind of clarity whatsoever.
7 10405 MR. DUFFY: Can I just add I just
8 supported the broadcast industry and the traditional
9 print industry just recently because most of my
10 advertising goes into the traditional media as opposed
11 to the online medium right now. It is such early days
12 right now.
13 10406 COMMISSIONER WILSON: Just a couple
14 of other factors that I wanted to ask you about in
15 terms of driving advertising dollars.
16 10407 Another idea about the appeal of
17 Internet advertising is the notion that it provides a
18 unique opportunity to personalize advertising in a way
19 that is impossible in the traditional media.
20 10408 MR. BOYD: Yes.
21 10409 COMMISSIONER WILSON: Is that
22 appealing to advertisers and agencies when they are
23 looking at how to place dollars?
24 10410 MR. BOYD: I think that is certainly
25 a key element. Yes. We are all very much in the
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2418
1 learning process of how to take this personalization
2 capability and continue to build relationships between
3 manufacturers or products and consumers.
4 10411 I think the publishers are also
5 involved in that by allowing customization of personal
6 home pages with stock feeds and news feeds and all that
7 kind of thing. I think that is certainly a key
8 differentiator of the Web.
9 10412 Given constraints that exist out
10 there in terms of being able to put large pieces of
11 video or audio down the pipe right now, personalization
12 is one thing that is very easily achieved in the
13 current environment and is, therefore, of great
14 interest, yes.
15 10413 COMMISSIONER WILSON: In your oral
16 comments this morning on page 3 you said:
17 "At its most basic, advertising
18 dollars will be spent where the
19 message of the advertiser can be
20 communicated the most
21 effectively to the greatest
22 number of people at the most
23 reasonable cost. Therefore, as
24 more people go online and as
25 technical improvements permit
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2419
1 more creativity in the crafting
2 of messages, more and more
3 advertisers are being drawn to
4 the Internet. Not unexpectedly,
5 the sites that attract the
6 greatest number of visitors are
7 also attracting the greatest
8 amount of online advertising
9 revenue."
10 10414 When Telus appeared, they brought
11 with them a professor from Columbia University, Dr.
12 John Carey, who is an expert in consumer behaviour and
13 market behaviour. One of the comments that he made was
14 that advertisers follow audiences, that advertisers
15 don't lead. They wait to see where the traffic is
16 going to be and then they go where the audience is.
17 10415 That is based on behaviour, I guess,
18 that he has looked at over a wide number of industries
19 and changes in media.
20 10416 Telus also expressed the view that
21 the shift of advertising dollars from traditional
22 broadcasting to the Internet won't be a gradual and
23 incremental one, which is what you are suggesting.
24 10417 They actually suggested that this
25 shift of advertising dollars will happen more quickly
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2420
1 and dramatically than we expect or than may have been
2 seen in other media transitions, that there is in
3 effect a dam waiting to be broken and that all of a
4 sudden, bang!, the dollars are gone from traditional
5 media on to the Internet.
6 10418 What's your view on that? You just
7 said it is a new industry and it's tough. Everybody is
8 trying to sort of crystal ball and figure out how it is
9 going to evolve. As advertisers and Web publishers,
10 what's your view?
11 10419 MR. BOYD: I will cover it from the
12 advertiser's perspective and I think these gentlemen
13 will probably provide a valuable insight as well.
14 10420 We currently access several, if I can
15 refer to them inelegantly as buckets of dollars to come
16 up with an advertising budget. I think broadcast is
17 possibly one bucket, but there are direct marketing
18 dollars that are applicable here that might not
19 otherwise be applicable because of the direct nature of
20 the medium. There are publication dollars that are
21 applicable here because of the nature of the medium and
22 there are also promotional dollars because the Web is a
23 very good promotional tool.
24 10421 I think it's important to point out
25 that there are a number of other revenue sources
StenoTran
2421
1 besides broadcast dollars that offer themselves up to a
2 unique Web campaign. Secondly, I guess I would say we
3 are hoping, frankly, that advertisers see value in all
4 media and incrementally ramp up their spending.
5 10422 I know the ACA is presenting after
6 us.
7 10423 COMMISSIONER WILSON: Of course you
8 would like that. No self-interest there.
9 10424 MR. BOYD: Fair enough.
10 10425 COMMISSIONER WILSON: I'm just
11 joking.
12 10426 MR. BOYD: That's okay. I can take a
13 joke.
14 10427 Certainly that would be the ideal
15 situation, that it wouldn't have to be a rob Peter to
16 pay Paul scenario. It would in fact be an incremental
17 thing. That is what we are actively trying to work
18 with in terms of advertisers.
19 10428 COMMISSIONER WILSON: That actually
20 answers my next question. I would like to hear Mr.
21 Duffy's and Mr. Anderson's views on the notion that the
22 dollars will migrate in a dramatic way.
23 10429 I was going to ask you about
24 alternate revenue streams in terms of putting the
25 dollars into advertising. It's a non-traditional
StenoTran
2422
1 medium for advertising. If you can use it to sell
2 directly, maybe you would redirect some of your sales
3 budget into your Web advertising because you no longer
4 need to actually, you know, put somebody out there on
5 the street.
6 10430 MR. BOYD: Absolutely. I think
7 creativity is really the key word here. You look at a
8 situation where dollars are always scarce. It's a very
9 scarce resource in terms of coming up with budgets for
10 new initiatives. I think high creativity is required
11 to really come up with a method of doing that and also
12 to partner with publishers.
13 10431 I think publishers are probably more
14 motivated than others, speaking as an advertiser, to
15 sit down and look at the needs of the advertiser in a
16 really kind of special way. I have got partnerships
17 currently going with these two gentlemen that are
18 really quite unique and offer consumers something that
19 they have never had an opportunity to do before
20 10432 I actively encourage all advertisers
21 and publishers to sort of think of it in those terms
22 because we are at a stage where cooperation and
23 partnership is very crucial for the success of the
24 medium and the industry.
25 10433 COMMISSIONER WILSON: Mr. Duffy?
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2423
1 10434 MR. DUFFY: Yes. I think there's
2 also going to be other -- to say that revenue is going
3 to migrate straight to the Internet in large volumes,
4 there are going to be certain revenue streams that will
5 migrate.
6 10435 Certainly in the classified area for
7 newspapers, we strongly believe, and I think you have
8 heard earlier submissions from Torstar and others that
9 will occur --
10 10436 COMMISSIONER WILSON: Yes.
11 10437 MR. DUFFY: As to whether it is the
12 death knell, back when TV first started, everybody saw
13 that as the death knell for radio. Everybody saw that
14 as the ultimate death knell for newspapers and that.
15 10438 There are going to be niches that you
16 are going to find along the way that ultimately
17 advertisers are going to sort this out and say this is
18 the most effective way to reach the audience that I
19 want to reach.
20 10439 There will also, I think, be
21 opportunities out there. It's not just looking at the
22 negative side. There will be opportunities from the
23 fact that this medium is much more global than any
24 medium we have sort of gone through. There are a lot
25 of opportunities out there.
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1 10440 I know, for example, just from our
2 side on CANOE, we reach an audience that we had never
3 reached before, right across the world now, because one
4 of our strengths is hockey. It's Canadian.
5 10441 We are now reaching an audience there
6 that are hockey fans across the world. There is a real
7 potential there for us to begin to access that
8 particular market. That's just one example out there.
9 10442 Very early days, but there's both
10 shifts and there are opportunities that I think will
11 come along from this exciting new medium.
12 10443 COMMISSIONER WILSON: Do you
13 advertise CANOE in traditional media?
14 10444 MR. DUFFY: Yes, and that's what I
15 pointed out before. I have advertised CANOE mostly in
16 traditional media, quite frankly, right now than online
17 medium there. Again, it is very early days. It is
18 just such a nascent industry there. Still the place to
19 advertise is broadcast.
20 10445 COMMISSIONER WILSON: Because of the
21 mass audience.
22 10446 MR. DUFFY: The mass reach, yes. If
23 you look at some of the big acquisitions that happened
24 down in the States that have really moved some major
25 players there. CBS Sportsline. We are a competitor of
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1 Sportsline effectively. It's a very good sports site
2 and CBS acquired it for some sizable dollars there.
3 10447 The marketing potential of that has
4 really moved that significantly along. That is one of
5 the major players down there. The marketing reach
6 through broadcast is very large.
7 1150
8 10448 COMMISSIONER WILSON: When I was
9 looking through your submission and thinking about some
10 of the other things we have heard about advertising, I
11 was thinking if I had a Web site that I was using for
12 e-commerce or any other purpose and I wanted to drive
13 traffic to that Web site -- I mean obviously you would
14 go to a medium where you can tap into a mass audience
15 if you are just trying to communicate your existence
16 through the Internet, it's not good enough yet.
17 10449 MR. DUFFY: There is a huge audience
18 to a number of major Web sites out there. I mean
19 Yahoo, that is a brand that everybody understands
20 and --
21 10450 COMMISSIONER WILSON: Get listed on
22 the major search engines.
23 10451 MR. DUFFY: AOL and those, but what
24 we are also talking about here is that we are trying to
25 build brands here. We are also trying to drive
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1 advertiser dollars here.
2 10452 In trying to encourage advertising
3 dollars a big play and an important part for publishers
4 I think here is that that brand gets recognized out
5 there as, "Oh, this is a brand I want to be associated
6 with." As advertisers learn about this medium, if they
7 can see that that brand is appearing on traditional
8 medium and is out there, there is an association with
9 that that, hey, this is an important brand that I want
10 to be associated with because I can see it both in
11 traditional medium. So, there is sort of a stamp of
12 approval on that brand. It's like the birth of any
13 industry I think. You have got to go through to build
14 a brand.
15 10453 You have got to not just build it
16 within the medium, but you have also got to look at
17 other methods to market that and that's what we do.
18 10454 MR. BOYD: One comment I think would
19 be that this is another medium, but it is not going to
20 decimate, kill, replace any other medium, other than to
21 sort of offer consumers and advertisers another way to
22 talk to each other. I think it is important to note
23 that radio and television and print and Web together
24 offer advertisers an excellent way to reach consumers
25 in different parts of their life and look at Outdoor,
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1 when they are driving home.
2 10455 When we do a media plan, we would
3 look at the entire landscape of somebody's life, if you
4 will, and the Internet is certainly an important part
5 of it, but it is never going to be the only part of it.
6 So, I think it is important to point that out.
7 10456 COMMISSIONER WILSON: What if
8 though -- and one of the other things that we have been
9 looking at over the last number of days is the notion
10 that ultimately broadcasting itself will move to the
11 Internet, that I mean certainly the broadcasters
12 themselves believe that the Internet could replace
13 them, if you look at the development of technology and
14 digital video compression and the ability to deliver
15 what is considered traditional broadcasting over the
16 Internet infrastructure, then what you say is not true
17 any more because there are all these different parts.
18 10457 Now, there may be -- and radio
19 itself. Look at radio. I mean, more and more people
20 can listen to the radio over the Internet and with the
21 evolution of the technology the better it gets, the
22 wider the bandwidth, then, you know, is there still a
23 radio industry? Is there still a TV industry, or does
24 everything move?
25 10458 MR. ANDERSON: I would have to say
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2428
1 that there is no basis in history for any of these
2 theories. If you look at how different media has grown
3 up, there is absolutely no basis for any of these
4 theories whatsoever.
5 10459 This is different. Radio could be
6 provided via the TV. There were early TVs that came
7 out with radio. It didn't kill the radio industry.
8 10460 The bottom line on this really is
9 that any one of us can sit up here and we can make
10 projections. We can guess at what is going to happen
11 and we can think about how it could possibly turn out,
12 but nobody knows. Nobody knows.
13 10461 So, therefore, I would just say that
14 there is not a good answer to your question. It simply
15 would be my personal opinion and Ted's personal opinion
16 and the next personal opinion and so what at the end of
17 the day. The bottom line is that we've got to wait.
18 We have got to wait and see how it evolves. There is
19 no sense in any one of us just offering our personal
20 opinions because it is not going to help you try to
21 accomplish what you are trying to accomplish.
22 10462 I think what you are trying to
23 accomplish is something good. It is figuring out how
24 can we help Canada really promote this Internet
25 experience. How can we help Canadians promote this
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2429
1 Internet experience, and how can we learn more about
2 this environment and really grasp this environment. I
3 think that is what you as a Commission is trying to do.
4 Providing my personal opinion or Graham's or Ted's I
5 don't think is going to help you on these issues.
6 10463 MR. BOYD: Having said that however,
7 let me give you Steve Job's personal opinion. Mr. Jobs
8 is well known for his vision and he has had a few ups
9 and downs in his life, but I read a fascinating quote
10 by him last week. He said that look at the experience
11 we had with our television. Our television is
12 fundamentally a one-way experience. When we sit in
13 front of our television we like the fact that we don't
14 have to interact with it. When we sit in front of our
15 computer we know and have known since the day that the
16 thing got turned on that we have had to interact with
17 it. So, we will not consume Internet media through the
18 television possibly, is his argument, the same way that
19 we do through a PC.
20 10464 So, he is of the opinion, frankly,
21 that it just isn't going to happen the way that some
22 players are arguing. So, the jury is out, but --
23 10465 COMMISSIONER WILSON: Well, the
24 Senior Vice-President of Engineering from CBS said
25 exactly the same thing. They are two fundamentally
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1 different experiences and technologically you may be
2 able to integrate the two or the two will converge, but
3 people may not.
4 10466 MR. ANDERSON: It's not about
5 technology. This is not about technology. It's about
6 the experience. It's personal. I mean it's a pull.
7 It's "I do." I go out there and I actually do things.
8 So, I am using it. It's not about something that is
9 broadcast to my group of people and that's the
10 difference. It's just inherently a different medium.
11 10467 MR. DUFFY: There may be some things
12 that can help along the way here. We have been talking
13 about is it a different medium and that when you look
14 at the advertising in newspapers versus the advertising
15 on TV versus the advertising on radio, there are
16 different advertising messages. One has not completely
17 killed off the other. Their type of advertising, the
18 audience that they attract, the style of advertising is
19 different. The same will be of new media and on-line
20 medium.
21 10468 One of the studies that was done,
22 Forrester Research Inc. is one of the leading research
23 companies down in the U.S. and certainly we follow it.
24 Most of the large players in the U.S. also follow it.
25 The U.S. industry is ahead of our industry, the on-line
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2431
1 industry.
2 10469 Their prediction for 2003 is that
3 on-line advertising versus total advertising in the
4 U.S. will run at about 4 to 4.5 per cent. They
5 recently came out with a projection, the first time --
6 they came out with a projection for the Canadian
7 market. They said that that market in 2003, the
8 on-line medium would attract about 3.5 per cent. 3.3
9 per cent I believe is the number of total advertising
10 dollars. So, it isn't, based on their estimates,
11 certainly at this particular stage where we are at, we
12 are not talking about huge dollars that this medium is
13 going to take out of the advertising market.
14 10470 COMMISSIONER WILSON: Thank you very
15 much. Those are my questions.
16 10471 THE CHAIRPERSON: Thank you,
17 Commissioner Wilson.
18 10472 Commissioner Grauer.
19 10473 COMMISSIONER GRAUER: I just have a
20 couple of questions further to the areas explored with
21 Commissioner Wilson and in particular this last issue.
22 If I can just approach it from a slightly different
23 perspective, which is that we do regulate traditional
24 broadcasting, if I can put it that way, and let's
25 assume for the sake of this discussion we are not going
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1 to be doing any regulating of the Internet and, of
2 course, we don't regulate newspaper publishing or
3 outdoor advertising.
4 10474 So, should we in that situation be
5 monitoring the impact of the Internet advertising or
6 this new media on traditional broadcasting, so that in
7 fact if we need to adjust any of the sort of existing
8 regulations that we are in a position to do that.
9 10475 One would assume that, for instance,
10 newspaper publishers who aren't regulated may have more
11 flexibility to respond to these challenges as they come
12 along. So, if I can just put it to you that way and
13 get your comments on whether we should be monitoring
14 this impact and, if so, what are the things that we
15 should be looking at as we go forward?
16 10476 MR. BOYD: I guess the fact that
17 research exists that quantifies the amount of
18 advertising through the Ernst & Young IAB survey, that
19 would be something you would certainly want to monitor.
20 10477 I would suggest working with industry
21 organizations is always a good thing to do in terms of
22 understanding how new media landscapes were unfolding,
23 but as for specific remedies, at this point in time I
24 think I would be taking a wait and see approach.
25 10478 COMMISSIONER GRAUER: You know, I
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1 wasn't thinking of remedies. I was thinking
2 specifically of what to look at if we were monitoring.
3 Was it a good idea to monitor and, if so, what we
4 should be looking at.
5 10479 MR. DUFFY: One of -- and really the
6 principal reason why IAB Canada came into existence and
7 before it IAB in the U.S. and some other bodies, there
8 is because this industry is just only emerging and that
9 the measurability and accountability of this whole
10 medium, that's one of the biggest problems that we have
11 with selling advertising.
12 10480 If you take my industry and where my
13 company comes from, the newspaper industry, we have
14 Nadbank there, so advertisers have a measure of the
15 system that they use and they feel comfortable with
16 that they can at least assess and say this is the
17 medium where I best want to place my advertising
18 dollars because it reaches this particular type of
19 audience, and these are the results that I should get
20 back based on those results.
21 10481 In magazines they have the Print
22 Measurement Bureau; in broadcast A.C. Nielsen. In our
23 industry, and right now there is such inconsistency out
24 there between the way we measure and the various types
25 of measurements that people are after, I think that is
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1 one of the biggest problems that we face. Until such
2 time as we can come and establish some real consistency
3 and some real standards which we are trying to work on
4 here, and I think we are doing it the right way by
5 making a tripartite arrangement because we are getting
6 all of the bodies involved there. Certainly when I
7 look down at the U.S., they started out with just the
8 publishers doing it, they have in fact done a
9 turn-around and have said, "We have got to do a
10 tripartite type of arrangement."
11 10482 I think until such time as we can get
12 to that stage, I think it is very dangerous to say,
13 "Let's try and measure this and measure that," because
14 we are trying to get a handle on that. The advertisers
15 are trying to understand that. The publishers are
16 trying to get some consistency there and they are
17 trying to come together on that, so I would be
18 concerned.
19 10483 COMMISSIONER GRAUER: Okay.
20 10484 My other question was, actually, we
21 heard from you this morning about the dearth of
22 statistical information and we have heard from some
23 other groups this morning. Someone was here earlier
24 this week I think and said that they thought StatsCan
25 was beginning to assemble some of this data.
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1 10485 I was curious from you as to what
2 particular information that you think should be being
3 gathered that isn't being gathered and what remedies
4 you might have. I take it, if I can make an
5 assumption, that what you are saying with respect to my
6 question on monitoring is that we can't even properly
7 assess the impact today because we don't have the
8 information to really monitor even the impact anywhere
9 at the moment. So, is that --
10 10486 MR. DUFFY: Yes, it is a very fair
11 comment. One example of the data that we don't measure
12 here in Canada that is done in the U.S. and that I
13 think is critical, and not so much from the back-end
14 measurability that how effective was my ad, but who do
15 I decide to advertise with is just the front-end people
16 information, if you like.
17 10487 There are two companies -- there are
18 a number of companies down in the States, but a couple
19 of the larger players are relevant knowledge and
20 Mediametrix. They are joined together. What they do
21 is measure the performance of where people go to, much
22 like A.C. Nielsen in effect, but for the on-line
23 industry they hook up a certain number of people in the
24 on-line industry and they say based on that selected
25 sample here are the sites that those individuals are
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1 going to, and here is the type of audience that is
2 going to those particular sites.
3 10488 We don't have that in Canada as yet.
4 That is to me a very useful tool for advertisers and
5 agencies to sort of say, "Okay, we know CANOE is a very
6 large site, but how large is it and what type of
7 audience is going to it?" We don't know all of the
8 stats there. Some of those stats are dribbling out. I
9 read recently some stats that were on the Globe and
10 Mail there of some of the major portal sites out there,
11 but there is not a real dearth and wealth of that type
12 of information. That's one part that we need.
13 10489 Certainly the research that Gary and
14 Rocco have done really is a key part of IAB Canada, is
15 measuring the advertising and where that advertising is
16 hitting is extremely important for advertisers making
17 decisions, is extremely important for me as a content
18 player, understanding where the market is going, so
19 that I can make sure that I build content that
20 addresses the advertisers' needs because they are
21 ultimately paying the dollars.
22 10490 MR. ANDERSON: I think though that
23 you also did hit the nail on the head in terms of
24 understanding the problem that we do have, and that is
25 getting the information. We have even -- going back to
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1 Graham's comment, from a research committee we have
2 actually gone out and asked these players in the
3 States, "When are you coming up here?" "Can you come
4 up here?" "We need this type of information up here
5 too," and we are such a small industry up here, that
6 for them to even turn their attention it's just not
7 feasible business-wise at this point in time for them.
8 However, we tend to think that is going to change.
9 10491 But in terms of what you were
10 mentioning about understanding what to measure. So, we
11 have a committee that is the Standards and Practices
12 Committee that looks at what are the terms, what's a
13 page view, what's a page impression, what's a visit, a
14 visitor and all these things that just confuses
15 everybody. One of the things we should mention is the
16 IAB Canada. This is an international organization, the
17 IAB. There is the IAB in Europe. There is the IAB
18 that started in the States and the IAB in the States
19 came out with their own standards in terms of
20 measurements, what they said here is how we measure ad
21 impressions and things like that.
22 10492 In Canada we didn't just take that
23 and say, "Yeah, that's how we are going to do it too."
24 We actually modified that, their recommendations
25 because we were tripartite and we looked at it from
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1 different aspects. We modified what they came out with
2 and we said, "No. This is what we believe a real ad
3 impression was," and that was very important because
4 what were able to do as a tripartite organization is
5 say we all believe and we agree with these ways of
6 measuring, but it is very baseline and we really --
7 going back to your point, we really have to understand
8 what to measure and what not to measure.
9 10493 So, if you are looking at how can I
10 compare this industry to another industry, we have got
11 to look at this industry first and figure out what it
12 is that we are measuring and what are the terms because
13 as you are going through here last week and this week
14 and ongoing, and just coming up with the different
15 terminology that people are using, publishers, portals
16 and things like that, is enough to drive everybody
17 batty.
18 10494 So, let's come down with some certain
19 basic terms and measurements and then we can start
20 looking at how do we compare these in terms of
21 industry.
22 10495 COMMISSIONER GRAUER: Thank you.
23 10496 THE CHAIRPERSON: Thank you.
24 10497 Counsel.
25 10498 MS MOORE: Thank you, Mr. Chairman.
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1 10499 You mentioned this morning that in
2 your view the advertising industry has been very
3 effective in self-regulation through various codes of
4 conduct and complaint mechanisms. Just to clarify,
5 whether your members have undertaken to comply with
6 those various codes and complaint mechanisms with
7 respect to their on-line advertising activities, in
8 addition to advertising in more traditional media.
9 10500 MR. BOYD: To the best of our
10 knowledge, yes. We examine that on an ongoing basis,
11 but we are not formally involved in the screening of
12 advertising that is going out on the Web, but that code
13 certainly applies equally to us.
14 10501 MS MOORE: Thank you.
15 10502 With respect to the Ernst & Young
16 update, could you please indicate by what date you
17 would be in a position to file that on the public
18 record?
19 10503 MR. BOYD: We could get it to you
20 Monday of next week.
21 10504 MS MOORE: Thank you.
22 10505 And with respect to the A.C. Nielsen
23 data, would you be in a position to file that on the
24 public record as well?
25 10506 MR. BOYD: Yes. I would be happy to
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2440
1 provide a top-line summary of the numbers I quoted,
2 certainly.
3 10507 MS MOORE: And that would be my
4 Monday, presumably, as well?
5 10508 MR. BOYD: I would be delighted to
6 have it to you by Monday.
7 10509 MS MOORE: Thank you very much.
8 10510 Thank you, Mr. Chairman.
9 10511 THE CHAIRPERSON: Thank you.
10 10512 Thank you very much, gentlemen. It
11 has been an interesting discussion.
12 10513 We will take our lunch break now and
13 reconvene at 1:30.
14 --- Recess at 1210 / Suspension déjeuner à 1210
15 --- Upon resuming at 1333 / Reprise à 1333
16 10514 THE CHAIRPERSON: Good afternoon,
17 ladies and gentlemen.
18 10515 We will return to our proceeding now.
19 10516 Madam Secretary, the next party.
20 10517 MS BéNARD: Thank you, Mr. Chairman.
21 10518 The next presentation will be by the
22 Association of Canadian Advertisers.
23 PRESENTATION / PRÉSENTATION
24 10519 MS CURRAN: Good afternoon.
25 10520 Mr. Chair, Commissioners, thank you
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2441
1 very much for the opportunity to participate in this
2 hearing.
3 10521 My name is Joan Curran,
4 Vice-President with the Association of Canadian
5 Advertisers. My colleague is Bob Reaume, a consultant
6 working on this issue with the Association of Canadian
7 Advertisers.
8 10522 Our specific area of interest and
9 expertise is advertising and, accordingly, our comments
10 today will focus on the new media and its impact on
11 advertisers.
12 10523 First, who are we? Since 1914 the
13 ACA has been the voice of the advertiser. It is the
14 only association in Canada that represents the
15 interests of advertisers across all product and service
16 sectors, including manufacturing, retail, packaged
17 goods, financial services and communications. Our
18 members spend over $1.3 billion on advertising each
19 year in Canada.
20 10524 Before we provide our point of view
21 on the future of new media, I want to start with our
22 definition of the term. Advertisers define new media
23 as the video, audio, graphic and textual content and
24 the interactive services that are carried on the
25 Internet.
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1 10525 We also want to make clear from the
2 outset five points that provide some context to our
3 positions.
4 10526 As any new media have come along,
5 including radio and TV in their introduction, they have
6 benefited from the role and contribution of
7 advertisers.
8 10527 Advertisers want today's new media to
9 be strong, vibrant and affordable. Advertisers are
10 important stakeholders because they help reduce the
11 cost of access to new media for potential consumers.
12 10528 Advertisers have always supplemented
13 new media vehicles as they came along so that they
14 could communicate with their audiences. Advertising on
15 new media is already self-regulated, so no new
16 regulations are required.
17 10529 We believe that any additional
18 regulation will encourage Canadian advertisers to use
19 out-of-country sites, thereby reducing their economic
20 contribution to Canada. This would have negative
21 effects. One, it would increase access costs and, two,
22 it would decrease household penetration of this medium.
23 10530 Bob.
24 10531 MR. REAUME: Allow us now, if you
25 will, to elaborate on six key positions.
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1 10532 First, advertisers support rich media
2 choice. Consumers of the traditional media, print and
3 broadcast, have benefited from advertising.
4 Advertising in the media enables consumers to have a
5 wide range of choice among television programs,
6 newspapers, magazines and so on. This choice would not
7 exist without advertising dollars.
8 10533 Second, regulation would weaken our
9 growing Internet industry. Advertisers want a strong
10 and healthy Canadian Internet industry. In fact, we
11 welcome any new vehicle through which advertisers can
12 convey their commercial messages.
13 10534 Advertisers need more mechanisms to
14 convey their messages as consumers become more
15 discerning and sophisticated in their reading,
16 listening, viewing and buying habits.
17 10535 Any regulations that would restrict
18 advertising dollars to the Internet is unacceptable to
19 the ACA. With such restrictions, Canadian advertisers
20 would go outside Canada for their Web sites and the
21 Canadian Internet industry would be weakened.
22 10536 Any unnecessary obstacle to
23 advertising on the Internet in Canada will discourage
24 investment. No investment will result in a stagnant
25 Canadian industry.
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1 10537 MS CURRAN: Three, advertising's
2 economic contribution keeps the new media affordable.
3 10538 Advertising dollars keep the cost of
4 television, magazines and newspapers affordable for all
5 Canadian consumers, as they will the cost of the
6 Internet.
7 10539 The ACA recognizes that the new media
8 will evolve with or without advertising support, but if
9 Canada is interested in a new media industry that is
10 accessible to all Canadians, only advertising support
11 or heavy subsidies will ensure this occurs.
12 10540 Four, current regulations ensure
13 responsible practice. When we audited our members' Web
14 sites, we found that in every case their sites and
15 advertising adhered to the Canadian Code of Advertising
16 Standards and to all other laws and regulations. ACA
17 members, the leaders and exemplars of advertising
18 practice in Canada, are already behaving responsibly.
19 10541 In Canada, laws relating to
20 advertising already exist to ensure fair business
21 practices and consumer protection. The Competition Act
22 covers misleading advertising and running consumer
23 contests. The Packaging and Labelling Act and the Food
24 and Drug Act ensure proper labelling of all products.
25 10542 The Tobacco Industry Voluntary
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2445
1 Packaging and Advertising Code, the Broadcast Code for
2 Advertising to Children and the provincial guidelines
3 for the advertising of alcoholic beverages are already
4 in place.
5 10543 The Canadian Code of Advertising
6 Standards, first published in 1963, is an established
7 comprehensive self-regulatory code. It was developed
8 to promote the professional practice of advertising and
9 is administered by Advertising Standards Canada.
10 10544 The code's clauses set the criteria
11 for acceptable advertising and also form the basis upon
12 which advertising is evaluated in response to consumer
13 or trade complaints. The code is endorsed by
14 advertisers, advertising agencies and media which
15 exhibit advertising and suppliers to the advertising
16 process.
17 10545 Recently, the Board of Directors of
18 Advertising Standards Canada broadened the scope of the
19 code to include advertising on the Internet.
20 10546 MR. REAUME: Five, further regulation
21 will stifle innovation. To ensure Canadian content on
22 the Internet, it is very important that no additional
23 regulations be put in place.
24 10547 As this is a borderless medium, any
25 further regulations will result in Canadian advertisers
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2446
1 not producing and supporting indigenous sites but going
2 elsewhere.
3 10548 Advertisers are currently
4 experimenting or learning how best to develop and
5 deploy the Internet. Regulation can only reduce
6 innovation and reduce the learning curve of the
7 marketplace.
8 10549 The Internet is a powerful two-way
9 communication medium, literally changing from day to
10 day. To place any restrictions on it will only stifle
11 advertisers' use of this new medium at a time when much
12 innovation should be taking place.
13 10550 As stated earlier, historically the
14 growth of all new media has been nurtured and supported
15 by advertisers and advertisers have led, sponsored or
16 occasioned the evolution of new media, including media
17 measurement. There is every reason to believe that the
18 historical precedent will unfold.
19 10551 Point six, before closing, I would
20 like to address the issue of taxation of this medium,
21 specifically section 19 of the Tax Act. Other
22 submissions have stated that advertising expenditures
23 on non-Canadian new media should be disallowed as a
24 business expense deduction.
25 10552 Recognizing that taxation is not
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1 within the jurisdiction of this Commission but has been
2 raised in other submissions, advertisers would like to
3 express their disagreement with and opposition to this
4 suggestion. Specifically, we are opposed to any
5 disadvantageous tax treatment that amounts to an
6 unacceptable disincentive.
7 10553 Advertisers would, however, support
8 incentives that encourage business growth.
9 10554 MS CURRAN: In summary, Canadian
10 advertisers want all new Canadian media to be strong,
11 vibrant and affordable. Canadian advertisers want to
12 continue to play a role in this new media. Further
13 regulations that would restrict advertisers'
14 involvement in the new media would discourage economic
15 investment.
16 10555 There is no need to provide any
17 further regulations on advertising. Our existing laws,
18 guidelines and self-regulatory codes ensure fair
19 business practices and adequate safeguards.
20 10556 Thank you for the opportunity to
21 contribute to this process.
22 10557 THE CHAIRPERSON: Thank you, Ms
23 Curran, Mr. Reaume.
24 10558 Commissioner Wilson.
25 10559 COMMISSIONER WILSON: Good afternoon.
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2448
1 10560 MS CURRAN: Good afternoon.
2 10561 COMMISSIONER WILSON: I would like to
3 start our discussion this afternoon by going through
4 some of the things that you have put in your written
5 submission and I do want to ask you some questions
6 about some of the statements you made today in your
7 oral comments.
8 10562 I would also like to ask you some of
9 the same questions that I asked your colleagues at IAB
10 Canada, just with reference to sort of market behaviour
11 and advertising dollars and where they will go. I
12 think you were in the room during that discussion.
13 10563 MS CURRAN: Yes.
14 10564 COMMISSIONER WILSON: You probably
15 had a bit of time to think about it over lunch.
16 10565 You said that your organization has
17 been around since 1914, which is a really long time, a
18 lot longer than anybody in this room has been alive
19 probably.
20 10566 What kind of research does your
21 organization conduct? IAB Canada gave us the Ernst &
22 Young survey they had done. They have only been around
23 for a year. Do you conduct research on an annual basis
24 of your members?
25 10567 MS CURRAN: The sort of research we
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2449
1 do is really what our membership per se are interested
2 in. That may be one year, it may be a salary survey.
3 Most recently we conducted a survey on agency
4 remuneration, how advertisers are paying their
5 agencies.
6 10568 Then we do surveys just among our
7 membership when we are about to come before places like
8 the CRTC, but we don't have a traditional annual type
9 of survey that we produce for the industry.
10 10569 COMMISSIONER WILSON: Have you talked
11 to your members in any way, either formally or
12 informally, about their activities in new media?
13 10570 MS CURRAN: Yes.
14 10571 COMMISSIONER WILSON: Their
15 advertising activity.
16 10572 MS CURRAN: Yes. In fact, that's
17 when we went and audited their sites just to see what
18 in fact they were doing. That's when we were very
19 comfortable that they were applying the Advertising
20 Standards Code that was already in place, without
21 trying to get around it.
22 10573 It was really one of the reasons why
23 the ACA was founded, that whole sense of taking
24 responsibility for having the right to advertise and if
25 we don't do it responsibly, someone is going to tell us
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1 how we can do it.
2 10574 COMMISSIONER WILSON: Have you talked
3 to them at all about how much money they are spending
4 on advertising in new media?
5 10575 MS CURRAN: We know that the majority
6 of them have an Internet site. They are all
7 experimenting with it. Their biggest holdback, and
8 it's what IAB was talking about, is there is no
9 measurement tool out there right now to say if I put
10 money on this site or I advertise here, I know I am
11 reaching "X" number of my target audience.
12 10576 With that information not being
13 available, they are just sort of taking baby steps into
14 the market. But they know they have to be there. This
15 is the time for innovation. They can't wait until it's
16 all there.
17 10577 COMMISSIONER WILSON: What prompted
18 you to become a founding member of the IAB Canada?
19 10578 MS CURRAN: The main reason was so
20 the advertisers would be heard up front about what
21 advertisers wanted. What often happens in terms of
22 measurement or other things that happen to the
23 industry, it is the suppliers that often end up
24 dictating "This is the information that you will get".
25 10579 We wanted to be on the first, you
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1 know, at the beginning and saying "As advertisers,
2 these are what our needs are, so listen to us now so
3 that we not saying in two years from now you are not
4 giving us what we need".
5 10580 COMMISSIONER WILSON: Okay. On page
6 2 of your submission you state:
7 "The role of advertising and
8 success of the new media will be
9 critical. Affordability is the
10 key. Consumers will not pay in
11 any significant way to access
12 new media and governments will
13 not fund them in any significant
14 way and so once again
15 advertising will heavily
16 influence what will succeed or
17 fail."
18 10581 I'm just wondering if you could
19 explain what you mean by these statements, for example,
20 what you mean by "consumers will not pay in any
21 significant way to access new media and governments
22 will not fund them in any significant way"?
23 10582 MR. REAUME: Commissioner, I think,
24 as we have seen with if I can call them the old media,
25 newspapers, magazines, radio, TV, as we have seen with
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1 those, subscription rates to newspapers are quite low.
2 Subscription rates to magazines are still quite low.
3 10583 Consumers don't actually pay a fee to
4 watch television or listen to radio. They will not pay
5 other than their monthly access fee to the Internet,
6 they will not pay a significant amount of money to
7 access the new media. I think that's what we meant.
8 10584 COMMISSIONER WILSON: You are talking
9 about the monthly rate for an ISP.
10 10585 MR. REAUME: Right, a service
11 provider. That's right. I think over and above that,
12 unless you can prove them that they will be a net
13 beneficiary of some kind of value, over and above that
14 I don't think that they are poised to pay large sums of
15 money.
16 10586 It is a new medium and advertisers
17 will financially support that new medium. That's where
18 its fuel, if you will, will come from.
19 10587 COMMISSIONER WILSON: And what about
20 the part of that sentence that says "and governments
21 will not fund them in any significant way"?
22 10588 MR. REAUME: Well, we are just
23 presuming that there aren't large amounts of funds for
24 -- I mean some funds. The CBC, for instance, have
25 suggested that they want to be leaders in this area.
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1 We all know that the CBC in part are funded from the
2 public funds. There's one example.
3 10589 In terms of a large national outlay
4 for this kind of activity, we just don't see it
5 happening.
6 10590 COMMISSIONER WILSON: Are you talking
7 about, when you say governments will not fund them in
8 any significant way, access for individual Canadians or
9 are you talking about the creation of new media product
10 or --
11 10591 MR. REAUME: I would think more the
12 creation of new media product, the technologies. All
13 of that stuff that's necessary to get this -- to create
14 a big success out of this.
15 10592 COMMISSIONER WILSON: Thank you.
16 10593 You go on to say:
17 "Advertisers believe that it is
18 paramount that we have complete
19 access to the new media."
20 10594 I am sure you heard me say to the
21 IABC that there have been a number of different
22 definitions of access. Actually, we were just
23 discussing one of them, the access by individual
24 Canadians to the Internet.
25 10595 What do you mean by that, that we
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1 have complete access to the new media?
2 10596 MR. REAUME: In the same way that we
3 have unfettered access to radio as an advertising
4 medium or television as an advertising medium, we are
5 not restricted from commercial activities on these
6 media. I think we mean it in that way.
7 10597 COMMISSIONER WILSON: Are there
8 current barriers to your participation in that medium?
9 10598 MR. REAUME: Very few. I guess some
10 public broadcasting does not accept advertising in that
11 regard. I think of CBC Radio, I am thinking of Ontario
12 and Alberta public access.
13 10599 COMMISSIONER WILSON: You are talking
14 about in traditional media.
15 10600 MR. REAUME: Yes.
16 10601 COMMISSIONER WILSON: I am talking
17 about in new media.
18 10602 MR. REAUME: No.
19 10603 COMMISSIONER WILSON: Are there any
20 barriers to you advertising?
21 10604 MR. REAUME: Currently, no.
22 10605 COMMISSIONER WILSON: No.
23 10606 MR. REAUME: We don't know of any.
24 10607 COMMISSIONER WILSON: Okay. In your
25 oral comments -- let me just find the reference -- you
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1 say under point No. 5 "Further regulation will stifle
2 innovation".
3 10608 I just went through and sort of
4 highlighted all of your references to additional
5 regulations, further regulations. I am just wondering
6 what are you talking about, which regulations are you
7 talking about?
8 10609 MS CURRAN: Speaking in terms of
9 advertising, we don't want there to be any additional
10 restrictions put on what the advertisers can say, the
11 content of the commercial.
12 10610 COMMISSIONER WILSON: Additional to
13 what?
14 10611 MS CURRAN: To all the codes that are
15 currently in place.
16 10612 COMMISSIONER WILSON: Okay.
17 10613 MS CURRAN: Like the Advertising
18 Standards Code.
19 10614 COMMISSIONER WILSON: So you are not
20 talking about regulations that we have created.
21 10615 MS CURRAN: No.
22 10616 COMMISSIONER WILSON: Also, on page 2
23 of your written submission at paragraph 9 you state:
24 "Any attempts to regulate the
25 Internet would be difficult, but
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2456
1 that is not to say, however,
2 that anything should go."
3 10617 Are you suggesting with that
4 statement there are some types of restraints that you
5 think are appropriate or necessary?
6 10618 MR. REAUME: Well, certainly anything
7 that's illegal in the land should also be illegal on
8 the Internet. I guess that's what we were trying to
9 get at there, there are certainly legal activities.
10 Just because it's an international borderless difficult
11 to regulate medium, it doesn't mean that anything
12 should go. The criminal law and certainly advertising
13 law should pertain to the activities on the Internet
14 also.
15 10619 COMMISSIONER WILSON: You talked
16 earlier during your oral comments and you talk in your
17 submission about the problem that you face, that
18 advertisers face, in terms of accurate and
19 comprehensive audience measurement.
20 10620 You mentioned that there are several
21 companies currently offering independent third party
22 auditing. IABC also mentioned that there were
23 independent companies. Who are these companies and
24 what kinds of measurement are they doing?
25 10621 MS CURRAN: A.C. Nielsen does an
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1 audit. That's the key one that I know of in Canada
2 that is doing it. The rest are places in the U.S.
3 Again, it's sort of taking their data and extrapolating
4 it for Canada.
5 10622 As AIB was saying, we are still
6 struggling with the definitions and is that the
7 appropriate definition and does that mean anything to
8 advertisers. You may have 400 hits, but if it's a hit
9 that's a flash and no one is actually staying and
10 reading your message, that's not very valuable to an
11 advertiser.
12 10623 COMMISSIONER WILSON: When you made
13 the statement that you think the CRTC has an important
14 coordination role to play, you were quite serious,
15 especially because it is difficult to define right now
16 what the audience measurements might be.
17 10624 MS CURRAN: That's right. You don't
18 want one group coming up with definitions and then
19 another group coming up with a different set of
20 definitions.
21 10625 There should be some coordination of
22 all these definitions that everyone can agree to.
23 Therefore, we can come up with a form of measurement
24 that will give everyone the statistics and information
25 that they are looking for.
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1 10626 COMMISSIONER WILSON: Let me just ask
2 you about point No. 6, starting on page 7, where you
3 address the issue of taxation under section 19 of the
4 Income Tax Act. You refer to:
5 "Other submissions that have
6 stated that the advertising
7 expenditures on non-Canadian new
8 media should be disallowed as a
9 business expense deduction."
10 10627 I can't tell you that I am completely
11 familiar with the Income Tax Act myself. Why would
12 advertising on non-Canadian Web sites -- why do you
13 think it should be allowable as an income tax
14 deduction? If you are not spending the money in
15 Canada, why should you be able to deduct it?
16 10628 MR. REAUME: A lot of business
17 expenditures take place out of the country and they are
18 still deductible as a business expense. If you
19 purchase an airline ticket in the United States, you
20 don't lose that as a business deduction.
21 10629 Our point here is that consumers
22 choose where they want to consume media. To tax any
23 medium in order to force them to consume Canadian media
24 is a regressive measure, an anti-growth measure.
25 10630 We understand the social policy
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1 behind it, but we think that perhaps an incentive
2 rather than a disincentive is the proper way to
3 encourage that kind of behaviour, not a regressive
4 measure like taxes.
5 10631 COMMISSIONER WILSON: So you would
6 stake out the same position then with respect to
7 advertising in traditional media, television for
8 example.
9 10632 MR. REAUME: Yes.
10 10633 COMMISSIONER WILSON: If Canadian
11 companies want to advertise on stations in the U.S.,
12 that should be an allowable business deduction.
13 10634 MR. REAUME: Yes.
14 10635 COMMISSIONER WILSON: What I would
15 like to do now is ask you some of the same questions
16 that I asked IABC flowing out of the Telus submission.
17 I will just sort of repeat them. You probably don't
18 remember them in detail. I will just go through them
19 again. I would like to hear your views.
20 10636 One of the recommendations that Telus
21 made in its submission was that the traditional
22 broadcasting regulatory regime should be dismantled
23 because as advertising migrates to new media, their
24 revenues will fall and they won't be able to fulfil
25 their regulatory obligations because they won't have
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1 the money.
2 10637 The point that Telus stressed to us
3 was that the Intenet gives advertisers opportunities
4 that they don't have in other media, that that would be
5 very appealing to them and that's what will drive this
6 migration.
7 10638 For example, the opportunity to
8 combine the advertising and the buy with the click of
9 the mouse. You can have the ad in a click-through and
10 you can purchase the good, whatever it is, right away.
11 10639 How strong a driver do you think that
12 characteristic of advertising on the Internet is going
13 to be?
14 10640 MS CURRAN: Well, it will certainly
15 be a factor, but until there is measurement, that will
16 hold that migration back. I think if we look again
17 historically, when television came along, they said
18 that's the end of radio and it wasn't the end of radio
19 and it wasn't the end of newspapers.
20 10641 I think what advertisers are happy
21 about is it has now added another medium. It's not
22 that it has taken the other ones away. It has created
23 an addition, giving them more opportunities. As the
24 target audience gets more fragmented, some will be
25 using the Internet, some will be watching television,
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1 some will be reading newspapers. They can reach them
2 all.
3 10642 It's a bonus. It's an addition.
4 It's not going to replace anything. That's really how
5 I would say advertisers are feeling about it right now.
6 10643 MR. REAUME: I would like to add on
7 to that. It's preposterous I think first of all to
8 suggest that broadcasters should no longer be regulated
9 because there's competition in town.
10 10644 As a matter of fact, there are two
11 characteristics of the Internet. One is when we get
12 this all worked out, it will have more precise and
13 greater measurability. It has by its technological
14 nature that potential. We will be able to measure
15 things better.
16 10645 The second characteristic is that it
17 will be priced. At some point in the future, marketers
18 and advertisers will be able to pay for exactly what
19 they get. There will be results oriented pricing.
20 Perhaps the almighty cost per thousand or cost per
21 ratings that we use on television will go by the way.
22 10646 What marketers will pay for will be
23 so much per lead generated, so much per sale made,
24 results oriented. Those two things, greater
25 measurability and results oriented pricing, will I
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1 think do the opposite for television. That is it will
2 raise the expectation for television and for all other
3 media.
4 10647 Now the Internet will set the
5 standard and all those other media will have to come up
6 to that kind of performance level.
7 10648 COMMISSIONER WILSON: We talked this
8 morning about the notion of the mass audience and how
9 important that is for advertisers, in addition to which
10 it is quite measurable because all of that has been in
11 place for a long time.
12 10649 When you look at what is there now,
13 when you look at the kinds of traffic that you see
14 through some Web sites, do you consider that a mass
15 audience? Does it change the way that you think about
16 a mass audience? It's a niche audience.
17 10650 MS CURRAN: I think mass audience
18 means you can still reach the masses, but it's through
19 different vehicles. You are reaching some of them
20 through the Internet, some of them through television,
21 some of them through radio. It's not going to
22 necessarily become the new mass media. The advertisers
23 want all of those different choices.
24 10651 COMMISSIONER WILSON: TV would still
25 be the most popular.
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1 10652 MS CURRAN: At this point, yes.
2 10653 COMMISSIONER WILSON: And the most
3 powerful medium.
4 10654 MS CURRAN: At this point it's the
5 best at building brands which is the whole image thing
6 that advertisers want, the cache they want around their
7 product.
8 10655 MR. REAUME: May I add to that
9 television is also splintering away from mass
10 executions. We have in this country, as you know, many
11 specialty channels that cater to niche markets, so that
12 medium itself is becoming a niche market.
13 10656 On the Internet, I can think of
14 several sites that are mass sites and I can think of
15 several hundred sites that are niche sites also.
16 Here's a new medium that is starting out with
17 everything, isn't building from a mass base and
18 splintering, but starting out with lots to offer.
19 10657 COMMISSIONER WILSON: Thank you for
20 your thoughts on that.
21 10658 On page 2 of your submission you
22 state:
23 "Advertising is taking a hand in
24 launching and sustaining a new
25 media system."
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2464
1 10659 You make a similar comment on page 7
2 of your oral remarks where you say:
3 "-- historically the growth of
4 all new media has been nurtured
5 and supported by advertisers and
6 advertisers have led, sponsored
7 or occasioned the evolution of
8 new media --"
9 10660 When Telus appeared before us, they
10 brought with them Dr. John Carey who teaches at
11 Columbia University. He said, and you probably heard
12 me say this morning, that advertisers follow audiences,
13 they do not lead, that they go where the eyeballs are.
14 10661 MS CURRAN: Yes.
15 10662 COMMISSIONER WILSON: Is that
16 consistent -- I mean from what you have said about your
17 members waiting to see how the whole environment
18 evolves with respect to measuring how many people are
19 going to which sites, would that be consistent with
20 what you know of their behaviour?
21 10663 MS CURRAN: I think it's true for
22 advertisers. They are not going to go where they are
23 not going to reach any of the people they want to buy
24 their product. In that sense they do follow the
25 eyeballs, but it is the measurement that lets you know
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2465
1 where the eyeballs are. We don't have the measurement
2 right now on the Internet.
3 10664 They are out there doing innovative
4 things, moving beyond just banner ads and trying
5 different things. They are doing this because they
6 know that this medium is here to stay. They are not
7 sure what they are getting out of it yet.
8 10665 COMMISSIONER WILSON: Then the idea
9 that the advertising dollars will shift from
10 traditional broadcasting to the Internet in a dramatic
11 way, that it will happen all of a sudden, what's your
12 sense?
13 10666 MS CURRAN: I have never gotten that
14 sense that that is what is going to happen. I think
15 they will either get incremental dollars -- if they can
16 justify that they will get incremental sales out of it,
17 it will be incremental dollars or they will shift
18 probably the dollars they have.
19 10667 Advertisers have limited budgets.
20 They don't all of a sudden say "Oh, new media, I'm
21 going to come up with another million dollars to spend
22 in it".
23 10668 They probably look at what their
24 budget is and then allocate it accordingly to where
25 they are going to get the biggest bang for their
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2466
1 dollar.
2 1400
3 10669 MR. REAUME: I might add also, and I
4 believe this morning you used the term "a dam that's
5 ready to burst." This is personal, but I don't see a
6 pent up hydro-electric project that is going to burst
7 its dams here. I think that there will be very
8 significant revenue flows over the next 10 years to new
9 media, significant and profound revenue flows to the
10 new media, but I don't think it is going to be that 25
11 per cent of broadcast revenues in two years are going
12 to migrate to the Internet. It is just not going to
13 happen.
14 10670 As the gentleman from IAB did say
15 though, we are all sort of looking into our crystal
16 balls and so no one really knows what is going to
17 happen.
18 10671 COMMISSIONER WILSON: Finally, I
19 would just like to ask you your opinion about the whole
20 notion of the advertising pie and this relates to the
21 idea that the dollars will migrate from one medium to
22 another.
23 10672 Several of the intervenors to this
24 process have talked about advertising dollars being a
25 key indicator of whether or not the Internet or new
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2467
1 media are a direct competitor to the traditional media.
2 And implicit in this suggestion is the notion that the
3 advertising pie stays the same, that it doesn't get any
4 bigger, so that when the dollars move away from the
5 traditional media to new media they are gone from there
6 and now they are over here.
7 10673 One of the things that we talked
8 about this morning was the idea that there will be new
9 sources of money, that the advertising budget will be
10 used very much the way it is used, but because you can
11 do things with new media that you can't do in
12 television in terms of personalizing your delivery and
13 combining the advertising with the point of sale, that
14 other line items in the budget will be used for the new
15 media activity, the new media advertising activity
16 because they will be performing functions through that
17 advertising that are traditionally performed in other
18 ways.
19 10674 It's an interesting idea because it's
20 another indication of how new media will transform
21 traditional business models. So, you might take money,
22 for example, out of your sales budget and put it into
23 advertising on the Web because you are going to be
24 selling something, like a computer or a fishing rod or
25 dog food or whatever. I just wanted to get your view
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1 on that. Do you see that the advertising pie would
2 stay the same size or would additional dollars be
3 injected?
4 10675 MS CURRAN: If they made a business
5 case that they would get incremental sales by adding
6 advertising dollars, then they would add advertising
7 dollars is historically how they develop their budget.
8 I mean, when new channels came on, when it made sense
9 some of them increased their budget because that was
10 where their target audience was. It was a niche, but
11 they got value out of those incremental dollars and
12 that would be the same case, I would think, for the
13 Internet. They might rejig them, but they may also
14 spend more and as Bob has said, once that gets
15 measurable that will make all the other media have to
16 rise to the occasion.
17 10676 COMMISSIONER WILSON: I think Mr.
18 Boyd said this morning that you might take dollars out
19 of sales, out of marketing, out of public relations and
20 not out of your advertising budget, that your
21 advertising budget would remain, but you would take
22 money from other areas and funnel it into your Web
23 activity, just because you are performing a lot of
24 those functions.
25 10677 MR. REAUME: Yes. I can see that. I
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1 must admit I hadn't thought of that up until now and I
2 didn't hear Mr. Boyd's comments this morning, but I can
3 see that happening certainly.
4 10678 Now that I think of it, if you look
5 at marketing expenditures, not just advertising
6 expenditures, but total marketing expenditures in
7 Canada, almost three-quarters of marketing expenditures
8 are done in trade promotion. These are payments to
9 distributors who distribute manufacturers products and
10 services and that's a lot of money.
11 10679 It has been suggested that the
12 Internet will occasion a lot of disintermediation and
13 will we need car dealerships when people can purchase
14 cars on the Internet? Will we need travel agents when
15 they can go directly to the tour operators, et cetera,
16 so a lot of that disintermediation happens. A lot of
17 those trade promotion dollars perhaps could flow
18 towards the Internet. I can see that. I can see that
19 happening.
20 10680 COMMISSIONER WILSON: I want to ask
21 you one final question. I raised this this morning
22 with IAB about the notion of the link between a healthy
23 advertising market in new media and accessability of
24 the Internet to Canadians. I think what you said
25 during your oral comments today was that advertising
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1 allows the cost of service to individuals to be kept
2 within an affordable range. The more affordable it is,
3 the more Canadians will be able to hook up or wire
4 themselves.
5 10681 MS CURRAN: Yes. To us as time goes
6 on it is no different than if something is sponsored by
7 an advertiser or there is advertising on it, that keeps
8 the cost down for the consumer. I mean, the consumer
9 isn't paying to watch a particular TV show or pay more
10 for one than another. It's the advertising dollars
11 that enables the consumer to turn on the TV and watch
12 whatever they want to watch.
13 10682 Historically, there is no reason why
14 that would be different for the Internet than it has
15 been for any other media.
16 10683 COMMISSIONER WILSON: Thank you very
17 much.
18 10684 MS CURRAN: Thank you.
19 10685 THE CHAIRPERSON: Thank you.
20 10686 I think Counsel Pinsky has a question
21 or two.
22 10687 MS PINSKY: Thank you, Mr. Chairman.
23 10688 In response to some of Commissioner
24 Wilson's questions, I believe you noted that there are
25 relatively few mass sites in comparison with niche
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1 sites. I wondered if you could describe what you would
2 consider to be the characteristics of a mass site
3 versus a niche site?
4 10689 MR. REAUME: In simple terms, you can
5 take the presentation that was just previous before us.
6 There was a gentleman from CANOE here, or any of the --
7 that would be a mass site, pardon me.
8 10690 Any of the search engines, like Yahoo
9 or Excite or Alta Vista would be mass sites.
10 10691 A niche site would be General Motors,
11 Hershey, Royal Bank, Campbell's Soup and that would be
12 a smaller site where someone is going specifically to
13 search information about those particular products.
14 10692 MS PINSKY: You are referring both to
15 the audience, the scope of the audience, the viewers
16 that it would attract and the end users as well as -- I
17 guess that would relate as well to the scope of the
18 subject matter?
19 10693 MR. REAUME: Yes.
20 10694 MS PINSKY: Thank you very much.
21 10695 THE CHAIRPERSON: Thank you, counsel.
22 10696 Thank you very much, Ms Curran and
23 Mr. Reaume.
24 10697 Madam Secretary.
25 10698 MS BÉNARD: Thank you, Mr. Chairman.
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1 10699 The next presentation will be by the
2 Canadian Marketing Association, l'association
3 Canadienne du marketing.
4 10700 THE CHAIRPERSON: Good afternoon.
5 10701 MR. GUSTAVSON: Good afternoon.
6 PRESENTATION / PRÉSENTATION
7 10702 MR. GUSTAVSON: Thank you, Mr.
8 Chairman, Commissioners. I appreciate the opportunity
9 to make this presentation.
10 10703 My name is John Gustavson. I am the
11 President and CEO of what is now the Canadian Marketing
12 Association, most recently the Canadian Direct
13 Marketing Association. I will come back in a minute to
14 that change of name and perhaps what it indicates about
15 our very rapidly changing marketing world.
16 10704 I am accompanied this afternoon by
17 our Vice-President of Public Affairs, Amanda Maltby, on
18 my right, and the Chairman of our Interactive Marketing
19 Council, Brian Bimm, on my left. Brian is also
20 President of a direct response agency that has a number
21 of clients dealing in new media.
22 10705 What I would like to do is just spend
23 a moment taking you through our brief, highlighting it
24 for you and some of the key points that we would like
25 to present to the Commission.
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1 10706 Certainly, this Association with 750
2 corporate members and some 3,000 individuals is now the
3 largest marketing association in the country. Our
4 members use all sorts of media to present offers to
5 consumers, receive their responses and then fulfil the
6 orders that they place. It is a fully integrated
7 medium and one of the characteristics, of course, is
8 that the offers may be presented to the consumer in one
9 medium and they choose a totally different medium to
10 respond.
11 10707 Our members include the larger
12 Canadian financial institutions, publishers,
13 cataloguers, retail organizations, charitable
14 fundraisers, relationship marketers and those engaged
15 in supplying those with goods and services, those
16 companies, including fairly heavy exposure in
17 electronic commerce.
18 10708 We have seen over recent years an
19 explosion in the ability of marketers to communicate to
20 customers through a variety of new medium. The new
21 technologies and consumer demand have shifted marketing
22 practices significantly from mass communications to
23 consumer-specific messaging. Interactive media in
24 particular has allowed us to acquire customers, build
25 relationships, create databases, provide services and
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1 of course in the end sell those products and services
2 to consumer.
3 10709 We have seen a convergence of
4 marketing technologies and techniques, so that we can
5 now reach what was previously a fragmented audience on
6 very much a one-to-one basis with personalized offers.
7 We believe this has been good both for business and for
8 consumers. For business, obviously, it is a very cost
9 effective way to market and sell to a greater audience.
10 For consumers those offers can more closely reflect
11 their personal tastes. They can get quick product
12 information, price information, quality comparisons and
13 do so at any time of the day or night.
14 10710 I am sure that having read the
15 transcripts I know that you have had a lot of
16 statistics thrown at you over the past couple of weeks.
17 The one thing about the Internet, it is becoming very
18 much affordable and open to most Canadians. There are
19 very few financial barriers to accessing the new media
20 for consumers, as prices increasingly drop with
21 economies of scale.
22 10711 Certainly, some of the estimates that
23 well over 30 per cent of Canadians now have access to
24 the Internet and it is growing rapidly, and billions of
25 dollars in transactions by early in the next
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1 millennium. But we would suggest to you that it is
2 important to recognize that the full potential of this
3 new medium, the various new media, have not been
4 realized.
5 10712 Some have been very quick to jump
6 into electronic commerce and have been successful.
7 Others have jumped in and found it not particularly
8 worthwhile or successful. And many, many others are
9 simply sitting back and observing, assessing the value
10 and watching the success or failure of their
11 competitors and the patterns particularly of consumer
12 response.
13 10713 Financial services, I would suggest,
14 is one exception. Canadians have embraced that with
15 open arms, using new media to conduct their financial
16 transactions. I would certainly be prepared to explore
17 that in some detail during questioning if you wish.
18 10714 It is our belief that those who wish
19 to benefit from the Internet for commercial purposes
20 should lead in its development, but that is only going
21 to take place in an environmentally friendly regulatory
22 atmosphere. Certainly the growth of the Internet has
23 been, we would suggest, connected to regulatory freedom
24 and that is something that we think will continue to
25 promote its growth.
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1 10715 However, there is, in our view, also
2 a very proper and necessary role for government
3 intervention in the marketplace -- intervention that
4 will encourage confidence and understanding by
5 consumers and using the new media and promoting
6 commercial success and economic growth.
7 10716 We think that the proper role of
8 government in that context is to ensure that the
9 existing regulatory and legal framework for commerce in
10 Canada applies equally to new media. That would
11 include such things as security of payments, protection
12 against fraud, protection against misleading
13 advertising, protection of privacy of personal
14 information being extremely important. Things such as
15 the children advertising regulations under the
16 Broadcast Code should equally apply to the new media.
17 10717 We also believe that any new
18 regulatory moves must be made in the current context of
19 both the international as well as the domestic debate
20 on such issues as self-regulation, competition and
21 taxation. And there are lots of examples of what is
22 going on in other forums.
23 10718 In October, Canada hosted the OECD
24 Ministerial Meeting on Electronic Commerce and some of
25 the major initiatives there included taxation and
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1 privacy.
2 10719 Bill C-54 is currently before
3 Parliament. That will regulate the use of personal
4 information in all commercial transactions, not just in
5 the federally regulated private sector, but after three
6 years in the provincially regulated private sector as
7 well.
8 10720 Bill C-20, now before the Senate,
9 dealing with amendments to the Competition Act and
10 misleading advertising, the ability to use wiretap and
11 telemarketing fraud -- there are numerous areas where
12 consumers, governments and business are already
13 discussing ways to encourage the growth of new media,
14 but in a responsible manner and a proper regulatory
15 framework.
16 10721 So our suggestion is with all this
17 other activity going on it is necessary to proceed
18 cautiously with any regulations that would affect the
19 private sector's ability to growth, contribute to job
20 creation and the economic growth of the country.
21 10722 The new media is sometimes hard to
22 define, also conceptually. It does functionally
23 certainly perform some broadcast functions. It
24 certainly can be live voice interaction in a
25 tele-communications service. Certainly all of these
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1 are used together to establish a dialogue with
2 customers and potential customers as far as marketers
3 are concerned, and certainly the new media consist
4 collectively as an ability another route to communicate
5 with your customers and hear their communications back.
6 10723 But we would also suggest that there
7 are many unique characteristics and that perhaps is why
8 we have sometimes conceptually some difficulty getting
9 our heads around this. It certainly has its
10 international aspects and it has relative anonymity.
11 It has an immediacy. It can have a real time dialogue
12 with consumers. All of these suggest that there is
13 something more and above what has traditionally been
14 described as broadcaster telecommunications.
15 10724 On the way up here I was thinking
16 that -- and it occurred to me as an analogy that, and I
17 haven't fully explored this in my mind, but it occurred
18 to me that when the automobile came along it was for a
19 long time described as the horseless carriage because
20 those were the terms we were used to using and the
21 concepts we used to have. It took some time before the
22 full concept of a brand new industry and a brand new
23 concept, although it still delivered people from point
24 to point, it came along and we understood there were
25 some unique characteristics and we needed different
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1 rules and regulations to govern it.
2 10725 So we do not suggest that this
3 collectively new media should be defined in its
4 traditional terms, or that the regulatory roles of
5 governments can as well. And, in fact, the borderless
6 nature of the media means that if Canada does certain
7 things in terms of unnecessary domestic regulation, it
8 is going to damage the role and growth of new media and
9 the contribution it can make to this country because
10 not only will it develop elsewhere, Canadians will have
11 full access to it on an international basis.
12 10726 We believe that the role of
13 self-regulation should not be underestimated. It is a
14 good and effective tool to achieve public policy
15 objectives in many cases and combined with appropriate
16 government intervention can effectively help the new
17 media drive commercial growth in the country and still
18 protect consumers.
19 10727 We have had a code of ethics and
20 standards of practice in place for several decades now.
21 It became compulsory for our members in 1993 and has
22 been amended several times, including to add practical
23 standards for our members in Internet marketing.
24 10728 I would like to stress, however, that
25 it is mandatory. This is not a model code. These are
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1 not guidelines for our members. All of our members
2 must sign a commitment every year to comply with our
3 code of ethics. It governs the full range of marketing
4 activity and fair business practices, privacy,
5 misleading advertising and governs our members'
6 activities no matter what medium they happen to be
7 using.
8 10729 This is because we believe that it is
9 in the commercial self-interest of those using the new
10 medium for business purposes to self-regulate to build
11 consumer confidence and any marketer today will tell
12 you that the key to commercial success is consumer
13 confidence and trust. Ethical marketers these days
14 want you to come back and buy again and again and again
15 and they intend to treat you properly during the
16 process of making your buying decision and after you
17 place your order.
18 10730 I indicated earlier we believe the
19 new media have some unique aspects and, in fact, we
20 have added some media specific rules to our code of
21 ethics. We have banned the unsolicited sending of
22 marketing e-mails, sometimes known as spam, so our
23 members cannot communicate with you using that medium
24 without your consent.
25 10731 You may not collect information about
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1 a consumer without their permission. You must tell
2 them what you intend to do with that information and
3 you must have their consent to proceed.
4 10732 Recently we have also considered the
5 issue of establishing specific guidelines to marketing
6 to children using the media. However, we discovered
7 that in fact when we consider those issues they seemed
8 equally applicable to whatever our members were doing,
9 whatever medium they chose to use and, therefore, we
10 have developed a full new set of marketing to children
11 guidelines that will apply not only to electronic
12 commerce, but also to the more traditional medium and
13 those will be announced publicly in January.
14 10733 In conclusion, I would simply say
15 that we believe that there is a good opportunity to
16 provide a regulatory framework for the growth of
17 electronic commerce and the use of new media, and it
18 has been considered in many different forums, both
19 internationally and domestically at the present time
20 and that any decision by this Commission should
21 complement that ongoing debate and various discussions
22 that include consumer groups, business and the
23 government.
24 10734 Thank you very much.
25 10735 THE CHAIRPERSON: Thank you, Mr.
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1 Gustavson.
2 10736 I will turn the questioning to
3 Commissioner McKendry.
4 10737 COMMISSIONER McKENDRY: Thank you,
5 Mr. Chair, and good afternoon. Thank you for coming to
6 share your views with us today.
7 10738 Just let me start with an observation
8 and I will get your comments on that. One of the
9 things that strikes me about your Association and your
10 members that's a little bit different from some of the
11 parties we hear from is that seemingly you are not
12 afraid to identify issues like children, marketing to
13 children, privacy, spam, identify them and deal with
14 them head-on. In fact, I think your Association and I
15 think you say in your comments is supportive of the
16 privacy legislation that is in front of the House of
17 Commons now and you have put in place an extensive
18 self-regulatory process to deal with some of these
19 issues.
20 10739 What is it about your members that
21 drive you to be so proactive in these areas?
22 10740 MR. GUSTAVSON: I would say,
23 Commissioner, that it is a great realization I think on
24 the part of marketers that you are in this for the long
25 run. You are here to build consumer confidence in
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1 doing business with your company and there is this
2 whole concept of marketing these days known as the
3 lifetime value of a customer, that it is not just the
4 initial purchase.
5 10741 In fact, you may not make that much
6 money on the initial purchase, but where you are really
7 going to have value from the customer is the fact that
8 they continue to wish to do business with you and that
9 their good will will spread to others who may also
10 choose to do business with you because of your
11 reputation.
12 10742 As consumers face a plethora of
13 offers, and some of them quite complex, from all sorts
14 of different media, how do you sort that out? Well,
15 you sort it out by people's reputation, their brand,
16 their image, the fact you know friends, relatives or
17 neighbours may have done business with this company
18 successfully.
19 10743 We believe that that consumer
20 confidence is the core to our members' economic growth
21 and that is what they believe. So, strong
22 self-regulation, making consumers aware of that
23 self-regulation, making sure that they know that there
24 is a way of solving problems should they have them, to
25 us is simply makes good business sense.
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1 10744 We are not sitting here trying to be
2 totally altruistic. We are trying to build our
3 businesses and we think that is an effective way of
4 doing so.
5 10745 COMMISSIONER McKENDRY: One of the
6 problems that has existed for the Commission and other
7 regulators and governments is that not all members or
8 companies in the private sector are members of your
9 Association, or associations like your Association, and
10 that has always, it seems to me, caused a dilemma for
11 public policy makers and regulators. On one hand you
12 have some companies, several companies in your case,
13 attempting to do the right thing and doing the right
14 thing. On the other hand, some companies choose not to
15 be members of associations like yours and aren't doing
16 the right thing.
17 10746 As we go forward in all of this, do
18 you have any thoughts about how we can reconcile that
19 dilemma we face?
20 10747 MR. GUSTAVSON: I think there are two
21 parts to it. We dealt extensively with this issue most
22 recently in Bill C-20 in trying to combat
23 tele-marketing fraud and encouraging its passage
24 through Parliament.
25 10748 The reason in 1995 we came out
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1 publicly in favour of the federal government passing
2 national privacy legislation was because we concluded
3 that business in Canada was not going to
4 comprehensively self-regulate on the issue, and we have
5 some other precedents where we have gone before this
6 Commission on the telemarketing industry several years
7 ago in co-operation with Bell Canada and encouraged it
8 to enact certain tariff provisions that would require
9 those using the telephone for business purposes to
10 comply with our code of ethics.
11 10749 So there is a point in time where
12 there is a widespread societal issue which we believe
13 can only be handled by appropriate government
14 regulation and that does not have to be detailed codes
15 of conduct. That can be basic principles. The
16 government doesn't have to wade in and govern the
17 day-to-day conduct of its corporate citizens, but can
18 establish some principles by which all businesses can
19 be guided. So that's the one aspect.
20 10750 The other aspect, however, is no
21 matter how many laws you pass, how many regulations you
22 enact, no matter how much activity governments or
23 regulatory bodies take, there are going to be people
24 out there determined to act illegally, to defraud
25 people and they are going to find victims. It still
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1 astonishes me how many people call because they have
2 sent either their credit card number off into
3 cyberspace and have no idea where it has gone, or for
4 that matter have dropped a cheque in the mail addressed
5 to some Post Office box in Las Vegas, and now they want
6 our help in trying to find out where their money went.
7 10751 So, to me the number one defence in
8 all of this is an educated, cautious consumer, who
9 knows how to ask the right questions and it's not that
10 difficult. There are some very simple rules consumers
11 can follow, but I really do believe that in this day of
12 rapidly changing technology, techniques, offers to
13 consumers, the ability to reach consumers and for
14 consumers to access these offers, that public education
15 on how to be a smart consumer is the number one defence
16 against some of these problems.
17 10752 COMMISSIONER McKENDRY: In terms of
18 public education, particularly as it relates to the
19 Internet, where do you see the responsibility for that
20 lying, with the private sector, with government, with
21 both, with the CRTC?
22 10753 MR. GUSTAVSON: I have always had a
23 laugh at my American colleague whose view is that the
24 least government is the best government and I have to
25 explain that in Canada we take a slightly different
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1 view, a little more co-operative approach on this
2 basis. So, I would select to your last option of a
3 combination of both.
4 10754 I think those who want to profit from
5 the Internet have a clear incentive, a commercial
6 incentive to go out and build consumer confidence,
7 whether that's by display of a logo that stands for the
8 membership in an organization such as ours, or another
9 reputable organization, whether it is participating in
10 public education campaigns as we have done extensively,
11 or whether it is encourage government from time-to-time
12 to actually appropriately set up proper standards that
13 business has to comply with.
14 10755 I am not trying to be too vague in
15 the answer, but I really do think that it is a
16 combination of both.
17 10756 COMMISSIONER McKENDRY: Has your
18 Association carried out any public education campaigns
19 specific to electronic commerce or the Internet?
20 10757 MR. GUSTAVSON: Not specific. We
21 have carried out a number of public education campaigns
22 in how to evaluate a company in terms of whether or not
23 you want to do business, but we are not media specific,
24 nor do we favour one medium over another particularly.
25 We love it all.
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1 10758 We would encourage people to do
2 business, whether it is responding to a 1-800 number in
3 a television ad or something they see on the Internet
4 or a telephone call they receive, these cautions apply
5 to all media, not just the new media.
6 10759 COMMISSIONER McKENDRY: I was
7 interested in your comment in your oral comments about
8 the Internet becoming affordable. One of the comments
9 that is raised about the affordability of the Internet
10 is that, yes, the monthly subscription fee for access
11 to the Internet is affordable, but that a consumer has
12 to buy a computer and learn how to use that computer in
13 order to take advantage of those affordable rates. To
14 what extent do you think that the price of the
15 appliance to use the Internet and the ability of people
16 to use it will limit the growth of the Internet and in
17 effect limit it as a marketing tool for your members,
18 or just to follow on that, is the demographic of the
19 people that already have them the demographic that you
20 are trying to reach and that's not an issue for you?
21 10760 MR. GUSTAVSON: I suppose the
22 appropriate comment is we are still very much in the
23 early stages. The widespread commercial use of the
24 Internet and the Web is only a few years old. I would
25 disagree to some extent with one of your basic
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1 premises, that you have to go and buy a computer.
2 1435
3 10761 There are appliances that you can buy
4 at much less cost than a computer that will simply give
5 you access to the Internet, not the other computing
6 ability, but certainly access to the Internet. In
7 fact, you can have your television interact as well.
8 10762 Increasingly we are going to see
9 those new types of appliances become more affordable.
10 I would take you back to the early days of television.
11 If you took a percentage or some comparable cost in
12 society of buying a television in the early fifties, I
13 suspect it is already much cheaper to access the
14 Intenet than it was to buy a television in those days.
15 10763 With any new thing that you might
16 wish to have, whether it's a microwave or a VCR or
17 whatever, the price comes down over time. That is the
18 historic norm. It has been proven over and over again
19 and we are seeing it already.
20 10764 I don't think there are huge economic
21 barriers at the moment. It's not obviously as
22 widespread as televisions or telephones, but prices are
23 coming down. We don't see it as a mass medium yet.
24 It's getting there. But there are lots of other ways
25 of conducting a dialogue with a consumer than using the
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1 Internet.
2 10765 COMMISSIONER McKENDRY: Will there be
3 a shift away from so-called traditional forms of direct
4 marketing such as telemarketing and direct mail? Are
5 you anticipating a shift over time away from those ways
6 to reach consumers?
7 10766 MR. GUSTAVSON: It's going to be led
8 by consumer demand. I have no question. As usual,
9 they are the ones with the money. It's going to depend
10 on what they want and how the find it easy to make
11 their selections, look at offers.
12 10767 Our experience is that many consumers
13 get on the Internet, look through, do some comparison
14 shoppings for the qualities or features that are of
15 most interest to them, turn off the computer and walk
16 down and buy the product at the retail store.
17 10768 They still want to touch, feel,
18 smell, try on, whatever it happens to be before they
19 make the final decision or they would rather pick up
20 the 1-800 number because they are more comfortable with
21 that and actually complete the transaction.
22 10769 That we believe is quite normal as
23 consumers get more comfortable with a new medium. You
24 see an explosion in dealing with financial transactions
25 over the Internet and by telephone banking. Obviously
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1 Canadians have voted with their pocketbooks in that
2 regard.
3 10770 In terms of the shift, there will be
4 a normal evolution as marketing dollars shifted to
5 television from radio and so on, but we also see the
6 whole marketing communications pie growing larger and
7 larger. Incremental dollars in marketing are flowing
8 to information based marketing. The use of personal
9 information to present offers or tailor offers, whether
10 it is on your Web site or another medium, really
11 reflect what you believe a consumer's interest would
12 be.
13 10771 Incremental dollars are flowing
14 there. People aren't going to abandon brand
15 advertising and image advertising altogether. Rather
16 than an abandonment of some of the traditional
17 marketing expenditures, we would see incremental
18 dollars flowing to the new media and new marketing
19 techniques.
20 10772 COMMISSIONER McKENDRY: Let me take
21 you back to your term information based marketing. It
22 might be helpful for us if you could just elaborate
23 what that term means, at least in the context of direct
24 marketing.
25 10773 MR. GUSTAVSON: Well, actually in the
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1 context of all marketing these days where people are
2 finding their marketing dollars becoming most
3 effective, or at least the incremental dollars, is an
4 ability to speak to the consumer about what the
5 consumer wants to hear. In other words, making the
6 message relevant and how do you do that.
7 10774 Well, you analyze your marketplace
8 and increasingly look at the demographics and personal
9 interests of the individual. We are not talking here
10 about going out and analysing any individual's buying
11 patterns particularly. That doesn't make economic
12 sense because you have to deal with each individual,
13 but creating a model buyer and then through the
14 information that you can gather.
15 10775 A subscription list of 500,000
16 people, a recent purchase of a million people there,
17 some demographic information and putting it all
18 together, you can come up with a pretty finite list of
19 people who might be interested in your product.
20 10776 Then you choose the most cost
21 effective way of reaching that person. It might be
22 advertising on a particular television program. It
23 might be sending them a catalogue. It might be placing
24 a phone call. It might be putting up a Web site and
25 promoting access to it.
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1 10777 The market will make that decision
2 purely on the basis of what's most cost effective to
3 reach the most number of potential buyers that have
4 been identified by this analysis of personal
5 information. That, of course, raises all sorts of
6 public policy issues on privacy but that's another
7 subject.
8 10778 COMMISSIONER McKENDRY: I think
9 people understand that it is fairly easy to get lists
10 of phone numbers, names and so on, addresses, these
11 days. How available are e-mail lists, people's e-mail
12 addresses?
13 10779 MR. GUSTAVSON: Well, one of the
14 problems with e-commerce is that the economics are
15 somewhat different. If I advertise more and more on
16 television, it costs me more and more. If I put more
17 and more magazine advertising out, it would cost me
18 more. If I send out 300,000, 3 million or 30 million
19 e-mail solicitations, it doesn't make a huge difference
20 to my cost.
21 10780 The whole economies of scale have
22 changed. You need a very small percentage if you are
23 sending out 30 million offers to make money. That's
24 one of the problems. That's one of the reasons we
25 banned our members sending out unsolicited advertising.
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1 It was becoming such an annoyance and the economics
2 really are different.
3 10781 These lists are extremely easily
4 available and they are very cheap.
5 10782 COMMISSIONER McKENDRY: I wanted to
6 ask you a bit about unsolicited e-mail or spam. I want
7 to come back to your voluntary code and have you talk
8 about that for a moment.
9 10783 First I want to ask you a bit about
10 the Commission's jurisdiction in this area. One of the
11 great subjects of debate during this proceeding has
12 been where the Commission has jurisdiction, where it
13 doesn't have jurisdiction, what's broadcasting, what
14 isn't broadcasting and so on.
15 10784 It seems to me, and I will put this
16 to you for your comment, that it's fairly clear that
17 unsolicited e-mail is an area where the Commission, if
18 it so chose, could exercise its regulatory authority
19 under section 41 of the Telecommunications Act.
20 10785 Is that your assessment of the
21 situation?
22 10786 MR. GUSTAVSON: I am going to decline
23 to give an assessment. Although a member of the legal
24 profession, I have no background in the specific
25 operations of the Broadcast Act, particularly section
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1 41.
2 10787 COMMISSIONER McKENDRY: The
3 Telecommunications Act.
4 10788 MR. GUSTAVSON: Thank you. Our point
5 is somewhat different. There is no need for the
6 Commission to intervene in areas where others are
7 already actively dealing with a subject and it may be
8 counterproductive to do so. In that I include the
9 areas of privacy, security of transactions, taxation
10 regimes and so on.
11 10789 We would have no objection if the
12 Commission chose to exercise its authority in that
13 regard. On the other hand, is the public policy
14 because of irritation because if it is simply
15 irritation, I'm not sure that's an appropriate exercise
16 of any jurisdiction that you might have, if I may be so
17 bold to make that suggestion.
18 10790 There is a difference between
19 intrusion into one's personal affairs and simple
20 annoyance. We would also suggest that the misleading
21 advertising guidelines would apply from the Competition
22 Act as to the content of the message as opposed to
23 regulations on its delivery.
24 10791 COMMISSIONER McKENDRY: Perhaps I
25 will just read to you section 41. If you have a
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1 comment after I read it, go ahead and provide it to me.
2 If you want to contemplate it, perhaps it's something
3 you could deal with in your final comments in the
4 proceeding.
5 10792 I will quote section 41. It says:
6 "The Commission may by order
7 prohibit or regulate use by any
8 person of the telecommunications
9 facilities of a Canadian carrier
10 for the provision of unsolicited
11 telecommunications to the extent
12 that the Commission considers it
13 necessary to prevent undue
14 inconvenience or nuisance,
15 giving regard to freedom of
16 expression."
17 10793 MR. GUSTAVSON: I would simply say,
18 Commissioner, that if the CRTC feels it does have
19 jurisdiction, and it would appear to be from that
20 reading, it should be cautious about exercising that
21 jurisdiction unless it has appropriate public policy
22 grounds beyond simply preventing irritation of the
23 consumer.
24 10794 COMMISSIONER McKENDRY: Perhaps we
25 could then talk about your self-regulatory practices.
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1 I notice you have included with the kit that you have
2 provided us today amendments to your code of ethics,
3 standards of practice for Internet marketing.
4 10795 There's a section in there that deals
5 with consent with respect to unsolicited e-mail and
6 talks about the different forms of consent, including
7 implied consent.
8 10796 Perhaps you could just give us some
9 comments on how your self-regulatory code deals with
10 the issue of unsolicited e-mail.
11 10797 MR. GUSTAVSON: Certainly. We
12 believe it is in the self-interests of marketers not to
13 annoy consumers. Therefore, as a result we have
14 required a second step. An individual must have an
15 existing relationship and an indication from the
16 consumer that they are prepared to receive marketing
17 electronic communications. That's one aspect of it.
18 There are others which I can deal with if you wish.
19 10798 We would say that there is plenty of
20 opportunity for people to encourage individuals who
21 wish to receive marketing communications to let them
22 know. You often have a relationship with the
23 individual through another prior purchase, existing
24 communications methods to do so and make that offer to
25 them.
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1 10799 Many people find that very convenient
2 and don't mind at all.
3 10800 With respect to consent, we would say
4 that there are at least three different types of
5 consent. The first is implied that you have referred
6 to. We would look on that as if somebody ordered a
7 magazine subscription from you and you had their
8 personal information, so you could fulfil the order.
9 10801 We would take it that the marketer
10 has implied consent as the subscription expires to
11 approach you and invite you to renew. If somebody buys
12 from your catalogue, electronically or otherwise,
13 implied permission to send you more editions of the
14 catalogue to see if you would like to buy more.
15 10802 Negative option consent is a
16 fundamental one for us. We require that before any
17 personal information is transferred to a third party,
18 before you transfer information to a third party you
19 have to make it clear to a consumer that you intend to
20 do so.
21 10803 From time to time we make our
22 marketing list available to another company that may
23 have goods or services of interest to you. We give
24 what our code calls a meaningful opportunity to
25 decline.
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1 10804 Our view and our experience is when
2 people don't like something to happen, they are more
3 likely to take action than when they are content.
4 Normal inertia, if you are content, would say I am not
5 going to bother doing anything.
6 10805 We think that is quite sufficient if
7 information is going to be transferred to a third
8 party. Where it's fairly innocuous, name, address,
9 phone number, nature of a list that's not sensitive, we
10 think that negative option consent in that regard is
11 fine.
12 10806 Let me just pause there to make a
13 clear distinction between what became, quite frankly,
14 mislabelled in a controversy over a cable company's
15 attempt to add new services without permission and
16 charge consumers for it.
17 10807 A lot of people called that negative
18 option. It was not. It was an unordered service. No
19 consumer should have to pay for an unordered service.
20 Certainly consumers in every province in this country
21 do not have to pay for unordered goods. In many
22 provinces, they have amended their legislation to
23 include services.
24 10808 We are not talking about unordered
25 goods or services when we talk about negative option.
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1 I am simply talking about a method of giving consent
2 for something to happen.
3 10809 If the information to be transferred
4 is in any way sensitive, our code requires that you get
5 positive consent, express consent from the consumer.
6 That could be a magazine subscription, depending on
7 what magazine subscription should be, or health
8 information or otherwise.
9 10810 We are very pleased to see these
10 concepts embodied in the new federal privacy
11 legislation.
12 10811 There are different types of consent
13 that can be given, but when it comes to electronic
14 commerce and some of its unique nature, we simply
15 banned the unsolicited sending of information and the
16 collection of information, if I could deal with that
17 for a moment.
18 10812 A lot of marketers requiring
19 information from consumers, and many of them intending
20 not to act unethically or improperly, but as people had
21 click stream data, you can identify an individual from
22 where they are clicking about your site. They were
23 starting to use that for marketing purposes. We felt
24 that was inappropriate if the consumer did not know
25 about it and did not have an opportunity to say no.
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1 10813 A lot of companies found it very
2 effective to operate chat rooms, almost instant focus
3 groups, people talking about their products and
4 services, giving comments, exchanging view. That's
5 fine, nothing wrong with that, but if you were
6 collecting information about those individuals, that
7 was inappropriate if they didn't know you were doing so
8 and most inappropriate to use it unless they knew what
9 you were going to use it for.
10 10814 Those are the types of things that
11 our amendments to our code tried to reflect in terms of
12 the unique nature of electronic commerce.
13 10815 COMMISSIONER McKENDRY: How do you
14 enforce your code?
15 10816 MR. GUSTAVSON: Well, like most laws
16 of this country are enforced. We wait until there is
17 some evidence that something has gone wrong, there is a
18 complaint or something has come to our attention that
19 there may have been inappropriate conduct.
20 10817 We then have an Ethics and Privacy
21 Committee that investigates. We will take action. We
22 will hold a hearing. We will take action. For the
23 most part what we find -- marketers aren't trying to
24 annoy consumers. They are trying to make them happy.
25 If somebody is engaged in some conduct that may have
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1 been a mistake or conduct that they simply weren't
2 aware was inappropriate, and a small committee of
3 association members going and visiting will often
4 correct the conduct.
5 10818 Occasionally we have had to go a step
6 further, but generally there's an investigatory and
7 hearing process in place to react to complaints.
8 10819 COMMISSIONER McKENDRY: Are there
9 outside parties involved in the hearing process? For
10 example, the Cable Television Standards Council which
11 receives complaints, a self-regulatory body that
12 receives complaints about the cable television
13 industry, has a consumer representative on it.
14 10820 Is there any similar situation in
15 your association?
16 10821 MR. GUSTAVSON: No. We do not have a
17 consumer representative on the Ethics and Privacy
18 Committee of the association. It's not an idea that we
19 have particularly rejected, just not one that has come
20 up and we haven't involved a consumer representative.
21 10822 COMMISSIONER McKENDRY: I want to
22 take you up on your offer to expand on the -- embraced
23 by consumers by the banking and related investment
24 activities on the Internet. I find that particularly
25 interesting because financial information is obviously
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1 very sensitive personal information and presumably
2 consumers are feeling comfortable in transmitting
3 financial information over the Internet.
4 10823 If you could talk for a little bit
5 about what has caused this in your view, where you see
6 it going and the lessons that may be learned from the
7 financial experience.
8 10824 MR. GUSTAVSON: Some of it comes from
9 consumer behaviour, some of it remains a mystery. What
10 seems to have happened is that somewhere through the
11 eighties Canadians started getting comfortable with
12 using automated teller machines and dealing with their
13 bank managers over the telephone.
14 10825 Over a process of time, as people got
15 comfortable with that interaction, not having to
16 dealing with a teller, not having to deal face to face,
17 although perhaps using the telephone with somebody they
18 knew, they got so comfortable that it became very
19 common and the convenience started to outweigh any
20 concerns they might have.
21 10826 When telephone banking came along,
22 the convenience alone of being able to pay your bills,
23 not having to bother to mail an envelope, to Canadians
24 seemed to outweigh any concerns they might have with
25 what is happening with their data or their information
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1 at the other end.
2 10827 Then when the Internet came along,
3 certainly the banks had developed some securities
4 procedures. That seemed to have assured people that
5 their personal data is going to be as safe as it
6 otherwise would be dealing with the bank through any
7 other method.
8 10828 Those security provisions reassured
9 consumers, combined with the enormous convenience
10 consumers find, has driven a rapid increase in growth.
11 It is certainly cost effective. In fact, an Ernst &
12 Young study has recently suggested that banks are
13 estimating something like a 374 per cent increase over
14 the next couple of years in online and telephone
15 transactions.
16 10829 Certainly it is very cost effective
17 compared to a transaction at an automated banking
18 machine. It has become cost effective for the banks as
19 well.
20 10830 For consumers, I simply say we are a
21 society that looks for convenience. Somebody said the
22 other day we stand in front of the microwave now saying
23 "Hurry up". We just want speed. We want convenience
24 and we are willing to pay for it. We are willing to
25 take some apparent risk for it in the security of our
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1 transactions.
2 10831 COMMISSIONER McKENDRY: Thank you.
3 10832 You said in your oral comments and I
4 think in your written comments as well that -- you
5 refer to a necessary regulatory role for the government
6 to encourage consumer understanding and confidence.
7 You cite examples, as you have today, of the privacy
8 legislation and so on.
9 10833 Do you have any thoughts with respect
10 to the CRTC and its mandate as to whether or not there
11 is any role for us in the areas that are of interest to
12 you?
13 10834 MR. GUSTAVSON: I guess the analogy I
14 would have to put forward is when television came
15 along, the Commission did not go out of its way to
16 promote necessarily commerce by responding to
17 television advertising or marketing through television
18 or any other medium that has come along.
19 10835 At the time the Commission, of
20 course, quite appropriately dealt with a limited public
21 resource and made certain allocations of that resource
22 and who could use it. In terms of the commercial
23 activity that resulted, I don't recall the Commission
24 intervening in promoting it or encouraging it.
25 10836 There seemed to be few economic
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1 barriers to the Canadian public accessing it. In fact,
2 I would suggest fewer than when television came along.
3 The problems that exist in terms of regulating the
4 commerce that is conducted through the new medium are
5 being dealt with in other forms.
6 10837 In terms of the commercial aspect,
7 not dealing with the Canadian content and other aspects
8 which are more properly dealt with by other witnesses
9 before you, it does not occur to me top of mind as to
10 what the Commission ought to do.
11 10838 COMMISSIONER McKENDRY: Thank you.
12 10839 Let me just end up by asking you
13 about your comment with respect to the children's
14 advertising under the broadcast code. You said on the
15 bottom of page 2 of your oral comments when new media
16 are seen in this light, regulations such as those
17 governing children's advertising under the broadcast
18 code could be applied to the commercial use of new
19 media.
20 10840 How do you see this being
21 implemented?
22 10841 MR. GUSTAVSON: I would suggest --
23 again, it fits within the overall pattern that those
24 things governing marketing and advertising today,
25 there's no reason why those laws and regulations should
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1 not apply to the new media.
2 10842 Exercising the jurisdiction of the
3 Commission where it exists over the Internet to see
4 that those things that are properly considered to be
5 considered ethical conduct has chosen to regulate as it
6 applies to the new media would be quite appropriate.
7 10843 There is no need to create a full new
8 regulatory regime for the new media as opposed to
9 extending what currently exists to make sure it applies
10 there.
11 10844 COMMISSIONER McKENDRY: Thank you
12 very much for answering my questions.
13 10845 MR. GUSTAVSON: Thank you.
14 10846 THE CHAIRPERSON: Thank you,
15 Commissioner McKendry.
16 10847 Counsel.
17 10848 MS MOORE: Thank you, Mr. Chairman.
18 10849 I just have one question. I see from
19 the privacy code that principle No. 4 states the
20 purposes for which personal information is collected
21 shall be identified by the organization at or before
22 the time the information is collected.
23 10850 Am I correct in understanding from
24 the commentary at page 7 of the document called
25 Internet Amendments to the Code of Ethics and Standards
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2508
1 of Practice that this obligation can be fulfilled by
2 including a link to the marketer's privacy policy at
3 the place of collection and that a text reference must
4 be included with that link that states something like
5 "You may wish to access our privacy policy by clicking
6 on this icon".
7 10851 MR. GUSTAVSON: I guess two points.
8 First of all, the identification of purposes is
9 internal to the organization.
10 10852 Prior to usage of the information,
11 the purposes must be identified to the consumer. There
12 was always the privacy policy clearly outlined. What
13 could happen to your information at a point where you
14 still have a choice whether or not to submit it and
15 allow its use. That would be sufficient.
16 10853 It clearly must -- for instance, if
17 you are going to transfer information to a third party,
18 that is a potential use. (a) you would have to
19 identify that specifically as a specific possibility
20 and the purposes for which that transfer was going to
21 be made in order to be sufficient.
22 10854 The answer to your question is yes,
23 as long as that privacy policy dealt clearly with what
24 was going to happen with the consumer's information.
25 10855 MS MOORE: Thank you.
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1 10856 Those are my questions.
2 10857 THE CHAIRPERSON: Thank you.
3 10858 Thank you, Mr. Gustavson.
4 10859 Just an interesting observation. I
5 hadn't thought of it until you were answering
6 Commissioner McKendry's question. You talked about
7 when television came along the Commission didn't do --
8 in fact, the Commission didn't exist when television
9 came along. It wasn't until 1968 that the Commission
10 was created, just about the time when cable television
11 was coming along.
12 10860 I think it's interesting to note that
13 in the context of all this talk about scarce resources.
14 10861 MR. GUSTAVSON: Perhaps I should have
15 said it was not government policy to promote one medium
16 over the other.
17 10862 THE CHAIRPERSON: Thank you very
18 much.
19 10863 We will take our afternoon break now
20 and reconvene at 3:15.
21 --- Short recess at 1500 / Courte suspension à 1500
22 --- Upon resuming at 1515 / Reprise à 1515
23 10864 THE CHAIRPERSON: Good afternoon.
24 10865 We will return to our proceeding now.
25 10866 Madam Secretary.
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2510
1 10867 MS BÉNARD: Thank you, Mr. Chairman.
2 10868 The next presentation will be the
3 Directors Guild of Canada, la guilde Canadienne des
4 réalisateurs. Mr. Grant.
5 PRESENTATION / PRÉSENTATION
6 10869 MR. GRANT: Thank you.
7 10870 Thank you, Mr. Chairman.
8 10871 Before I begin, I should apologize
9 for Alan King's absence. He is in Australia as we
10 speak with a contingent from the Directors Guild and
11 they are in fact negotiating to create hopefully a
12 global organization to focus on director's rights. So,
13 there are people at the meeting in Melbourne from a
14 number of countries around the world with common
15 interests. One of the issues I know that is on their
16 agenda, you won't be surprised to learn, is the
17 implications of the Internet.
18 10872 So, I am here to present the
19 Directors Guild's views and to be of any assistance I
20 can to the Commissioner. They have filed a brief which
21 I had a hand in helping them draft. I don't propose to
22 go through it. I assume you have seen it.
23 10873 What I thought I would do though is
24 just to put it in the context of what has been
25 presented to you in the last week or so, or two weeks.
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1 10874 I guess you can start as you evaluate
2 this brief that it is implicit that the Directors
3 Guild, like many others, considers that some Internet
4 uses do stray into broadcasting. Even now, streamed
5 audio for radio stations is as close to broadcasting as
6 makes no difference. And as you imagine the Internet
7 expanding into the high-speed uses, it will be more and
8 more clear that some uses on it will fit within the
9 technical definition of broadcasting in the current
10 legislation.
11 10875 That's implicit because the brief
12 then focuses on how does one then ensure that certain
13 of the cultural objectives of the Act can be advanced
14 in this new medium?
15 10876 Now, that being said, I think it also
16 comes clear if you examine most of the people looking
17 at this new medium that the impact on conventional
18 broadcasting is likely to be minimal for quite a few
19 years to come. I say that because even for example
20 radio stations that are now on the Internet and, of
21 course, there is a wide panoply of them, I don't put
22 that in any different context that the availability of
23 radio stations from a variety of sources on shortwave.
24 These are generally marketing add-ons for the stations.
25 They are not sources of revenue. They don't have their
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1 economics driven as stand-alone services. They are
2 really add-ons to existing stations and given the
3 likelihood that no single foreign station on the
4 Internet will ever get more than what people would call
5 nickel and dime listening or viewing, they are there
6 for very specific targeted interests of people who
7 happen to be from a particular market, so it wouldn't
8 be a vehicle that would compete really with
9 conventional radio.
10 10877 Now, on the television side, we don't
11 yet have, of course, a broadcast quality video on the
12 Internet and we are a long way from it. I think before
13 we get to there, and I think the general consensus is
14 that we are at least five, if not 10 years away from
15 broadcast quality video on the Internet, there are a
16 couple of technical and legal reasons why again it will
17 have minimal impact on conventional television, and I
18 include in there pay and specialty as well.
19 10878 The two issues which seem to me to
20 point to that direction is, first, that as an
21 engineering matter the delivery of high-speed access
22 will tend to be locally designed and administered and
23 that's just a function of the fact that storage is
24 cheap and transmission continues to be expensive and,
25 therefore, if you are going to have high-speed access
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1 it will have to be designed locally and the Web site
2 will typically be local.
3 10879 That of course -- there is also at
4 the same time a very much high degree of likelihood
5 that within the next five years the copyright sanctions
6 will be sufficiently important that they will impose a
7 discipline of territoriality on the Internet in respect
8 to the transmission of entertainment-like programming.
9 10880 I think you have heard from some of
10 the music industry here that they are not putting any
11 records on Web sites simply because of that issue, and
12 I don't know that you have any representatives from the
13 motion picture industry, but I can tell you from my own
14 information that the same conclusion has been reached
15 there. There is no likelihood whatever that you will
16 see Seinfeld or Jurassic Park on a Web site anywhere in
17 the world legally until territoriality and copyright
18 concerns have been resolved and I see that as years
19 away.
20 10881 So, I put those issues from and
21 centre because I think the impact on conventional
22 broadcasting can be overdrawn. I think it is less than
23 an urgency than some may have presented to you.
24 10882 Now, we are still though faced with
25 the question that the Internet in these new areas
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1 qualifies as broadcasting and there are legitimate
2 public policy issues to be addressed. The question is:
3 What do you want to do about it at this point, if ever?
4 10883 Now, looking through the various
5 briefs that have been filed, of course there is a stark
6 contrast in them where they range all the way from you
7 can't regulate, you shouldn't regulate, please don't
8 regulate, or you don't have any choice but to regulate.
9 Where the Guild sits is a rather comfortable middle
10 ground, which is to say that you have time to think of
11 creative solutions and there is no need, given the
12 likelihood that the impact is not going to be strong in
13 the next few years, there is no reason why you couldn't
14 deal with it through a relatively low-key approach.
15 The suggestion made in the brief is to focus on
16 crafting an exemption order that would narrow in on
17 some specific activities that would no doubt be
18 broadcasting and that might give rise to some
19 obligations that would be phrased in the exemption
20 order, and then essentially policed by self-help from
21 the industry.
22 10884 Now, that's the proposal in front of
23 you. I guess in thinking it through in the light of
24 what has been said at the hearing, I would say that if
25 you were going to craft an exemption order you could
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1 very well say that the exemption order would apply on
2 its face as of day one, which would in effect take the
3 Internet outside the purview of your heavy regulatory
4 mechanism, but you might have a time line on it and you
5 might have a threshold on it, which might be tied, for
6 example, to Nielsen or BBM numbers indicating the
7 degree to which, for example, broadcast quality video
8 services take a piece of the market. If it was in
9 excess of a certain number, 5 per cent, maybe lower,
10 maybe higher, suddenly it would trigger a particular
11 requirement of local ISPs.
12 10885 Now, I say local ISPs because all the
13 technology and the copyright issues point to the
14 premise that these kinds of services will be locally
15 driven. It is very difficult for anybody to think
16 through a way that this technology will have an
17 offshore Web site delivering Jurassic Park in a
18 competitive way into Canada. I say Jurassic Park as an
19 example of the sort of entertainment-driven service
20 that would clearly compete with the video on demand
21 services that you have already licensed or to a degree
22 with pay-per-view.
23 10886 I think though that you have a lot of
24 time before that will occur because you are not going
25 to see that until the copyright issues are resolved.
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2516
1 We are still quite a distance away from resolving them
2 in Canada. I will speak to that in a second.
3 10887 But then, additionally, I think in
4 the context of these movie-based services you are
5 seeing a surprising degree of strength in what
6 everybody was thinking was a dying industry, namely the
7 mom and pop video market. It is a function of a recent
8 redesign of their delivery technique for movies, again
9 driven by their industry reaction.
10 10888 I don't know if you are aware, but a
11 year ago Blockbuster was considered on the ropes and it
12 took a complete change of its theory of delivery to
13 bring it back to sustenance. The new delivery
14 mechanism is essentially to cut the studios in for a
15 royalty piece on rental and reduce the up-front cost to
16 the store materially, so that they can have titles in
17 depth because it happens to be a function of that
18 market, which is the same as the video on demand and
19 pay-per-view market that 80 per cent of the volume is
20 driven by some very recent released titles, and the
21 queuing problem in video stores was even worse, if you
22 will, than the queuing problem on the Internet.
23 10889 They have solved the queuing problem
24 and Blockbuster's revenue has gone up. All the
25 Canadian stores have had the same function and what has
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2517
1 happened is, of course, they purchase these units at
2 far less. They provide the studio with enhanced
3 royalty revenue now. They never used to have any
4 revenue from the rental and now they have a revenue
5 stream from rental and the extra copies are then put
6 into the sell-through market at essentially their
7 wholesale price.
8 10890 So, it's a system which has given new
9 life to the home video market, to such a degree that it
10 would strike me as frankly counter-intuitive to suggest
11 that any transmission technology into the home is very
12 going to be able to beat the pricing from a wholesale
13 perspective to the studio of that technique. So, it is
14 likely that that technique will continue to have a
15 month or two advance for some time over any access
16 technology in the broadcast sphere, and I am talking
17 pay-per-view and video on demand, let alone these
18 mechanisms that currently cannot be implied because
19 they have no territorial integrity like the Internet.
20 10891 Now, I guess I will conclude with
21 just a comment about the copyright issue. It isn't
22 addressed in the brief. Certainly you will be aware
23 that the Copyright Board of Canada is in the process
24 right now of deliberating on briefs with respect to
25 SOCAN's Tariff 22. I recommend to you to read the
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2518
1 pleadings on both sides because they are a remarkable
2 education on to (a) the technology of the Internet and,
3 (b) the application of our Copyright Act which we all
4 thought was pretty recent and must be up to speed and
5 we all know what that means. But, as usual, you will
6 find seven major law firms arguing on the head of a pin
7 as to whether ISPs are or are not subject to the
8 carrier exemption and all the other minutiae that make
9 my life proud and give you more work to do.
10 10892 That being said, that is I think
11 equally important as a proceeding for setting
12 groundwork. It's a proceeding that for whatever reason
13 Canada is the first in looking at those issues in a
14 considered way with relatively recent legislation. I
15 am not going to prognosticate on the result one way or
16 the other. I think though that the bottom line is that
17 no matter how the current legislation is interpreted,
18 there is no way that the Internet will be able to avoid
19 the strictures and disciplines of copyright. I hope
20 that you can carry with you into your own deliberations
21 as you look at many of the other issues.
22 10893 So those are my preliminary thoughts,
23 Mr. Chairman. I would be delighted to respond to any
24 questions.
25 10894 THE CHAIRPERSON: Thank you, Mr.
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2519
1 Grant.
2 10895 I guess given all the legal issues
3 that we get involved in I am hoping to be an honourary
4 member of the Law Society of Upper Canada by the time I
5 am finished this stint at the Commission.
6 10896 I will turn the questioning over to
7 Commissioner McKendry.
8 10897 COMMISSIONER McKENDRY: Thank you,
9 Mr. Chair, and good afternoon, Mr. Grant. Thank you
10 for coming today to give us your views.
11 10898 MR. GRANT: Good afternoon.
12 10899 COMMISSIONER McKENDRY: My questions
13 to you will be in the context of the submission from
14 your client, the Directors Guild, but please feel free
15 to offer us asides as you think they would be helpful
16 to the purpose of our proceeding.
17 10900 I am going to start with the general
18 and work down to the specific. By the general I mean I
19 would like to discuss with you the Internet and some of
20 the things that may make it different from the type of
21 media that we are used to and then I want to talk with
22 you about whether or not programs are being broadcast
23 on the Internet. I think you have told us it's
24 implicit in your client's position that some programs
25 are being broadcast on the Internet, so we will discuss
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1 that.
2 10901 However, before I do that, I just
3 want to ask you about a couple of points you made in
4 your opening comments while they are still fresh in my
5 mind. You made the comment that Web sites will be
6 local and I am wondering if you could expand on that.
7 What do you mean by local? If I create the David
8 McKendry Web site, I will have it hosted here in Ottawa
9 as opposed to Sydney, Australia?
10 10902 MR. GRANT: No. I guess there might
11 have been a confusion there, Commissioner McKendry.
12 What I was focusing on was that when you moved to
13 broadcast quality video applications, it is likely that
14 the Web site that people will access to get that
15 quality will be a local Web site, which is to say one
16 if it is not in the same city, it will be certainly
17 close by. So, it is unlikely to come offshore and that
18 is simply a function that the costs of storage are
19 essentially zero and the costs of transmission,
20 particularly for high-speed data are material, so the
21 economics of the system drive the Web site to be as
22 close as possible to the serving area that might want
23 to access say video on demand.
24 10903 I don't say that, however, for
25 text-based services or low-speed services. Although
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1 there are occasions when even those services break down
2 when there is too high a demand on them. I guess the
3 best example was when so many hundreds of thousands of
4 people tried to get the Starr Report off the Library of
5 Congress Web site and I am told that local ISPs in
6 Toronto mirrored that Web site, plus the CNN Web site
7 in Toronto within 15 minutes, and then all the ISP
8 queries that came to get a copy of the report would
9 have seemed to have gone through to Washington, but
10 actually were responded to in the local file server.
11 10904 And ISPs take that strategy for any
12 highly visited Web sites, again to give the illusion
13 that you are getting right across the country at high
14 speed, but that is just an illusion.
15 10905 The technology, as I understand it,
16 is leading one into that direction, so as you increase
17 the requirement for high speed, which is to say
18 broadcast quality in the video side, it is more and
19 more likely that the Web site would be somewhere close
20 by.
21 10906 COMMISSIONER McKENDRY: And what are
22 the implications of that for the matters that we have
23 under consideration here?
24 10907 MR. GRANT: Well, I guess from the
25 standpoint of a lawyer the implication is it makes it
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2522
1 more possible to regulate, but that doesn't mean you
2 should. I mean there is no question that if the Web
3 sites that have any economic impact in that area also
4 happen to be local, then it is possible to treat the
5 ISP, if you will, as an equivalent to a BDU and
6 subjected to regulation of that character.
7 10908 That's not the proposal here, simply
8 because this is a new medium. The main delivery point
9 of which has nothing to do with these high-speed
10 broadband. I mean a lot of the benefits in the
11 Internet have nothing to do with that, an R-text base
12 or are types of applications which don't have the same
13 cultural dimension that I am describing if we are
14 talking about pure video on demand.
15 10909 COMMISSIONER McKENDRY: When you say
16 make the ISP easier to regulate from our point of view,
17 are you suggesting that we would then impose a Canadian
18 content requirement on that ISP with respect to its
19 server?
20 10910 MR. GRANT: No. The proposal here is
21 much less heavy handed. In essence, what it would
22 amount to is that you would test whether by some
23 threshold level whether the amount of such a broadcast
24 qualify video being delivered amounts to enough to
25 raise a concern. Let me suggest that it may never come
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1 to that level, but if it does come to that level then
2 you would deal with it through an exemption order,
3 which is essentially the technique of saying that even
4 if the service passes this threshold level and would,
5 therefore, otherwise be a broadcasting undertaking in
6 that respect, the Commission does not require it to get
7 a licence, and doesn't require it to comply with
8 anything except some specified terms and conditions and
9 that's where you become creative.
10 10911 They could be very lightweight. They
11 could be zero or they could have some cultural content
12 to them.
13 10912 COMMISSIONER McKENDRY: You said
14 raise a concern. Now, what is this concern that would
15 be raised?
16 10913 MR. GRANT: I guess if we are
17 talking, for example, in the video on demand area, the
18 concern would be raised if there is a material impact
19 on your broadcast licensees.
20 10914 Again, I don't think that is likely
21 to occur because the broadcast licensee you have,
22 whether it is pay-per-view or video on demand, are
23 already in the market and providing broadcast quality
24 service with the high level titles on a convenient
25 level. So, it is hard to imagine that Internet is
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1 really going to really compete with that, given also
2 the copyright issues I described, which may just stop
3 it dead before it becomes a competitive threat. But
4 that would be one of the issues of concern.
5 10915 COMMISSIONER McKENDRY: Although you
6 say the likelihood of a material concern is not high, I
7 take it that you are saying even if it is -- or even if
8 it does take place, we would issue an exemption order.
9 10916 MR. GRANT: Yes.
10 10917 COMMISSIONER McKENDRY: I mean the
11 question then in my mind is why bother? There is a
12 problem, but we will ignore the problem. We will issue
13 the exemption order.
14 10918 MR. GRANT: Well, I take the point
15 that most lawyers in the game would concern themselves
16 that there is a potential to be regulated unless the
17 Commission were to speak on the matter because for
18 these certain services that are clearly broadcasting,
19 if the Commission does nothing it leaves it open for
20 someone to bring a complaint and even bring some kind
21 of action, an injunctive action to cease and desist
22 because you are carrying on a broadcasting undertaking
23 without a licence. Absent an exemption order, the
24 defence would -- that would be a real problem.
25 10919 I think you do a service for the
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1 industry in effect by issuing an exemption order that's
2 clear because it then sort of sets the groundrules and
3 people know that there is a certain area in which the
4 Commissioner has made it clear that they have no
5 concerns. And then there is an area in which there is
6 a threshold concern, but even there there is not going
7 to be a licensing requirement. It will be a diminimis
8 requirement of good efforts of some kind. I mean
9 that's of course, as I say, where one would have to be
10 creative.
11 10920 It goes to the old issue that from
12 the standpoint of people making an investment they
13 would prefer to be 10 feet away from the precipice,
14 rather than just a foot or two and having a clear
15 exemption order helps them in that regard.
16 10921 COMMISSIONER McKENDRY: While we are
17 on the subject of exemption orders, we have had a
18 discussion with some of the other intervenors about the
19 Commission's ability to issue an exemption order to an
20 undertaking that was controlled by non-Canadians. What
21 is your view on this issue? Can the Commission issue
22 an exemption order to an undertaking that it couldn't
23 licence?
24 10922 MR. GRANT: Yes. I have always
25 thought that. I know that's a view that is not held by
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1 some lawyers, but my reading of the Act is that there
2 is nothing to stop you from exempting an undertaking
3 that is foreign owned.
4 10923 It is already of course been for many
5 years the case that your master and tenant exemption
6 order benefits apartments. And apartment buildings --
7 I can't imagine there is quite a few of them owned by
8 people with banks in Geneva. I mean the horse is out
9 of the barn in terms of principle, but just reading the
10 Act the way it is I think reading into it a requirement
11 for a Canadian ownership for exempt services doesn't
12 need to necessarily fall and I would be quite liberal
13 on that.
14 10924 COMMISSIONER McKENDRY: Let me now
15 take up one other point that I thought I heard you say
16 in your oral comments, you were talking about the
17 impact of the availability of broadcast quality, video
18 on the Internet and you said the impact would be low
19 because it would be some time before we would be able
20 to see this type of video legally. Perhaps your
21 comments were in the context of feature films, I am not
22 sure.
23 10925 One of the issues that has come up in
24 the hearing, at least with respect to music, is the
25 fact that there is a great deal of this content, music
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1 content in particular, available on an apparently
2 illegal basis.
3 10926 MR. GRANT: Yes.
4 10927 COMMISSIONER McKENDRY: And it is
5 having an impact. So, I guess what I would like you to
6 comment on is if we wait for the legal threshold will
7 everybody else wait, or will there be a grey market or
8 a black market for video before then that could have an
9 impact?
10 10928 MR. GRANT: Well, I agree by the way
11 with the comment that the music that you are now seeing
12 on Web sites, if you are seeing it across a territorial
13 boundary is pirated. I think that eventually that will
14 become clear in international jurisprudence. It is
15 just a matter of time before the law makes that clear.
16 10929 It is interesting, in the United
17 States that law has already been made clear in respect
18 to trade mark protection and all kinds of Web sites
19 have been closed down to have their trade mark and
20 trade names checked and removed because of perceived
21 breaches of territorial integrity of trade marks. It
22 is just a matter of time before that applies to
23 copyright, which means, of course, that what I would
24 call the branded Web site will close down.
25 10930 Now, there will always be the
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1 underground Web sites doing their own wonderful
2 compilation of Beetles records and there will be a
3 certain underground of that forever I suppose, but the
4 bottom line is that if you were actually intending to
5 have an economic impact with a Web site, the Web site
6 has to be branded and a certain expenditure has to be
7 there to build up the critical mass of hits for it so
8 that it becomes self-sustaining. As soon as that
9 occurs, it becomes a target for copyright plaintiffs.
10 10931 So I think I am not -- I think,
11 frankly, the copyright area in the music field will
12 bring discipline to the field within a matter of years,
13 maybe even months, but certainly within years.
14 10932 Now, you pointed to the fact that it
15 is having an impact. I think the impact is primarily
16 on record sales perhaps, but it is certainly not on the
17 economics of local radio which is what you regulate.
18 If it were to have an impact on the economics of local
19 radio, then it certainly would raise a problem, but, as
20 I say, certainly the analysis I have seen is that the
21 traditional radio is not targeted by those kinds of Web
22 sites. They are filling quite a different purpose and
23 they are not supporting or eroding local ads.
24 10933 From all accounts, the traditional
25 media that is most likely to be eroded by the Internet
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1 is classified ads in the newspapers, which is not a
2 matter I guess we need to concern ourselves with at
3 this hearing. I shouldn't say that because I guess the
4 newspapers appeared before you with a cri du coeur to
5 create their own Web sites, so they could staunch the
6 likely diversion of their classified ad revenue to
7 those sites -- better operate themselves than see it go
8 to the competition.
9 10934 But again, just in terms of your
10 question, what is the impact of this piratical music?
11 I would think it has had very little impact on local
12 radio at this point\.
13 10935 COMMISSIONER McKENDRY: Thanks.
14 10936 Now I would like to talk for a few
15 minutes about the Internet and I would like to go over
16 with you some of the characteristics of the Internet
17 that have been put forward in the proceeding to date
18 that are making or we are told make the Internet a
19 unique new medium.
20 10937 But first of all, just let me put to
21 you an observation that AOL Canada agreed with at page
22 347 of the transcript. They agreed with the
23 observation that the Internet is a unique and a wholly
24 new medium of worldwide communication. I guess the key
25 words there are "unique, wholly new medium and
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1 worldwide communication". Do you agree with that
2 observation?
3 10938 MR. GRANT: Yes.
4 10939 COMMISSIONER McKENDRY: Just now
5 perhaps we could go through, as I said, some of the
6 characteristics that have been put forward to explain
7 in the view of intervenors why that's the case.
8 Perhaps I could get some comments from you.
9 10940 First of all, we have been told that
10 it is not a scarce, expressive medium and that makes it
11 a very unique characteristic of this new medium.
12 1545
13 10941 MR. GRANT: I would say that would be
14 applicable to text-based services but because of the
15 capacity crunch for broadcast quality and the need for
16 local Web sites, that's a different issue.
17 10942 I think the jury is out on whether
18 there wouldn't be to some degree some players that
19 would acquire a dominant position by virtue of their
20 access to the local high speed delivery last mile.
21 10943 There's also a feature now that is an
22 interesting problem for economists and that is the
23 monopoly characteristics of branding. Again I think
24 the jury is out on what will happen on the Internet is
25 yes, there will be a myriad, in fact millions of Web
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1 sites, but for particular uses there will be critical
2 masses develop around a particular Web site like
3 amazon.com for books and others for other types of
4 purposes to the degree that you have niche monopolies
5 develop.
6 10944 Again, nobody knows whether that will
7 occur or not. There are lots of thoughts that as long
8 as each country is proactive in getting exciting new
9 Web sites out there in front, they will then establish
10 themselves as beachfront property. It is very hard to
11 be the number two in these markets if you are
12 competitive and so forth.
13 10945 The technology, of course, you are
14 quite right points to complete openness and no limit
15 whatever to the channels or the Web sites that could be
16 accessed, but it's not necessarily the case that there
17 still wouldn't be some issues about dominant position.
18 10946 COMMISSIONER McKENDRY: Did you say
19 that each country is trying to establish beachfront or
20 should try and establish beachfront by trying to get
21 Web sites that are attractive out front?
22 10947 MR. GRANT: Yes.
23 10948 COMMISSIONER McKENDRY: Now, is that
24 a role for governments? Is that what you are
25 suggesting?
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1 10949 MR. GRANT: That is an area that is
2 uniquely that of the private sector.
3 10950 COMMISSIONER McKENDRY: One of the
4 other characteristics that has been put forward to us
5 is that the Internet is located in no particular
6 geographical location, but is available to anyone
7 anywhere in the world with Internet access.
8 10951 Assuming you agree with that, what
9 problems do you see that creating for the Commission
10 that we should take into account in assessing whether
11 or not we have a role or what our role should be in
12 cyberspace?
13 10952 MR. GRANT: Well, that's a broad
14 question. It is true that the Internet at a certain
15 level, and again I am focusing on the low text speed
16 uses that certainly are effectively borderless,
17 although there are some crunch issues that are imposing
18 territoriality even on text based services, we start
19 with trade marks but we are moving into other areas
20 such as copyright.
21 10953 Again, you are not seeing the
22 Internet yet as an effective tool for delivering
23 copyright material that is intended to be paid for.
24 Until that occurs, you are not seeing it either as a
25 tool that competes with conventional broadcasting.
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1 10954 Then the question is when you do see
2 the Internet starting to supply copyright material upon
3 payment, will it continue to be borderless? Now, the
4 technology is borderless, but the laws are not
5 borderless. It may be that at that point you will
6 suddenly discover that there is territoriality imposed
7 on the Internet.
8 10955 You already have it to a degree. I
9 was intrigued, for example, last summer. I clicked on
10 to the New York Times Web site just to look at it and
11 to browse through the paper because I saw a little note
12 about it. I discovered you first had to sign on and if
13 you were from the territory of the United States, the
14 service was free. On the other hand, if ]you are not
15 from the United States, you had to give these
16 registration information and your credit card and you
17 would be charged a fee.
18 10956 Then I noticed last October that the
19 New York Times decided in a fit of, I don't know, a
20 gesture of good faith to eliminate the fee for those
21 outside the United States. Now it happens to be
22 borderless, but up to that point it was sort of
23 interesting to me.
24 10957 Here was the Web site user itself
25 imposing a border. They could have, of course, set the
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1 fee for people outside at essentially a punitive level
2 which would have limited them access to that Web site
3 for the insides of the Web site -- you can get the
4 front page of it, but it's how to get into the
5 stories -- to those that are from a particular
6 territory.
7 10958 We see there the burgeoning
8 development of territorial disciplines on the Internet.
9 10959 Put yourself in the position of a Web
10 site operator who may not have any interest in closing
11 off borders. They want to serve the whole the world.
12 They are then faced with a copyright injunction by
13 their program supplier that says "I only have the
14 rights to this country and I insist that you have this
15 discipline". Then they will have no choice but to
16 institute a system like this.
17 10960 Again, just to complete the picture,
18 you can imagine all kinds of ways around that system.
19 People using e-mail addresses that have phoney
20 accommodation locations and so forth to try and get
21 around it.
22 10961 The basic system though, once you are
23 talking about the delivery of copyright material into
24 the home for profit, will be to a degree
25 self-regulating. In that area I have a high degree or
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2535
1 a sense that there will be territoriality in the
2 system.
3 10962 COMMISSIONER McKENDRY: The New York
4 Times case, and maybe this isn't inconsistent with what
5 you are saying, as I understand it, they wanted to
6 fence out people from outside the United States who
7 didn't pay a fee because they didn't want to
8 cannibalize their subscriptions to the text based
9 service around the world.
10 10963 People that were reading the New York
11 Times outside the United States generally subscribed to
12 it, text based copy, and if they provided it for free
13 on the Internet, they were worried that their
14 subscriptions would disappear. Now, for some reason
15 they have decided they can't sustain that. That was
16 the impression I was under.
17 10964 Another characteristic we have heard
18 is that there is no centralized point from which
19 individual Web sites or services can be blocked from
20 the Web. Assuming again that you agree with that, and
21 if you don't I'm sure you will tell me, the question is
22 what problems does this create for governments or
23 regulators concerned about content issues such as
24 cultural relevance.
25 10965 MR. GRANT: Well, you are quite
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2536
1 right. To the degree that you number the ISPs in the
2 thousands as opposed to the hundreds or the hundreds as
3 opposed to the dozens, you then have a much more
4 difficult time in policing it.
5 10966 The fact is that the last mile is
6 supplied by a relatively limited number of people who
7 are in the ISP business, and it's a capital intensive
8 business which will shake out and probably devolve to a
9 relatively small number of large companies, again, who
10 will be driven mostly by branding and bells and
11 whistles and packaged services and so forth.
12 10967 If that's how it shakes out, then
13 actually you don't have a long list of people to
14 regulate. It's not going to be as long as your list of
15 BDUs potentially.
16 10968 Let's assume that you do have a long
17 list. You probably are going to have still a short
18 list of the facilities providers who themselves provide
19 telecom facilities for those ISPs. There I suggest you
20 might go back to the decision in the telecom book a few
21 years back where the Commission adopted a proposal, I
22 think it was Alarcom that made it originally, but it
23 was the thought that for high speed broadband tariffs
24 from the telecom carriers there should be included a
25 tariff provision which would require the carrier before
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2537
1 furnishing service to the customer to get evidence that
2 they have a broadcast licence or an exemption order if
3 they are supplying broadcast services with that
4 facility.
5 10969 There are approaches that even if you
6 have a great diversity of ISPs out there providing
7 service that might make it possible to have an
8 exemption order regime such as I described have some
9 teeth.
10 10970 COMMISSIONER McKENDRY: Am I to take
11 it that you feel blocking would be possible?
12 10971 MR. GRANT: Yes. Of course, that's
13 not how it would work in practice. What would happen
14 is somebody would complain that an ISP is past the
15 threshold of a certain broadcast type of service but is
16 not fulfilling the conditions. There is a variety of
17 means then by which to enforce the exemption order.
18 10972 One, of course, is to go straight to
19 the Commission and engage a section 12 proceeding. The
20 other option would be to have the Commission send a
21 letter to the carrier that furnishes the facilities to
22 provide evidence that their tariff conditions have been
23 complied with.
24 10973 Then what happens is Bell threatens
25 to yank the lines unless they can furnish indications
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2538
1 that they are complying with the applicable regulation.
2 10974 Then I can imagine, frankly, that if
3 the ISP server became a branded entity with some
4 prominence and it was flagrantly abusing the rules and
5 the Commission for its own budget reasons didn't want
6 to spend any time going after it, I bet you we could
7 craft some private self-help remedies by the injured
8 parties.
9 10975 That was done in the seventies, I
10 remember, against -- what was it -- Communicom Data by
11 a BDU licensee of the Commission in those days. They
12 got an injunction. It didn't cost the Commission a
13 penny.
14 10976 I just put it to you that even though
15 we are talking about a whole new sector that people are
16 working rather gingerly now to understand what the
17 rules are, once you do have the rules in place there
18 will be approaches that can be used to enforce them.
19 10977 COMMISSIONER McKENDRY: Let me just
20 end up on my discussion of the characteristics of the
21 Internet that have been put in front of us so far with
22 one that was put to us by AOL Canada.
23 10978 At page 340 of the transcript they
24 told us that new media is fundamentally different
25 because it is a pull technology. Individuals go out
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2539
1 and access unique information and pull it in for their
2 own purposes.
3 10979 According to AOL, this is a
4 fundamentally different proposition than the push
5 technology of conventional media. Do you agree with
6 that observation?
7 10980 MR. GRANT: It certainly is true
8 enough with respect to off-air television and pay and
9 specialty services, but it wouldn't be true of
10 video-on-demand as licensed by the Commission. That in
11 effect in terms of the technology that is proposed by
12 some of the licensees or applicants that came before
13 you a year or so ago was essentially the same pull
14 phenomena.
15 10981 You would click to a channel on your
16 screen. You would have a number of optional program
17 genres to click on to. You would click on to them.
18 They would give you a menu. You would go through the
19 menu and you would finally end up ordering the
20 pre-prepared program that's recorded and stored in the
21 file server.
22 10982 In technological terms, I don't see
23 any difference between that and what you would be
24 describing on the Internet.
25 10983 COMMISSIONER McKENDRY: Let me read
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2540
1 you something that was put in front of us by Stentor
2 that I think deals with this point and is relevant
3 probably to the video-on-demand example. This is at
4 paragraph 5781 of the transcript. It's Mr. Courtois
5 from Stentor speaking. He says and I quote:
6 "The Internet mode of getting
7 it --"
8 10984 Being programming:
9 "-- is interactive. It is not
10 necessarily simultaneous. It is
11 pull rather than push. That is
12 it is not being spewed out there
13 all at the same time so that
14 everybody lives the same
15 experience and if you come a
16 half hour into it you have
17 missed the first half hour. On
18 the Internet is none of that.
19 It is more that the customer
20 goes and gets the material.
21 Even when you use Webcasting
22 technology, it is not like
23 broadcasting."
24 10985 With respect to the vide-on-demand
25 case, the proponents of the pull would say "Well,
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2541
1 video-on-demand is more like push because you would go
2 and get it at the same time. If you come into the
3 program a half hour late, you are half an hour late".
4 10986 MR. GRANT: That's true enough for
5 pay-per-view, but video-on-demand as proposed,
6 certainly I was involved with the Alliance Shaw
7 application. They had 500 channels, 40 of which were
8 pooled channels. In that scenario, you would have up
9 to a 15 minute delay. It would pool people to watch
10 the same title.
11 10987 The other 460 channels were purely
12 VOD as, you know, the conventional thing. Only one
13 channel would be used by that particular person because
14 nobody else in the time period had ordered that title.
15 It would be sent directly to that home at the time of
16 their choosing. They would be the only person to see
17 it.
18 10988 Technically, what Mr. Courtois would
19 have been referring to is either conventional
20 broadcasting which is scheduled or pay-per-view or
21 pooled channels. Certainly video-on-demand as proposed
22 in that application, the great bulk of it would have
23 been provided only to the subscriber that sought it and
24 at the time of their choosing.
25 10989 It would not, I think, fit within
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1 what he is describing.
2 10990 COMMISSIONER McKENDRY: So the
3 argument that because something is a pull technology it
4 can't be broadcasting isn't an argument that in you
5 view is a useful one.
6 10991 MR. GRANT: No. I have given
7 opinions in the past that in my view the requirement
8 for simultaneity is not to be found in the Broadcasting
9 Act and is not a prerequisite to constitute
10 broadcasting in a legal sense.
11 10992 COMMISSIONER McKENDRY: Let me just
12 explore the interactivity aspect of this with you a
13 little further. One of the aspects of interactivity
14 that has been put in front of us, and interactivity has
15 been used as an argument to say that what is going on
16 in the Internet isn't broadcasting.
17 10993 One of the dimensions of that is the
18 simultaneous viewing aspect of it. Those arguments
19 have been put forward to us by at least the Canadian
20 Association of Internet Providers, Rogers and Stentor,
21 the interactive argument. They make the point that the
22 Internet is not broadcasting because it is interactive.
23 10994 Looking at the record to date,
24 interactivity seems to have three characteristics. Two
25 of the characteristics that were put forward by CAIP,
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2543
1 and I am going to quote one of those characteristics,
2 one is:
3 "Not simply sitting in front of
4 a computer and watching
5 something go by"
6 10995 They used that position to argue that
7 interactivity existed. They also pointed out that two
8 people have different experiences at the same Web site.
9 10996 Rogers said, and this goes to the
10 point with respect to simultaneous, that:
11 "--there is not simultaneous
12 reception by individuals. The
13 transmission is individual
14 streams of packets that do
15 arrive simultaneously to
16 individuals."
17 10997 They made that comment at page 518 of
18 the transcript.
19 10998 My reading of the transcript
20 indicates that these three characteristics are used to
21 demonstrate that in fact interactivity exists and that
22 if it's interactive, it's not broadcasting. Let me ask
23 you for your comments on those views.
24 10999 MR. GRANT: I think I mentioned to
25 you that the simultaneous issue to my mind is not
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2544
1 relevant. There is a degree in which interactivity to
2 my mind would take the service out of broadcastings.
3 That would be if the program itself changes by reason
4 of the interaction.
5 11000 For example, I would generally tend
6 to exclude video games from the Broadcasting Act simply
7 because like playing chess, when you play one thing
8 then there will be something different that will happen
9 to you and your experience will generally be different.
10 Whether it is based on algorhythms or not, it will be a
11 self-created experience, kind of like a private
12 experience, no different than e-mail which is
13 customized to the user and could never be broadcasting.
14 11001 That's not what video-on-demand does.
15 I know it's true it's not simultaneous. The suggestion
16 that it's not simply watching something go by, when you
17 think of it, once you click on to a video-on-demand,
18 you do get the video sent to you in real time.
19 11002 If it was a video that was itself
20 interactive and it had different conclusions and was a
21 game, I would think that might very well not constitute
22 a program within the Broadcasting Act because it
23 wouldn't be the same intellectual property going out to
24 other people.
25 11003 If it's just a wide screen version of
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2545
1 Jurassic Park and this is just being used as the
2 technology to deliver it, I can see no difference
3 between that and video-on-demand of which I take the
4 view is broadcasting.
5 11004 The interactive issue I think the
6 only way that takes something out of the Broadcasting
7 Act is if the interactivity relates to the content of
8 the program itself and not just to the mechanism by
9 which you click to get it to be sent.
10 11005 COMMISSIONER McKENDRY: So a key
11 element of your argument that broadcasting is taking
12 place is an argument I take it by analogy that if we
13 found video-on-demand to be broadcasting, then we have
14 to find that certain services available on the Internet
15 that share the same characteristics are broadcasting as
16 well.
17 11006 MR. GRANT: Yes. I find it on the
18 basis of first principles, not simply as an analogy to
19 VOD. Going through the Act and asking the question is
20 it program intended for reception by the public, and
21 you recall it doesn't have to be received at the same
22 time, the question is to what is the public?
23 11007 As long as it's made available to the
24 public, which is made up of a variety of subscribing
25 individuals, the fact that they have required it to be
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2546
1 downloaded at different times to their customers
2 doesn't change the attributes.
3 11008 COMMISSIONER McKENDRY: Just looking
4 at or considering for a moment what is a program and
5 the definition of a program that is in the Act, when
6 deciding whether something that is available on a Web
7 site is or is not a program, what should we look at?
8 11009 Should we look at the entire site?
9 Should we look at that page? Do we look at a frame on
10 that page, an image on the page? Where do we start and
11 stop in deciding what constitutes a program?
12 11010 MR. GRANT: Well, I think it has to
13 be significant in length, but I suppose technically
14 under the Act, to give an example, a 30 second
15 commercial qualifies as a program. To a degree then I
16 suppose the unit is in the eye of the beholder. It
17 should be viewed as a real time unit because again it's
18 only when it's streamed to the public that in my view
19 it meets the test of being a program that is intended
20 for reception by the public. So there would be a time
21 level to it.
22 11011 I think it has to be a coherent
23 program that -- let's see. I was going to suggest it
24 would have to be stored in some way, but I guess that's
25 also too limiting because it excludes live programs
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1 which certainly would qualify under the Act as well.
2 11012 I think it's very difficult to be
3 precise about it. I think that in the end it's one of
4 those things where the Commission will have to be
5 presented with a videotape of the Web site experience
6 and then say to itself "Now, that particular area where
7 they clicked on and then received a particular body of
8 data in an audiovisual form", because it has to be
9 both, or at least audio, "is that the equivalent of a
10 broadcast program?"
11 11013 COMMISSIONER McKENDRY: If the site
12 was predominantly alphanumeric but the particular page
13 wasn't, what do we take into account? The site or the
14 page?
15 11014 MR. GRANT: Well, it's what's
16 transmitted. Again I guess -- it's a fair question.
17 Would you look into all of the clicks that go into it
18 and then time then and find out what is predominant.
19 11015 I think there will be pretty clear
20 cases where somebody will reach a Web site, click
21 through the menu to get to the streamed audio or video
22 and then the streamed audio or vide will take over for
23 a period of time and it will be such an extensive
24 period of time compared with how short it took to get
25 into it that you will realize immediately this is
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1 predominantly broadcasting.
2 11016 I don't think you could have any
3 slavish rules about it, except to point to the word
4 predominant.
5 11017 COMMISSIONER McKENDRY: And from a
6 practical point of view you think we would be able to
7 examine the situations and come to a conclusion that it
8 is or it isn't broadcasting.
9 11018 MR. GRANT: Well, yes. In the end it
10 is always possible to do that. Again, my thinking was
11 if you were to think of a laissez-faire approach to
12 this whole sector, you would create first of all an
13 exemption order for diminimis applications and you
14 could create a threshold in there that is a pretty high
15 level of delivery.
16 11019 You could, for example, if you wanted
17 to, exclude audio only and say that's exempt no matter
18 what it contains because you think to yourself the
19 copyright will take care of that.
20 11020 As to broadcast quality video, you
21 might say we are only going to have these obligations
22 or requirements click in when the threshold is exceeded
23 to a certain degree. It could very well be looking at
24 how much usage of a typical ISP is not generated by
25 that that it would be unlikely in the next five years
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1 that that threshold might be reached.
2 11021 At least you would have established
3 the ground rules if it were. I want to come back to
4 one point I made in another submission to the
5 Commission but I think bears repeating here.
6 11022 I think it would be a real mistake to
7 recommend that all of this stuff that is broadcasting
8 just be taken out of the Broadcasting Act and defined
9 away from the Act or out of the Act. The result of
10 that will be for Canada to lose control ever of getting
11 it back.
12 11023 So much turns on our raw definition
13 of broadcasting in our international trade agreements
14 that it is very important to keep a pretty broad
15 definition in the legislation and have that hang in
16 there in terms of our international trade practice.
17 11024 COMMISSIONER McKENDRY: Help me
18 understand how this would work in a practical sense.
19 There's over 60,000 Canadian Web sites. We would issue
20 a public notice with the minimum criteria in it that
21 you suggested and anything above that criteria or
22 benchmark I take it you are suggesting we issue an
23 exemption order.
24 11025 We would issue a public notice
25 setting out the criteria and we would instruct the
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2550
1 operators of these Web sites who came above the
2 benchmarks to come and apply to us for an exemption
3 order. Is that how it would work from a practical
4 point of view?
5 11026 MR. GRANT: No. My thinking was that
6 you would craft an exemption order right away. You
7 wouldn't wait for that. The exemption order or
8 proceeding to create one would emanate from this
9 proceeding.
10 11027 You would announce "We have decided
11 for a lot of purposes, even though they are ambiguous
12 or they are clearly broadcasting, in our view they do
13 not impact sufficiently and don't oblige us to have the
14 level of discipline that the Act requires. Therefore,
15 we are today proposing to issue an exemption order for
16 any and all of that".
17 11028 It's a nice broad exemption order
18 that captures essentially 100 per cent of what is going
19 on today. Then you would say "However, there is a
20 threshold. If you ever do reach this threshold, which
21 would mean that broadcast quality video in a streaming
22 sense is quite prominent, is reaching a certain level
23 of market penetration, you will still have the benefit
24 of the exemption order, but the exemption order by its
25 own terms will require certain obligations about some
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1 funding as a proportion of the revenue from this
2 particular activity to go into a fund or whatever."
3 That gives you the impression of supporting the system.
4 11029 That's in brief how I would envisage
5 it.
6 11030 COMMISSIONER McKENDRY: I want to
7 come back for a moment to the enforcement particularly
8 if the funding contribution was imposed upon the sites
9 or the ISPs that qualified. Assuming that a particular
10 ISP didn't make the contribution, just ignored the
11 whole thing, how do we get at that? Do we wait for a
12 complaint?
13 11031 MR. GRANT: You wait for a
14 complaint. The complaint would probably only target a
15 pretty high level player because there is no point
16 going after someone that is just going to go out of
17 business and start up again.
18 11032 It will be a pretty major proceeding.
19 It will set some ground rules. You have got all the
20 rights in the Act to, you know, have a person appointed
21 to look at it, give a report to you if you want. You
22 don't have to do it as your own hearing. You can
23 delegate it so someone.
24 11033 Alternatively, you can have it played
25 through as a request to the carrier to exercise its
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1 jurisdiction under the tariff. There's a variety of
2 methods that are there apply.
3 11034 The bottom line is at the very end of
4 the day that someone who disregards the Commission is
5 subject to prosecution for carrying on a broadcasting
6 undertaking without a licence or an applicable
7 exemption order.
8 11035 COMMISSIONER McKENDRY: Let me ask
9 you who is the broadcaster then in this scenario? Is
10 it the ISP, the Web site or owner? I take it in your
11 view it is the ISP because that's who we would issue
12 the exemption order to.
13 11036 MR. GRANT: Well, I would see the Web
14 site operator as essentially being the equivalent to
15 the programming undertaking. I would see the ISP,
16 unless it itself got into the area of replicating the
17 Web site on its own file server, would be probably a
18 broadcasting distribution undertaking.
19 11037 COMMISSIONER McKENDRY: Just to make
20 sure I understand. The broadcaster is the Web site and
21 the ISPs, the distribution undertaking, would both be
22 captured by this process.
23 11038 MR. GRANT: And you would want to
24 exempt them both.
25 11039 MR. GRANT: Let me ask you about
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1 something in paragraph 9 of your written submission.
2 In paragraph 9 you state:
3 "Canadian content quotas have
4 ensured that Canadians have
5 access to a minimum level of
6 Canadian television
7 programming."
8 11040 In paragraph 16 you suggest:
9 "A solution to the access
10 problem for new media is
11 targeted financial support."
12 11041 You also suggest, as you have
13 mentioned earlier, that:
14 " ISPs could be required to
15 provide their customers with
16 information on links to Canadian
17 sites on their home pages."
18 11042 I would like to discuss with you why
19 you think an access problem exists with respect to the
20 Internet. Just let me give you some of the information
21 that we have received so far in the proceeding.
22 1615
23 11043 As I mentioned earlier, Maple Square
24 told us that they index over 60,000 Canadian sites.
25 According to AOL, 5 per cent of all Web sites in the
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1 world are Canadian. Rogers told us that Yahoo Canada
2 can't keep up with the emergence of new Canadian sites.
3 They have two people working indexing them and they are
4 always a little bit behind. Rogers also told us that
5 there is 14 million pages of Canadian Web site
6 information and AOL and Yahoo Canada, through Rogers,
7 told us that they don't charge for indexing and they
8 don't charge for display.
9 11044 So my question to you is in light of
10 all of this that it isn't obvious that there is an
11 access problem, so I would like you to comment on that.
12 11045 MR. GRANT: This was drafted before
13 that evidence was heard, Mr. McKendry. I agree with
14 you and I think the Guild in light of that experience
15 would take the view, as you may, that there is no point
16 in the Commission requiring it if it's happening
17 anyway.
18 11046 COMMISSIONER McKENDRY: Thank you.
19 11047 I have a question now about paragraph
20 15. Paragraph 15 has the statement, and I will quote
21 it:
22 "The dramatic increase in choice
23 brought about by new media
24 technologies risks burying
25 Canadian expression."
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1 11048 I guess what I want to understand
2 here, is all of this choice a bad thing? It has been
3 put to us so far as a good thing and a positive
4 development, but I take it you are saying we are
5 putting Canadian expression at risk because there is so
6 much choice?
7 11049 MR. GRANT: Well, I guess I would put
8 this in the context of my earlier remarks, Commissioner
9 McKendry, which did indicate that based on all
10 indications there is relatively little likelihood that
11 the Internet is going to materially impact on
12 conventional media that you regulate. I mean, I accept
13 newspapers and classified ads and that sort of area,
14 but for conventional radio and television and pay and
15 specialty services there doesn't seem to be any
16 imminent threat to their livelihood or their existence.
17 11050 What we are seeing on the Internet
18 now is a genuinely new media and, yes, there are some
19 foreign sources, but their net impact is no different
20 in kind than having foreign stations available on
21 shortwave.
22 11051 Now, when we say here the dramatic
23 increase in choice risks burying Canadian expression, I
24 suppose it is possible down the road if one imagined a
25 system in which the copyright issues were resolved. If
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1 the copyright issues were resolved to a degree where
2 major copyright owners decided to bypass conventional
3 media as a means for delivering their programming into
4 homes, that would risk the viability of our existing
5 means of Canadian expression. But I have to say this
6 was drafted really to just raise the issue to make sure
7 that the Commission doesn't just give away the
8 jurisdiction, but hangs in there with an exemption
9 order that says, well, at this time we are not going to
10 take any steps to regulate, but we have established a
11 threshold which maintains our ability to relook at this
12 if the impact on conventional media turns out to be
13 material.
14 11052 I guess it is just because there is
15 some -- there is just not enough knowledge about how
16 this new media will end up that we came to this
17 conclusion.
18 11053 COMMISSIONER McKENDRY: Thank you.
19 11054 I would now like to ask you a
20 question about your suggestion that ISPs should be
21 required by us, I presume, to provide customers with
22 information on links to Canadian sites on their home
23 pages.
24 11055 MR. GRANT: I would actually, in
25 light of your comments, withdraw that proposal.
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1 11056 COMMISSIONER McKENDRY: Thank you.
2 11057 I won't ask the question obviously.
3 11058 Let me finish up by asking you --
4 well, if you are withdrawing that proposal then I am
5 not going to ask you my next question because I had a
6 question about how that related to the Charter of
7 Rights and Freedoms and if you are withdrawing that
8 proposal I will withdraw that question.
9 11059 Those are my questions, Mr. Chair.
10 11060 Thank you very much, Mr. Grant. It
11 has been very helpful and we appreciate the comments
12 ]you have been able to provide us. It is in some
13 respects coming late in the hearing, you have to deal
14 with what other people have said before you, but it is
15 very helpful for us to be able to get your views on the
16 views that have been presented to us to date. Thank
17 you.
18 11061 THE CHAIRPERSON: Thank you,
19 Commissioner McKendry, and I agree.
20 11062 Just a couple of points that occurred
21 to me. I like the way Commissioner McKendry took you
22 through the various issues and I guess given what we
23 have heard and when you consider the parallels that
24 have been drawn here by some people to ISPs and BDUs
25 and you think about the way the rules that we put in
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1 place in BDUs, rate regulation, it is probably not an
2 issue here, simultaneous substitution for advertising
3 is probably not an issue and even if it was I am not
4 sure what you could do about it, tiering and linkage
5 rules are probably not applicable.
6 11063 When you strip it all way, we end up
7 back to this, somehow or other we could levy a fee on
8 these guys, which is actually even in the cable
9 regulations a relatively new issue that we have adopted
10 only within the last few years.
11 11064 Based on your understanding of this
12 business now, is there any reason to suggest that we
13 need a fee?
14 11065 MR. GRANT: Well, I think the
15 proposal that I put forward would not in fact lead to
16 such a fee, unless there was a pretty high threshold
17 passed in terms of broadcast quality distribution. So,
18 I don't think in the end this would resolve in any new
19 money coming into the system for at least five years.
20 11066 But what it protects is your ability
21 to deal with it in a way that at least has some minimal
22 contribution from this sector to the degree that they
23 impact upon others and are clearly in the broadcasting
24 field. That's how I would orchestrate this. The
25 threshold could be high enough that it is not likely,
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1 given the technology and the copyright constraints,
2 that it may ever be reached, but as a point of
3 principle I think it is hard to argue that there
4 shouldn't be some support from this, if it is going to
5 have an impact on the rest of the sector and it is
6 doing what clearly is broadcasting.
7 11067 So, I think you can build from the
8 record of this proceeding a case for a pretty open
9 system for quite a number of years, but I am just
10 saying that I think the case here that I am putting is
11 that there may be a situation where certain aspects of
12 the sector warrant a requirement for a contribution for
13 the purposes of supporting Canadian expression and this
14 is a useful technique to do it.
15 11068 THE CHAIRPERSON: On the point about
16 the exemption order and bearing in mind the comment
17 that you made with respect to -- I forget the exact
18 words you used, but the issue of sort of stepping out
19 of the Broadcasting Act, if you will, and then the
20 problems that might create in terms of international
21 trade agreements and in terms of getting back in again
22 should you find at some point in time it was
23 broadcasting.
24 11069 Yesterday I had a discussion with the
25 folks from Astral and in their submission, now mind you
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1 they changed their view when they got here, but in
2 their second round submission they had suggested we
3 look at this at three levels; one being that at least
4 most of the material today is alphanumeric text, so
5 that's clearly not a program, so it's clearly not a
6 broadcast.
7 11070 The second level would be programming
8 that I think the words used were customized or altered
9 by the individual user. Now, it's not clear whether or
10 not, and you had a discussion on elements of that with
11 Commissioner McKendry, about whether or not some of
12 that might be broadcasting and you used the game
13 example, although Ms de Wilde yesterday talked about
14 the moving -- what was it, Clue I guess. It was out a
15 few years ago that you could pick about four different
16 endings. So, to some extent that can be altered by the
17 user.
18 11071 Then what was left, which would
19 perhaps be the long form programming I think was the
20 term they used, which would be the movie Jurassic Park
21 you referred to.
22 11072 Now, until they changed their view
23 yesterday, I guess it was their view that we could
24 interpret this programming that would be customized or
25 altered by the individual user. We could interpret
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1 that as to be not for reception by the public and,
2 therefore, not broadcasting and that you could have an
3 exemption order for the long form programming that was
4 left.
5 11073 I guess this is a long-winded way of
6 asking you what you think about this notion of the
7 Commission interpreting that either some or all of this
8 activity on the Internet, some could be that which is
9 customized or indeed all of it, that we would simply
10 interpret that to not fit within the definition of
11 broadcast?
12 11074 MR. GRANT: I have no problem with
13 that approach at all.
14 11075 THE CHAIRPERSON: Then I am not sure
15 how that squares with the comment you had to
16 Commissioner McKendry's question about the problems
17 relative to our international trade agreements?
18 11076 MR. GRANT: Yes, but I am saying that
19 that doesn't in my view narrow the definition of
20 broadcasting. It interprets it simply in a way that I
21 think is consistent with how I would read it and how I
22 think a court would read it.
23 11077 Let's get away from the word
24 "interactive," but if it is a program that is
25 customized -- I think that is not a bad term -- so that
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1 the user itself has a role in making the program look
2 what it looks like, then it is not a program that was
3 ever intended for reception by the public because it
4 was an individual thing. I don't see that as within
5 the Act now and I don't see any problem with you
6 clarifying that in a public notice.
7 11078 THE CHAIRPERSON: Do you think it
8 would be helpful if we did that sort of thing?
9 11079 MR. GRANT: I think so, yes. I think
10 at the same time it would not make very happy people
11 that were hoping that the degree of interactivity
12 represented by pressing a button to send is not enough
13 to take it out of broadcasting. They would love you to
14 have an exemption ruling that would drive a loophole
15 the size that a truck can go through, but phrased as
16 you have described it I don't see any problem with
17 that.
18 11080 THE CHAIRPERSON: Thank you.
19 11081 Counsel.
20 11082 MS PINSKY: Thank you, Mr. Chairman.
21 11083 I wonder if I could just clarify the
22 basis upon which you consider that an ISP would be
23 operating as a broadcasting undertaking. We are
24 dealing here, of course, with the situation where a
25 customer of the ISP would be pulling, as you phrase it,
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1 a broadcast quality video. What are the activities of
2 the ISP in that situation that would render it into a
3 broadcasting undertaking, as opposed, for example, to a
4 telecommunication service provider?
5 11084 MR. GRANT: To start with I guess,
6 you would have to just track the language of
7 distribution undertaking in the Act. You would start
8 with the premise, I suppose, that the ISP receives the
9 broadcasting from the Web site as an intermediary and
10 then switches it further down to the ultimate
11 recipient. So you would be, I suppose, taking the
12 position that the file server operated by the ISP which
13 is the intermediate point and the access point by the
14 ultimate user to this panoply of Web sites is the
15 equivalent of a head end.
16 11085 Now, just as with cable, the
17 reception and the retransmission happens
18 simultaneously. There is no recording or whatever and
19 it has to be sent by radio or other means of
20 telecommunications to more than one permanent or
21 temporary resident, or to another such undertaking.
22 11086 Now, I guess the point would be that
23 you are not saying that the retransmission of that
24 particular program has to be sent to more than one
25 permanent residence. I would read that as meaning that
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1 the number of subscribers to the ISP has to be more
2 than one.
3 11087 I think the section is susceptible of
4 that interpretation.
5 11088 MS PINSKY: So I take it then that
6 the issue of whether or not the ISP is involved in the
7 selection of the content or the packaging of the
8 content or determining what content is ultimately
9 delivered to the customer are not some relevant
10 considerations when determining what undertaking is
11 operating as a broadcasting undertaking.
12 11089 Some other parties have offered the
13 view that an ISP serves rather as a gateway, as opposed
14 to a gatekeeper and is preferred to the fact that they
15 are not engaged in these activities.
16 11090 MR. GRANT: That is a view that is
17 expressed by the counsel for the ISP side on the
18 copyright issue because there is an analogous exception
19 under copyright for a party that is only furnishing
20 facilities and is not doing anything except the role of
21 a carrier.
22 11091 I would read the two as being
23 essentially the same. I mean I have looked at the
24 pleadings back and forth on the Tariff 22 and the case
25 for the copyright side, which is interesting, it is
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1 essentially led by counsel for two organizations, one
2 SOCAN, who you would expect to support this view, but
3 the main supporter for them is the Hollywood studios
4 through the CMPDA, who have put in a huge brief
5 supporting the position of SOCAN, that everything on a
6 Web site and what the ISPs do gives rise to this. Both
7 of those parties have put in extensive briefs arguing
8 against what you have described, which would be, "Well,
9 isn't the ISP just a carrier." What they have pointed
10 to is a list of activities that ISPs typically do in
11 the way of marketing, packaging, other elements towards
12 the end user, that they in their view take it out of
13 the carrier exception.
14 11092 I am not going to express a view as
15 to which way the Copyright Board will decide, but it is
16 an interesting question to follow because essentially
17 the same arguments are being raised there.
18 11093 MS PINSKY: Also, I take it that it's
19 your view -- first of all, just to clarify, I believe
20 as you sort of progressed through your discussion with
21 Commissioner McKendry that it was your view that the
22 ISP, insofar as the ISP is involved in the distribution
23 of broadcast quality video, would obviously require a
24 licence or an exemption order and it was only when the
25 threshold was met that certain conditions might kick
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1 in.
2 11094 MR. GRANT: Yes.
3 11095 MS PINSKY: Under those
4 circumstances, and the threshold would relate more to
5 the impact of the services that are being delivered, as
6 opposed to the amount to the percentage of the business
7 of the ISP involved in that.
8 11096 MR. GRANT: Yes.
9 11097 I take it as a given, by the way,
10 that the exemption order to begin with prior to the
11 threshold already is intended to cover broadcast
12 activities. So it is just a degree of how much and
13 what quantity and what impact.
14 11098 MS PINSKY: Okay.
15 11099 Some parties -- several parties have
16 argued that, for example, in the case of an ISP if you
17 accept that they couldn't or in certain circumstances
18 operate as a broadcasting undertaking, that where the
19 ISP or let's say where the delivery of broadcast
20 quality signals involves such a small percentage of the
21 ISPs business generally because there are so few of
22 these services available, that the primary purpose of
23 that undertaking is not broadcasting and, therefore,
24 notwithstanding the fact that there are perhaps several
25 services being distributed that might constitute
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1 broadcasting, the ISP is not operating as a
2 broadcasting undertaking because of the low number of
3 services being delivered?
4 11100 MR. GRANT: Now, how do they argue
5 around 4(3) of the Act because I would have thought
6 that that's the kind of provision where it says that --
7 it applies even if the broadcasting undertaking is
8 carried on as part of or in connection with any other
9 undertaking activity and read for that the
10 non-broadcasting activity.
11 11101 That certainly would have been a
12 viable argument in the pre-1991 days, when we had
13 Muldoon's obiter in the Launt case to support them, but
14 I think with the change in the Act in 1991 it's less
15 tenable.
16 11102 MS PINSKY: Thank you very much.
17 Those are all my questions.
18 11103 THE CHAIRPERSON: Thank you, counsel
19 Pinsky.
20 11104 Thank you, Mr. Grant, for an
21 interesting discussion. I think you said seven lawyers
22 on the head of a pin. Nonetheless, we do have to come
23 to grips with some of these legal issues as part of
24 this proceeding. Thanks again.
25 11105 That concludes our business for
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1 today. We will resume tomorrow morning at nine
2 o'clock.
3 --- Whereupon the hearing adjourned at 1640, to resume
4 on Friday, December 4, 1998 at 0900 / L'audience
5 est ajournée à 1640, pour reprendre le vendredi
6 4 décembre 1998 à 0900
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