TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
APPLICATIONS FOR LICENCES TO OPERATE NEW PAY AND SPECIALTY
SERVICES FOR DIGITAL DISTRIBUTION / DEMANDES DE LICENCES
VISANT LA DISTRIBUTION NUMÉRIQUE DE NOUVEAUX SERVICES DE
TÉLÉVISION SPÉCIALISÉE ET PAYANTE
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Outaouais Room Salle Outaouais
Hull, Quebec Hull (Québec)
September 7, 2000 le 7 septembre 2000
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and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
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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
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Toutefois, la publication susmentionnée est un compte rendu
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Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Applications for Licences to operate New Pay and Specialty
Services for Digital Distribution / Demandes de licences
visant la distribution numérique de nouveaux services de
télévision spécialisée et payante
BEFORE / DEVANT:
Françoise Bertrand Chairperson of the
Commission / Présidente
Andrée Wylie Chairperson / Présidente
Jean-Marc Demers Commissioner / Conseiller
Ronald Williams Commissioner / Conseiller
Martha Wilson Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Peter Cussons Hearing Manager / Gérant
Carol Bénard Secretary / Secrétaire
Alastair Stewart Legal Counsel /
Peter McCallum Legal Counsel /
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Outaouais Room Salle Outaouais
Hull, Quebec Hull (Québec)
September 7, 2000 le 7 septembre 2000
TABLE OF CONTENTS / TABLE DES MATIÈRES
PHASE I - PAY-PER-VIEW/VIDEO-ON-DEMAND
BELL EXPRESSVU LIMITED PARTNERSHIP 5380
INTERVENTIONS BY / INTERVENTIONS PAR
VIEWERS' CHOICE AND CANAL INDIGO (ASTRAL) 5439
WIC PREMIUM CORPORATION 5456
REPLY BY / RÉPLIQUE PAR
BELL EXPRESSVU LIMITED PARTNERSHIP 5489
Hull, Quebec / Hull (Québec)
--- Upon resuming on Thursday, September 7, 2000
at 0830 / L'audience reprend le jeudi
7 septembre 2000 à 0830
34758 THE CHAIRPERSON: Good morning. Welcome to the last day of our hearing.
34759 Bienvenue à la dernière journée de notre audience.
34760 Madame la Sécretaire.
34761 Madam Secretary, please.
34762 MS BÉNARD: Thank you, Madam Chair. The next presentation will be David Cobb, on behalf of a company to be incorporated, for a regional service dedicated exclusively to offering live NHL games -- Breakaway.
PRESENTATION / PRÉSENTATION
34763 MR. BREMNER: Thank you, Madam Secretary.
34764 Good morning, Madam Chair and Members of the Commission. I am Ron Bremner, President and Chief Executive Officer of the Calgary Flames of the National Hockey League. I am very pleased to be here with my colleagues from the Edmonton Oilers and Vancouver Canucks to make this application to be licensed to operate a regional English-language digital pay per view television programming undertaking that will be available to all distributors using digital technology.
34765 Joining me on the panel today are, on my immediate right, Mr. Brian Burke, President and General Manager of the Vancouver Canucks. To Brian's right is Mr. Allan Watt, Vice-President of Marketing and Communications for the Edmonton Oilers. On my immediate left is Mr. Chris Hebb, Vice-President of Broadcasting and New Media for the Vancouver Canucks. Also with us, sitting behind me, is our legal counsel, Mr. Stephen Zolf, of the firm of Heenan Blaikie, and with Stephen is James Conrad, Corporate Counsel for the Vancouver Canucks.
34766 Not with us today, and someone whose name appears on the application and who has done a tremendous amount of work in the preparation of our presentation, is Mr. Dave Cobb, Chief Operating Officer of the Vancouver Canucks. Dave is with his hockey team at their training camp in Stockholm, Sweden, and he sends his regrets -- and I even kind of believe him.
--- Laughter / Rires
34767 MR. BREMNER: We are excited to be presenting our application to you today. The three western-based NHL teams behind Breakaway, The Calgary Flames, the Edmonton Oilers and the Vancouver Canucks, will each be a one-third shareholder in a company to be formed to hold and operate the digital pay per view licence for which we are applying today. That company will be called Breakaway PPV Ltd.
34768 In the great game of ice hockey, one of the most exciting plays is the breakaway. The sheer thrill and excitement of one player streaking in alone on a goaltender is a sight which brings the crowd to their feet and lifts the emotions of everyone in the rink. It is hockey condensed to its purest form: raw skill and fierce determination staring each other in the face.
34769 Similarly, the telecasts we are proposing today will have the excitement of a breakaway. These telecasts will deliver hockey at its best. The time normally taken up by commercials on other broadcast media will be filled with exciting and interesting new material that will bring the fans closer to the players, closer to the ice and, in fact, closer to the game. These will be enriched telecasts, augmented, for those viewers who wish to have it, by coverage on the Internet co-ordinated with the pay per view telecast. The result will be a sense of immediacy and interactive participation that does not exist in the conventional telecasts of our games today.
34770 Today not everyone can afford either the dollars or the time commitment of a season ticket purchase. The economic realities of professional sports have put the cost of admission out of the reach of many of our most enthusiastic and loyal fans. Yet many of our core supporters across our territories have been denied the complete viewing experience with respect to the broadcast of NHL games by existing broadcasters.
34771 Breakaway will offer an affordable and high value alternative. One of the key benefits will be the sense of ownership, a feeling of belonging to a team that will be bestowed on our fans.
34772 The participating teams will make sure the viewer knows that he or she is supporting the team and that the team appreciates that support. We will use our pay per view telecasts to build stronger, more direct relationships with our fans. That is an important part of our game plan for Breakaway.
34773 We have prepared a very short video designed to give you a brief glimpse of the Breakaway product.
34774 Could you role the video, please.
--- Video presentation / Présentation vidéo
34775 MR. BREMNER: You will have noticed a significant consideration in our video presentation of the ways in which pay per view and the worldwide web can work together. To speak more about this great digital opportunity, I would like to introduce Chris Hebb from the Vancouver Canucks.
34776 MR. HEBB: Good morning. We were very enthusiastic last year when the Commission issued its initial call for comments on the new world of digital distribution. In particular, the Commission identified some of the benefits that would occur following the deployment of digital boxes to cable customers.
34777 To use the Commission's own words:
"New programming content is expected to encourage the deployment of digital distribution and related technology as consumer demand for new services increases."
34778 We wholeheartedly agree.
34779 While we have heard a lot about digital drivers during this hearing, pay per view services, particularly in the sports-based niche, will unquestionably be a key driver of digital distribution to cable subscribers.
34780 Consumers will finally have the opportunity, in the words of the Commission, to "select many different packages of existing and new services to satisfy their various interests and viewing needs".
34781 In your Licensing Framework Policy you noted that among the key advantages of digital distribution will be greater opportunities for viewers to interact with the product. We were also encouraged by the Commission's determination that the move to digital distribution "will spur new Canadian services and a more open-entry environment that allows for greater risk-taking, provides for a greater number of services in the marketplace and allows the success of services to be increasingly determined by customers".
34782 The Vancouver Canucks filed a submission with the Commission last year in which the team supported the rapid and comprehensive deployment of digital technology to cable subscribers which would provide significant benefits to the Canadian broadcasting system by providing far more choice and diversity to Canadians.
34783 If the deployment of digital technology is expedited, it will provide significantly more opportunities for the exhibition of high quality Canadian content that would meet the objectives set out in the Broadcasting Act, including the enrichment of the cultural, social and economic fabric of Canada.
34784 In that regard, Canadian-based professional teams have been among the most popular producers of home-grown Canadian content for the broadcasting system for over 50 years. Breakaway will continue this tradition and ensure that there are more stories told about Canadians from a uniquely Canadian point of view.
34786 MR. BREMNER: There are currently nearly two million cable households in the territory that Breakaway proposes to serve. Based on projections provided by the cable and DTH industries in these proceedings, it appears there will be over 400,000 digital subscribers in the territory by the end of next year. We think it is a reasonable expectation that the digital subscriber base will exceed one million in Alberta and B.C. alone by the end of our first licence term.
34787 The economics of providing a viable niche PPV service targeted to the local/regional fan base will become more favourable. These niche services will meet the particular preferences of Canadian television viewers of sports programming.
34788 Niche pay per view services like Breakaway will meet a number of objectives set out in the Broadcasting Act. First, the availability of such programming would provide more diversity and choice to Canadian viewers. Next, it would also result in more financial benefits to the Canadian broadcasting system, as measured by the additional contribution from such new PPV services. And finally, it would be complementary to the sports programming offered by existing broadcasting services.
34789 Therefore, it will be important for such services to be licensed and launched by BDUs as soon as possible. In our view, Breakaway will be a critical component of the imminent digital roll-out in the Alberta and B.C. cable and satellite markets.
34790 Now I am going to turn it over to Brian Burke from the Vancouver Canucks. Brian...
34791 MR. BURKE: Good morning. The service we are proposing today is a pay per view digital offering of games of the Vancouver Canucks, the Edmonton Oilers and the Calgary Flames to their respective broadcast territories live, as they happen. We expect that the majority will be of home games, but some telecasts will be of away games.
34792 The production crews and management will be Canadian, which will not only allow for the creation of new Canadian content, but will also result in economic benefits to Canadians working in the broadcasting industry.
34793 We would like to explain how the National Hockey League manages the broadcast rights of Canadian-based NHL teams.
34794 Each team owns the rights to its live telecasts within its own territory, with an exception for a limited number of games from each team which is reserved for inclusion in national broadcast packages like Hockey Night in Canada.
34795 Calgary and Edmonton split Alberta at Red Deer, with Edmonton taking everything north and Calgary taking everything southward. Vancouver's territory spans the entire province of British Columbia.
34796 Each team has available for broadcast in its territory those games not taken for national broadcasts. In a typical season, this leaves approximately 60 games for each team for broadcast on free, over-the-air television, or on discretionary or pay television services. For example, for the upcoming season, approximately 20 Oilers' games will not be offered on television. In the case of the Calgary Flames, approximately 30 games will not be televised, while all but five Canucks' games will be shown on off-air or discretionary programming services.
34797 The question of which of these games find their way to television is largely out of our control. As a result, in the case of Calgary and Edmonton, games that could generate revenues for their rights holders to serve their fans and help support their teams are not watched, nor is there any certainty of program uniformity on a year-to-year basis.
34798 Although we expect that the majority of our games will continue to be available on conventional or discretionary cable tiers, we nevertheless firmly believe that there are some real opportunities to target games from those games that broadcasters will elect not to cover that will be prime for the Breakaway service. Not only will this help to strengthen the economic health and viability of our teams, it will add a new complementary offering to the Canadian broadcasting system.
34799 We strongly believe that the entry of regional niche based pay per view sports services is the answer. As a niche pay per view sports service, Breakaway would be complementary to the NHL games that are currently distributed by discretionary services and will not have an undue negative financial impact on existing conventional, specialty and pay services.
34800 And now I would like to ask Allan Watt of the Edmonton Oilers to address the state of Canadian-based NHL teams.
34801 MR. WATT: Thank you.
34802 Canadians love their hockey. They especially love NHL hockey. Canadians helped found the League, for many years almost every player in the league was a Canadian, and today, Canadians account for a disproportionately large percentage of the players and executives in the league. Therefore, Canada's relationship with the National Hockey League is a major motivator and supporter for all amateur sport in Canada. Hockey, and NHL hockey, is a major part of the fabric of our proud Canadian heritage.
34803 Hockey's place in the history of Canadian broadcasting should not be forgotten. The voices of Foster Hewitt and René Lecavalier ring through the early years of Canadian radio and television. Hockey Night in Canada is a cornerstone of the Canadian Broadcasting Corporation. Truly, NHL hockey helped build Canadian broadcasting.
34804 Now, Canadian NHL teams need the help that digital pay per view can bring.
34805 The three western-based NHL teams before you today have been waiting a long time for the opportunity that digital television broadcasting brings to our teams and to our fans.
34806 The advent of digital technology, and the opportunity for our teams to enter into a virtually direct relationship with our fans through pay per view, comes not a minute too soon. In our view, ownership of Breakaway by the three western-based NHL teams will be critical, not only to ensure that the rights holder's revenues are maximized, but also that the digital customer will indeed receive a quality product that enhances a direct connection between the viewer and their teams. The Breakaway model meets these objectives.
34807 In December of 1998, Parliament's Subcommittee on the Study of Sport in Canada released the Mills Report. Dealing with professional sport, the report recognized the value that the National Hockey League brings not only to the Canadian economy but to Canadian culture. The report noted the very significant financial challenges facing the Canadian-based NHL teams. The subcommittee made various recommendations, one of which is directly germane to your deliberations today.
34808 The report suggested that the CRTC examine the possibility of allowing more channels for broadcasting local professional games on pay per view. This recommendation was only one of many. But its a good recommendation and we feel it should be implemented now. Breakaway will achieve this objective. This round of applications and these hearings are your opportunity to give the western-based Canadian NHL teams the all-important chance recommended by the parliamentary subcommittee.
34809 You may recall that, following the report of the subcommittee, there was a round of consultations between the NHL, the Canadian teams and the Government of Canada as represented by the Minister of Industry. Those consultations culminated with Minister Manley announcing a program of financial support for the teams that the federal government was prepared to enter into provided that the provinces and the cities would also join in.
34810 The Government of Canada ultimately withdrew its offer of support, telling the teams and the NHL it was the feeling of the Canadian people that the teams and the league yet had things they could do to improve their economies, and that not until everything had been done by the teams and the league that could be done should they look to the Canadian government for assistance.
34811 Fair enough. Breakaway is the one thing we can do, and we are anxious to do. A digital pay per view licence, used in the manner we propose to use it, will be in the hands of the parties positioned to make the best use of the licence for the benefit of the Canadian consumer, for the Canadian broadcasting industry, and for the continuing existence of our teams in Canada.
34812 I will turn it back to Mr. Bremner now.
34813 MR. BREMNER: Thank you, Allan.
34814 In summary, we feel that the time for Breakaway is now, for a number of key reasons:
34815 First, Breakaway means an accelerated move to digital technology. We believe the benefits of digital broadcasting for Canada to be worthwhile and that the availability of our games on digital pay per view will encourage many Canadians to make the investment necessary to gain access to them.
34816 Next, Breakaway means more choice for the consumer. That is, a better mix of games on conventional, specialty and purely premium distribution.
34817 Breakaway also means a strong business foundation, taking advantage of our experience in the area of promoting, packaging and selling the NHL game. We are uniquely positioned to provide this pay per view service.
34818 Breakaway also means more opportunities between broadcast and the Internet. We look forward to taking advantage of the marriage of television and the computer. The result will be an exciting new sports experience.
34819 And, finally, Breakaway means more high quality content for the hockey fan. We will offer commercial-free choice for our loyal fans and a far richer viewing experience than they currently enjoy. We will push the envelope in new areas of production and programming content and we will serve the hockey fan better than he or she has ever been served before.
34820 This will have the benefit of encouraging all broadcasters of NHL games to continually improve and find ways to inject added value into their games, with a resulting higher standard for all games.
34821 We thank the Commission for the opportunity of appearing before you today and for your consideration of our application. Make no mistake, this is a very important step that will help us solidify our fan base in a very important time in our evolution and will help keep small market teams viable and healthy. The result will be unique and valuable Canadian content that will ensure diversity and the high-quality programming that has long distinguished the Canadian broadcasting system.
34822 We would like to close our presentation with a short excerpt from Ken Dryden and well-known Ottawa columnist Roy MacGregor's book, "Home Game":
"Canadians may seem undemonstrative and reserved, but not at a hockey game. We may seem isolated and distinct one from another, we may seem non-patriotic, but not at a hockey game. Hockey helps us express what we feel about Canada, and ourselves. It is a giant point of contact, in a place, in a time, where we need everyone we have -- East and West, French and English, young and old, past and present. The winter, the land, the sound of children's voices, a frozen river, a game -- all are part of our collective imaginations. Hockey makes Canada feel more Canadian."
34823 And we believe Breakaway will help make Canadians feel more Canadian.
34824 My colleagues and I thank you for your time and we would now be very pleased to answer any of your questions.
34825 THE CHAIRPERSON: Thank you, Mr. Bremner. Good morning to you and your colleagues.
34826 When I first looked at that I thought there must be a couple of men on the bench.
--- Laugher / Rires
34827 MR. BREMNER: You know, Madam Chair, I was watching on the video and you will note that it was obviously produced in Vancouver because the Calgary Flames didn't score any goals.
34828 THE CHAIRPERSON: It was very modest of you to pick that, to make that choice.
34829 Commissioner Williams, please.
34830 COMMISSIONER WILLIAMS: Good morning, Mr. Bremner and panel members.
34831 Although there is nothing like the sheer thrill of a breakaway, perhaps a three on one, pursuing an exciting broadcasting opportunity, one that brings together three such fierce competitors as the Calgary Flames, the Vancouver Canucks and the mighty Edmonton Oilers, as you may have guessed, I am from Edmonton and I am certainly a loyal hockey fan with a slight Oilers bias. I have the pleasure of leading the questions this morning in order to learn more about your application and help us gain a better understanding, so let me begin.
34832 The first area I am going to talk to you about is in the nature of service area and specifically with bundling of programming. There are a number of examples of existing pay per view services selling programming in packages such as NHL Centre Ice, NFL Sunday Ticket and the Racing Network. These programs are sold on a monthly, seasonal or other bundled basis and not on a per view basis. So what are the benefits and disadvantages of permitting pay per view and video on demand services to sell programming in this way?
34833 MR. BREMNER: Before I turn it over to my colleague, Chris Hebb, I would like to just say that we believe, as we stated in the presentation, there are many benefits for this particular application, Commissioner Williams.
34834 First of all, we believe that the hockey fan is -- and the word "fan" derives out of the word "fanatic". The hockey fans are people who want to see the whole product.
34835 Quite frankly, today the real hockey fan, the avid hockey fan, does not get a chance to see every product and every game that they want to see. That is like a soap fan seeing three days of The Young & The Restless. They want to know what happens to Victor on Friday, and they want to know what happens to the rest of the characters.
34836 This will give them the opportunity to see the complete schedule, as best as we can, of games, and utilize the unused inventory that we have that goes dark, so to speak.
34837 Another factor is that it will give a behind-the-scenes experience that simply can't be done by commercial broadcasters. Having come from that side of the table, I understand why it can't be done, because of commercial restrictions and limitations.
34838 But this will allow us, this particular service, the opportunity to get into depth to be able to explore the nuances of the game, to be able to really come to grips with behind-the-scenes activities and areas of the game that real, solid, hard core fans are interested in and, in fact, maybe an opportunity for some fans who may be a little bit more passive now to get hooked on the game in a better -- in a more convincing style.
34839 Chris, maybe I could turn it over to you for a little elaboration.
34840 MR. HEBB: As far as packaging, we obviously think that we would like our consumers to have that option, the choice of being able to choose the games on a seasonal basis. That works with sports. In pay per view specifically, that model already exists on what Bell ExpressVu offers with their Centre Ice package.
34841 We also want the consumer to be able to pick and pay. If he chooses one game because he is home that night and can hit his remote and get the game, that is great for us too.
34842 One of the advantages of choosing a seasonal package, we believe, will be a volume discount. So if someone chooses to buy 10 games as opposed to 2, there will likely be a better price point.
34843 COMMISSIONER WILLIAMS: That is a good outline of the benefits.
34844 Are there any disadvantages?
34845 MR. HEBB: Disadvantages to packaging an entire season?
34846 COMMISSIONER WILLIAMS: To, yes, selling programs on a monthly, seasonal or otherwise bundled basis?
34847 MR. HEBB: I think the only time there would be a disadvantage is if we did not allow the consumer the choice to buy them game-by-game, and that is certainly not our plan.
34848 COMMISSIONER WILLIAMS: If the Commission decided to prohibit program packaging and require that all programs be sold on a pay-per-view or individual basis, would you accept such a requirement?
34849 MR. HEBB: I think we would obviously have to discuss that, because I honestly believe that that is going to put the consumer at a disadvantage. If the consumer chooses to have an entire season for one price point and we are going to force him to pay another price point on a per-game basis, I don't think we are serving our consumer.
34850 MR. BREMNER: If I might add, Commissioner Williams, I think the difference between this particular application and other applications that perhaps might look at bundling, like a movie channel or other examples, we don't have an unlimited supply of inventory vis-à-vis live games. We are working on a finite number. We are not talking about a lot compared to an unlimited host or library of movies.
34851 The sports fan, quite frankly, is used to buying in bundling. They are conditioned over the years, whether it be in Edmonton or Calgary or Vancouver, or wherever it is, to buying sports properties as a season purchase possibly or game packages in groups as well.
34852 COMMISSIONER WILLIAMS: Pay per view packaging, have you give any thoughts to including tickets or visits with hockey players or promotional items, like other things to fill out a package?
34853 MR. BREMNER: I think that is an excellent point.
34854 Part of the scenario that drives this application today obviously is the fact that we are in a very, very challenging time for Canadian hockey teams. The Calgary Flames example, for instance, it cost us $12 million last year just on the exchange rate alone. That is before we turn the lights on in the morning. The exchange rate for all of us as Canadian teams is a very, very debilitating part of the business.
34855 We will obviously look at and explore all ways to be able to bundle and promote within our jurisdiction to make sure we can let the fan have the total experience of the team. If there is a way to help the fan get closer to the team, to feel more a part of the overall team experience, to be able to help them feel more a part of the total game of hockey, we think that it needs to be looked at.
34856 MR. HEBB: I also believe that for a person in Fort McMurray -- just to use an example from our prairie partners -- for him to be able to come to 10 games over the course of a season is probably not very likely, depending on his level of affordability and time. So if he can choose to come to that one game and also purchase a pay per view package, and in that pay per view package and ticket package we incent him to get better seats when he does come, that he actually becomes a part of a group that we recognize as our pay per view subscription group and we treat them special when they come to the rink, I think that is something that all of the teams will probably work to establish.
34857 COMMISSIONER WILLIAMS: What other purposes will the channel be used for when you are not running actual games?
34858 MR. HEBB: We would like to be able to use the time between games to promote the games and what they are all about. We would also like to be able to use the time between games to promote our games that are on conventional and cable television.
34859 I think that in some instances the Commission has allowed barker channels for pay per view licensees. We would just like to be able to use the time between games to promote the fact that this service is available.
34860 MR. BREMNER: Commissioner, I think that provides an added benefit to the entire broadcasting system, because if we can get more information about this game and make the fans feel part -- a greater part of the total experience, we become complementary to the other distribution outlets and to all of the channels that are broadcasting hockey games throughout the country. I think that is an added benefit.
34861 As we put into our application, you know, competition -- in fact, I never believed I would be sitting at the same table with the Canucks and the Oilers. You can't see it, but I do have my shin-pads on.
--- Laughter / Rires
34862 MR. BREMNER: But the reality is, we really believe that the new areas that we are going to move into with broadcasting on Breakaway, with the new nuances that we will bring to these broadcasts, we will, as we said, push the envelope and put other broadcasters in the position where they will be forced to match the kind of content and production that we are going to put forward. That becomes an overall benefit for the consumer. That is good for all hockey viewers if we enhance the total experience.
34863 MR. HEBB: There is one other application that we would put before the Commission, and that is the ability to take a game that has already aired and re-air it. I know that is almost anathema to what pay per view is all about, but if you look at it from the consumer's perspective and for some reason he was not able to be home at seven o'clock at night and at 10 o'clock has not heard the score and would like to see the game again, we would like to be able to bring it to him.
34864 MR. BREMNER: That's a great -- there are a lot of people across this country who don't work 9:00 to 5:00, including Commissioners.
--- Laughter / Rires
34865 MR. BREMNER: You know, whether you are a cab driver in Vancouver or whether you work at Stelco in Hamilton or whether you are a fisherman or a farmer, and if you had the ability, as Chris just pointed out, to be able to come home at your schedule, on your time, to be able to watch your favourite team, that has to be seen as a benefit, I would suspect.
34866 COMMISSIONER WILLIAMS: In your application you state that you will only broadcast hockey games that are not otherwise televised on conventional or specialty broadcasting undertakings. What proportion of Oilers, Flames and Canucks games would be available for broadcast on your service compared to the number of games that would be available on conventional and other specialty channels?
34867 MR. BREMNER: Chris may want to get into the exact numbers, but the basic premise that we are going on is that these are games that will be absolutely unused inventory at the current time. These are games that will not be able to be seen and, therefore, will not detract from what ordinarily would be happening on other channels.
34868 Chris, you might want to talk about the exact numbers, but that is the premise that we are going on.
34869 MR. HEBB: I think we are unable to provide you the numbers on an ongoing basis because the deals with the broadcasters are yearly negotiations. In some cases they last as long as three years.
34870 But we do feel that the amount of pay per view games that will be available will be far below what will be available on conventional television and cable.
34871 We have some experience with pay per view in Vancouver in that we partnered with Viewer's Choice on a couple of packages, four game packages in 1997-1998 and 1998-1999. The reason we did that was because we were sitting with, in the first year, four games that were not going to be seen by anybody and it was frustrating to the teams to not be able to schedule those games.
34872 But we understand the broadcaster's dilemmas, they have other programming they need to air. We can't shoehorn ourselves into their news shows and their prime time programming.
34873 But what it allowed us to do is serve the consumer. If he chose to see that game, it was available to him. That is really the genesis of Breakaway.
34874 COMMISSIONER WILLIAMS: Can you give us some sense on how you will handle the home games and the away games? There must be some of that surplus inventory in each type.
34875 MR. HEBB: We plan on the majority of the pay per view product being home games for one reason. They are seven o'clock starts in your local market. We believe we could go on at six o'clock with a pre-game show and take someone right to eleven o'clock with a post-game show and really serve that consumer with a commercial-free product. That's what we are trying to accomplish.
34876 Ron might want to jump in here, but I really think that Breakaway will provide that service.
34877 MR. BREMNER: I think, Commissioner Williams, anybody who has had the great opportunity to go to a National Hockey League game, whether it's in Vancouver or at the Corel Centre in Kanata -- and I kidded Roy Malak of the Ottawa Senators, I said, "It's the only time that my cab fare has been more than my airfare when I went to a hockey game in Ottawa".
--- Laughter / Rires
34878 But what we want to do is try and replicate the experience. You know, picture in your mind a father and mother taking a 10-year-old and 8-year-old boy and girl to a hockey game. You leave the house, they get in the car, there's the anticipation, there's the excitement. They park, they walk in. Before the game starts, there's a tremendous amount of activity and feeling and excitement and building a momentum.
34879 We want them to be able to feel and taste and smell. We are not going to sell hot dogs, but we want them to be able to have the total experience. We want them to go behind the scenes. We want them to be able to feel like they are a part of this game, not just a part of the broadcast. I think that's going to be a key factor that will differentiate us from the conventional broadcasters and from the conventional telecast.
34880 COMMISSIONER WILLIAMS: Taste and smell! Your application is taking interactivity to a whole new dimension.
--- Laughter / Rires
34881 MR. BREMNER: Some are leading edge. We are moving leading edge to a new height.
34882 COMMISSIONER WILLIAMS: How would your service affect availability of rights for hockey games to other pay per view and video on demand services?
34883 MR. BREMNER: Before I ask Chris to jump in here, I would just like to say that we don't see our application as being negatively impacting other broadcasters.
34884 First of all, having been in the broadcast business, I have a little bit of experience in that area with respect to applications, and you will note that there are no intervenors really of any consequence, and based on 22 years in the broadcasting business, I know that if we were in a position of potentially losing $5.00 we would have had an army of lawyers marshalled across the country to be able to put in interventions. So I think that speaks for itself.
34885 Second, I would invite anyone to check the bottom line balance sheets of broadcasting outlets in this country and compare them to the bottom line balance sheets of hockey teams and I think you would see that we are not in danger of putting anyone out of business or negatively impacting any broadcasting outlets.
34886 We are looking to complement the existing services. This is not going to be revolutionary. This is going to be evolutionary. We will be moving into this as quickly as we can obviously, but the reality is this is going to take place over a period of time in terms of this particular kind of service getting whacked into the minds and hearts and homes of people across the country. We have existing obligations with a myriad of sponsors, whether it's in Vancouver, Calgary or Edmonton, that we will live up to and want to live up to because economically we have to.
34887 We work within the framework of the National Hockey League. National television revenues are distributed equally between all teams, north and south of the border. So this service will be complementary. It will not be taking away from the existing services and it will not negatively impact those.
34888 MR. HEBB: I might add, Ron, that digital penetration is going to take some time.
34889 Commissioner Williams, it will be a long time before a pay per view product can compete with the revenues that we are paid by broadcasters today and our three-year agreement with CTV SportsNet is up at the end of this year and we are going to begin discussions immediately for renewal. We will give them as many games as it makes sense fiscally to do, and once pay per view is an actual competitive product that might be something we will have to look at, but it will be quite some time before the economics make sense.
34890 COMMISSIONER WILLIAMS: Thank you very much. I have enjoyed questioning you.
34891 THE CHAIRPERSON: Madam Bertrand.
34892 CHAIRPERSON OF THE COMMISSION: Good morning, gentlemen.
34893 Out of curiosity, if the Commission was to consider positively your request, what is the expectation we may have of getting other similar applications from other parts of the country, like from Toronto and Montreal? Because the financial situation and the situation you are explaining in terms of the games that don't get covered would be the same in all the League.
34894 MR. BREMNER: I think it's a very good point, Commissioner Bertrand.
34895 You know, as they say imitation is the greatest form of flattery. We would like to think that if we do this properly that there may very well be other applications come before you at some time, and it may well be that does happen. But what is a reality is that the three western-based teams, from an economic standpoint, are in different markets as opposed to the eastern markets.
34896 Our teams are in the very bottom of the League in terms of market size which makes it very difficult to compete. The needs that Toronto has are completely different. The southern Ontario market is completely different than this market. Montreal is a much larger market.
34897 However, I think that is a point, a good point, that you bring up and it could come to pass, and may very well come to pass, but at this particular time, I don't see those particular entities having the need that we do at this particular time to move into this area. But that could change.
34898 CHAIRPERSON OF THE COMMISSION: Because if could create competition for the seats themselves at those games, wouldn't it?
34899 MR. BREMNER: No, I don't think so. Maybe Brian Burke from the Canucks might want to respond to that.
34900 MR. BURKE: I think that in terms of the number of games broadcast in all your different levels of broadcasting, what you offer over the air on cable, what you put on a pay per view, it definitely and negatively impacts upon our gate.
34901 So this goes to Commissioner Williams' earlier question about how many games, how would it impact? Every time we televise a game, we estimate the impact at probably several thousand fans that don't come. And as Ron said, if you look at the desperate economic situation we are in, we think the application makes sense.
34902 I don't see it as imminent in those other markets but, as Ron said, that is likely to change. I think as the evolution of this universe emerges and there is digital penetration and availability that may well come to pass.
34903 CHAIRPERSON OF THE COMMISSION: Thank you very much. Thank you.
34904 THE CHAIRPERSON: Commissioner Demers.
34905 COMMISSIONER DEMERS: Thank you.
34906 I am the only Commissioner coming from a city which lost its NHL team. So I have only a broad question and can I get from -- is it correct to interpret your presentation to the effect that this is one of many things that you are trying to do to make sure you don't lose your games, especially like Alberta with two teams in the NHL?
34907 MR. BREMNER: Well, I think, Commissioner Demers, absolutely. I might add though that the great Nordiques teams, while they may not be in your wonderful city any more, I can tell you that I saw a couple of our older hockey players last week prior to training camp starting and the scars that they still have from some of the Nordiques are visible. So you should be happy about that.
--- Laughter / Rires
34908 The reality is that this is one step in where we need to go as a group. Five, ten years ago if you would have told people at the National Hockey League that you would have maybe all of the western-based teams sitting here together making a joint pitch to you on something, they might have laughed.
34909 The reality is we have recognized in the past few years that it's competitive and it's combative and as hard as we have to fight on the ice, off the ice we have to be smarter, we have to work harder, and we have to work together.
34910 We are basically a business in peril, as your great city has seen. When we came before Minister Manley and the government a couple of years ago, we were not looking for a hand-out. That is why we are here today. We are looking for a hand-up. We are looking for an opportunity to help us be competitive, to help us be the best we can be.
34911 We have two or three factors that are absolutely crippling our game in this country. One of them is the Canadian dollar. Think about setting up any business today and paying your staff in American dollars and taking in all your money in Canadian dollars. It just doesn't work.
34912 The second factor that we touched on briefly is market size. The markets in front of you today are in the bottom of the league in terms of competitiveness and size. That means that when we go out to do marketing deals, and when we go out to do sponsorship, and when we go out to do broadcast deals, we don't have the leverage and we don't have the population and we don't have the eyeballs that they do in Chicago, Los Angeles and New York, and in other large centres, and Toronto as well, and Montreal, to be able to drive the kind of dollars that we need to be able to compete today.
34913 We are very proud of the innovation of the things that the Canucks have done and the Oilers have done. The Oilers have done a magnificent job up in Edmonton in terms of how they have been able to grow their fan base. The Canucks, I know from my experience in Vancouver, have done a lot of innovative things in their own local broadcasts and in the way they have hit the marketplace.
34914 We have just come through in Calgary a very, very difficult ticket marketing campaign. We added 5,000 new season ticket subscribers over the past summer.
34915 But your point is right on the mark, Commissioner Demers. This application, we can't stress enough, should not be taken lightly. This is an important step in helping western-based Canadian teams to solidify their potential economic future and viability, and to help keep these teams in Canada. And everything helps.
34917 MR. BURKE: Commissioner, if I may also -- not to turn this into the debate of the plight of Canadian clubs, which is that we are in dire straits. There is no question about that.
34918 The other area where we operate -- in addition to what Ron said -- where we operate at a severe disadvantage vis-à-vis the American-based clubs is the infrastructure and what various governmental levels are willing to contribute toward arena and stadium construction.
34919 South of the border we go head-to-head for players and we compete with teams that have had their buildings built for them, lock, stock and barrel, or have had the great majority of the costs of construction, land acquisition and even highway construction nearby --
34920 As people here in Ottawa know, when the Senators opened their new building they had to pay for the cost of a highway overpass. When the Carolina Hurricanes opened their new building they had to construct two, which were paid for by the county and the state.
34921 We are at a severe disadvantage there as well.
34922 We are also at a severe disadvantage when it comes to the taxation rates charged against the athletes themselves. So when you go head-to-head for a player with a U.S.-based team, we are at that disadvantage.
34923 It is a big pile of disadvantages. It is a huge burden for the Canadian teams.
34924 We think our application makes sense in light of the guidelines that you have set forth, but we are also pleading for your help here. This is one of many steps, as Ron said, that we are taking to try to make sure there is not a dark building in another Canadian city. We have lost two teams. That is two teams too many. And we want to make sure that it stops there.
34925 MR. BREMNER: We were encouraged after the announcements by Minister Manley. We were encouraged as teams to go out and try to create our own destiny. We had to take charge of our own business and try to do the best we could on our own. That is part of why we are here today. We are looking for the opportunity to try to take our game to another level in this exciting new media, and we think we are best positioned to be able to do that.
34926 COMMISSIONER DEMERS: Thank you, and good luck to your fans.
34927 THE CHAIRPERSON: Commissioner Wilson...?
34928 COMMISSIONER WILSON: I don't have any really deeply intelligent, probing questions, but I do want to say that my 82 year old dad is from Alberta and was a hockey player on ponds and lakes out there, and he would make us watch Hockey Night in Canada every Saturday night when we were kids growing up. There were seven kids in my family. And I hated every minute of it.
34929 I would go into the dining room and lie down on the floor and think: Oh, my God, another hockey game.
34930 But I have to tell you, after listening to that quote from Ken Dryden, I think I am going to have to look at hockey in a slightly different light. It really appealed to my national fervour. So thank you for quoting him.
34931 MR. HEBB: Commissioner Wilson, I think that we heard just previous to this about a lot of the disadvantages that the Canadian teams have. One of the distinct advantages we have is the passion for this sport of Canadian fans. That is what we think will help Breakaway succeed.
34932 THE CHAIRPERSON: Commissioner Williams...?
34933 COMMISSIONER WILLIAMS: Speaking of passion, some of our larger broadcasters have begun to cast their eye toward owning a sports franchise, like the Rogers Blue Jays. Do you see something like the Shaw Flames at some point in the future?
--- Laughter / Rires
34934 MR. BREMNER: I appreciate the lead, Commissioner Williams. As a matter of fact, one of our owners said a couple of weeks ago: Do you think we can get Shaw to buy some signage? I said: I've got a better idea. Why don't we get them to buy the team.
--- Laughter / Rires
34935 MR. BREMNER: Obviously the consolidation in the broadcast business and the competitive nature of it being what it has always been but moving to new levels -- people are looking for programming opportunities and sports is content. When you take a look at Rupert Murdock buying the Los Angeles Dodgers and running those Dodgers games worldwide, and his costs for programming going down along with that -- broadcasters are going to be looking at everything. I wouldn't rule anything out.
34936 It would be nice if broadcasters would take a look at markets like Edmonton and Calgary. Vancouver is a little different because it is more of a natural with its size. And broadcasters like to have conventions in Vancouver anyway because it is a great place to be, so that's a natural.
34937 The problem we have is market size. We just have a real impediment there with respect to somebody taking a real good hard look at it, because all of these purchases are based on leverage, and how you leverage not only the club but that with your other broadcasting outlets, and if you can do it in a marketplace where you have 25 per cent of Canada within 150 miles, like you have in Toronto, it gives you so many more opportunities.
34938 We appreciate, as I said, the lead. I will be phoning Jim Shaw next week. Thank you.
34939 COMMISSIONER WILLIAMS: Thank you.
34940 MR. BURKE: Commissioner Williams, if I may also -- that has certainly been the experience south of the border. The L.A. Dodgers is only one example. The New Jersey Devils were just acquired as part of a transaction like that; MSG with the New York Rangers. So I think that is likely, if not inevitable, north of the border.
34941 THE CHAIRPERSON: Counsel...
34942 MR. STEWART: Thank you, Madam Chair.
34943 With respect to your unused inventory, are these games broadcast on radio?
34944 MR. HEBB: Yes, the games are broadcast on radio.
34945 MR. STEWART: Thank you.
34946 Again with respect to your unused inventory, are these games currently a part of Bell ExpressVu's NHL Centre Ice package?
34947 MR. HEBB: The Bell ExpressVu package can select out of market games, so some of them could be chosen for that package, yes. But it is completely up to the NHL to make that decision. That is a national arrangement. It is not anything we are in control of.
34948 MR. STEWART: So it may be that viewers could see the same game both on Bell ExpressVu and through your proposed service.
34949 MR. HEBB: It would be better on Breakaway.
--- Laughter / Rires
34950 MR. STEWART: Thank you.
34951 MR. BURKE: I'm sorry, sir. Currently that is not an option. The NHL, as part of their national packaging, has priority on game selection. In fact, once a game is selected for a national package like Hockey Night, we lose our broadcast rights to that game.
34952 MR. STEWART: So those games are not within the 60 games that typically are available -- that you mentioned in your oral presentation, that are typically available for you that are not broadcast on conventionals or discretionary or pay television services?
34953 MR. BURKE: At this point, no.
34954 As Chris Hebb said, there might come a time in the universe when ExpressVu has a game that is also offered on Breakaway, but at this point in time no. Once the NHL selects a game for inclusion in the national package, the local broadcast rights are forfeited.
34955 MR. STEWART: Thank you.
34956 Just for clarification of your proposed services, as I understand it, from 6:00 p.m. to 11:00 p.m. you would have the game, including a pre-game commentary and a post-game commentary, but what is likely to be on for the rest of the day?
34957 MR. HEBB: We mentioned earlier we would like to be able to take the opportunity to promote that day's game and even promote the sale of packages of games on pay per view. So it would be more or less programming that is like a barker channel and rebroadcast after the games have gone live.
34958 MR. STEWART: And that would be throughout the day, a promotion throughout the day?
34959 MR. HEBB: We have the capability to completely program the schedule 24 hours a day. It would probably not be that to begin with, but we would like to at least start out with having some of that day to be able to promote our packages.
34960 MR. STEWART: And you see that as being consistent with a pay per view service?
34961 MR. HEBB: We understand that other pay per view services have the advantage of what is known as a barker channel. If we were able to have that same advantage we would appreciate it.
34962 MR. STEWART: Did I understand you correctly that you intend to repeat games?
34963 MR. HEBB: We know that that is not the pay per view convention. What we are saying is it would be to the advantage of our consumers if they were unable to view the game live and for us to be able to replay it for them within 24 hours of the actual live airing, we would love to be able to provide that service to them.
34964 The NHL has restrictions on that. You cannot -- like we wouldn't be playing them over and over again. There would be one re-airing to allow people who came home late, work shift work or just, frankly, had a birthday party or something, to be able to see the game after it has been aired live.
34965 MR. BREMNER: I think if I might, counsel, go back to your previous question. We are basically a part-time service and a lot of what is going to happen is going to be dependent upon what the BDU does with the channel. I think Chris has covered those areas.
34966 MR. STEWART: Thank you.
34967 Thank you, Madam Chair.
34968 THE CHAIRPERSON: Thank you, Mr. Bremner.
34969 You mentioned being leading edge and ahead of your time. Didn't the Calgary Flames apply to the Commission in the late eighties or early nineties for a pay per view service?
34970 MR. BREMNER: I think there was an application for a hockey channel by the Canadian based NHL teams at that time.
34971 THE CHAIRPERSON: I am old, so I can remember these things.
34972 Well, you did a good job stickhandling this hearing this morning. As Red Green would say: Applicants will hear from us before Christmas and in the meantime keep your stick on the ice.
34973 MR. BREMNER: Thank you very much.
34974 We appreciate it and to take your terminology one step further, what we are looking for is a big assist. Thank you.
34975 THE CHAIRPERSON: Thank you.
34976 We will take a 15-minute break to allow the next panel to settle into the hot seats and we will be back then.
34977 Nous reprendrons dans 15 minutes.
--- Upon recessing at 0930 / Suspension à 0930
--- Upon resuming at 0950 / Reprise à 0950
34978 THE CHAIRPERSON: Welcome back to our hearing for the hearing of the last application on the agenda today.
34979 Alors bienvenue à notre audience pour l'audition de la dernière requête à l'agenda d'aujourd'hui.
34980 Madame la Secrétaire.
34981 MS BÉNARD: Thank you, Madam Chair.
34982 The next presentation will be by Bell ExpressVu Limited Partnership for a national terrestrial general interest pay per view service.
PRESENTATION / PRESENTATION
34983 MR. McLENNAN: Good morning, Madam Chairperson, Commissioners. My name is David McLennan, and I am the President of Bell ExpressVu. With me on the panel today to my left is Geneviève Painchaud. Geneviève is our Pay per View Marketing Manager. To my right is Ian Gavaghan, our Vice-President and General Counsel. Behind me and to the right is David Elder, our regulatory counsel and beside him is Paul Armstrong, our Director of Regulatory & Government Affairs.
34984 We are very pleased to be here today to present our application to obtain a network licence to carry on a programming undertaking, specifically a national terrestrial pay per view service in both English and French.
34985 Bell ExpressVu is Canada's largest direct-to-home broadcasting distribution undertaking, delivering a broad array of services in both official languages. More than half a million subscribers currently enjoy one of our 22 programming packages.
34986 As the Commission is aware from our previous appearance lat week, we are very anxious and excited to augment our programming lineup with new specialty services which are being considered for licence at this hearing.
34987 Bell ExpressVU also holds a DTH pay per view licence, which I will speak a little bit more about later on in the presentation.
34988 In 1999, the Commission established a competitive framework for satellite relay distribution undertakings, and awarded Bell ExpressVU a licence. Our SRDU licence represents an important business opportunity for us to deliver some of the signals that we carry for our DTH undertaking to small cable companies as well. It also provides the cable operators with an opportunity to choose between satellite suppliers for their distant Canadian and U.S. 4+1 signals. This provides a benefit that ripples through to Canadian consumes.
34989 The SRDU business is one component which is commonly referred to as "HITS", that is "Head-end in the Sky". The HITS business incorporates the delivery of conventional broadcast signals, as per our SRDU licence, as well as the delivery of specialty and premium pay services. In negotiating our DTH affiliation agreements with the specialty services, we strive to obtain the transportation rights which will allow us to deliver their signals to cable head-ends via our Nimiq satellite platform.
34990 By establishing a competitive licensing framework for SRDUs, the Commission has established the basis for competition in the delivery of a broader set of broadcasting services to cable companies. As the Commission is aware, our DTH competitor, Cancom/Star Choice, is the incumbent satellite signal provider to cable head ends in Canada. Cancom has also initiated a HITS business.
34991 We will be able to deliver a full range of conventional, specialty, pay and pay per view services on our Nimiq platform to these cable companies if we are awarded a licence.
34992 The absence of a terrestrial pay per view service currently represents a large hole in our ability to deliver a full range of services to cable companies. Our competitor, Cancom, can offer Astral pay per view services to cable head ends in the east, WIC pay per view services to cable head ends in the west. However, our current pay per view licence is for DTH only and, therefore, we are precluded from offering our service to cable company head ends.
34993 Bell ExpressVu was awarded a DTH pay per view licence in April of 1999. We then launched our pay per view service, which we have branded Vu! in October of that year. Approval of our application presented today will allow us to repurpose that service for distribution by cable and other terrestrial systems. The proposed terrestrial pay per view service would offer the identical range of innovative programming a Vu!, its DTH counterpart, and would serve BDUs in both English, French and bilingual markets.
34994 Why offer our Vu! service to cable? What is the value in that? Well, the value is that Vu! is different. Mindful of the consumer's desire for diverse services, Bell ExpressVu has created a distinctly different service, which in combination with the core offering of feature films, includes children's programming, third language films, sports and special events. It is our emphasis on a more diverse programming mix, packaging and presentation that differentiates our service.
34995 Our pay per view service offers Canadian and international sporting events such as live soccer, horse racing, boxing and premium sports packages such as NHL Centre Ice. We are actively considering adding other premium sports packages, such as baseball, basketball, rugby and we continue to pursue the rights for the NFL Sunday Ticket package.
34996 In other programming genres, we have made specific content commitments, which are, quote, "expectations" of our DTH pay per view licence.
34997 I would now ask Geneviève to speak some more about the creative steps that we have taken to differentiate our service and to meet our commitments in this regard.
34998 MS PAINCHAUD: Thank you, David.
34999 En ce qui concerne notre programmation pour enfants, nous offrons trois canaux de films pour enfants, faciles à trouver par les parents dans notre guide de programmation, juste à côté de nos services spécialisés canadiens pour enfants.
35000 Nous avons également diffusé plusieurs séries et films canadiens pour enfants, tels que "The Secret World of Santa Claus", Arthur le Coureur des Bois, et "Silver Wolf". Le thème des enfants est également présent dans les événements.
35001 Nous avons commissionné et distribué la version de Casse-noisette de Ballet Ouest de Montréal durant la saison estivale 1999-2000. Une telle attention à la programmation pour enfants est unique dans le secteur de la télévision à la carte. Nous poursuivrons cet engagement dans le cadre de notre service terrestre de télé à la carte.
35002 De plus, nous nous sommes engagés à distribuer du contenu dans des langues autres que les deux langues officielles. Nous avons offert un choix de programmations dans des langues étrangères telles que le hindi, le chinois, l'italien, l'allemand et l'espagnol.
35003 Nous travaillons avec les services spécialisés existants dans une troisième langue en vue d'acquérir les droits de diffusion à la carte pour cette programmation. Dans le cadre du service terrestre de télé à a carte proposé, nous continuerons à diffuser une telle programmation multilingue dans la langue de production.
35004 Nous avons également innové avec nos forfaits de films, d'émissions sportives et d'événements. Un forfait saisonnier d'émissions sportives à la carte est généralement courant dans les services de télé à la carte ailleurs dans le monde. Les Canadiens -- du moins la plupart d'entre eux -- sont des passionnés du hockey. Ainsi, nous avons obtenu les droits de la LNH pour un forfait saisonnier de joutes de hockey professionnel. L'an dernier, le forfait comprenait plus de 800 joutes. Cette année pour le même prix nous en offrons plus de 1 000.
35005 Nous avons également décidé d'offrir un forfait personnalisé d'émissions de divertissement. Avec la promotion de la "World Wrestling Federation", nos abonnés peuvent acheter une série de douze événements à prix réduit, et les nouveaux abonnés de Bell ExpressVu ont reçu un système satellite gratuit à l'achat de 12 émissions.
35006 Nous avons également fait l'essai des forfaits longs métrages. Par exemple, nous avons offert une rétrospective des films de Stanley Kubrick pendant tout un week-end et nous avons inauguré notre service l'année dernière avec un festival de l'épouvante à l'occasion de l'Halloween. Ce n'est là qu'un aperçu des idées forfaits que nous avons offerts et nous en avons encore plusieurs en tête.
35007 Tous ces exemples de forfaits apportent de la valeur au client et assurent la différenciation de nos services. Nous prévoyons continuer à offrir de nouveaux forfaits avec notre projet de service terrestre de télé à la carte.
35008 Comme toute nouvelle entreprise qui réussit, nous sommes flattés que les concurrents essaient de nous suivre en adoptant nos idées. Quoiqu'il en soit, nous continuons d'être bon premier dans le choix de programmation et les forfaits innovateurs afin de maintenir notre caractère distinctif. Nous arrivons sur le marché avec une approche toute nouvelle qui répond aux préoccupations d'ordre pécuniaire des abonnés de télé à la carte potentiels et existants ainsi qu'à la demande pour une grande variété d'émissions sportives, d'événements spéciaux, de contenus de langue étrangère et de films.
35010 MR. GAVAGHAN: Thank you.
35011 I would now like to talk about the benefits that our service will bring to the Canadian broadcasting system.
35012 Earlier, we spoke about our desire to provide a full range of conventional, specialty, pay, and pay per view services to cable head ends. Last week, the Canadian Cable Systems Alliance told you that their members face daunting costs to digitize and are looking for pay per view revenues as one of their opportunities to recoup their costs.
35013 The benefit to small cable systems to have an opportunity for an alternate source of the full range of broadcast signals is self-evident. Improved opportunities and motivation for small cable systems to digitize will increase penetration of other Canadian specialty and pay services. Subscribers will benefit by gaining access to an innovative digital pay per view service and Canadian producers will benefit through the expansion of their market. All of these are clear incremental benefits consistent with the objectives of the Broadcasting Act.
35014 Because our pay per view service will reach new markets, it will provide an important new source of exhibition opportunity for Canadian feature films and events. Canadian films are often difficult to find in video stores, especially in rural and remote Canada, and have a limited theatrical distribution. Our service will provide an exhibition window where Canadian films are actively promoted.
35015 In the Notice of Public Hearing, the Commission indicated that it may wish to discuss the packaging of pay per view programming at this public hearing. We observed that some parties to this proceeding have expressed concern that packaging, if taken to the extreme, could circumvent the Commission's licensing or authorization process. In our view, packaging is an effective means to provide consumers choice, convenience and value.
35016 When we were here presenting our DTH pay per view licence application in 1998, we spoke explicitly about our desire to experiment with packaging in a way that had not been tried before. My colleague, Ms Painchaud, referred earlier to a couple of examples. The popular concept of twin bills, for example, has been around since the early days of cinema.
35017 But there are important differences between a bundle of pay per view showings and a subscription pay or specialty service. Subscription pay and specialty services generally purchase exclusive rights to broadcast programming in a specific time interval. By purchasing exclusive rights, they not only establish the identity of their service, but also ensure that no other service can show that programming during the contracted period.
35018 Since only one purchaser can acquire the rights at any one time, there can be rivalry among the various purchasers to acquire rights to attractive programming. Rights are generally purchased on a flat fee basis. The operators of pay and specialty services offer their sets of programming on a monthly subscription basis, giving the viewer continuous viewing opportunities.
35019 Pay per view is different. First, we purchase separate rights that typically are offered in different windows than are offered to subscription, pay and specialty services, so there can be no rivalry for content on that basis.
35020 Second, and more importantly, pay per view operators cannot purchase exclusive rights to programming. That means that we do not compete with the other pay per view programmers for rights and our purchase does not diminish the pool of programming available to other operators.
35021 Finally, pay per view is sold to consumers on a consignment basis, that is the rights holder generally receives a share of the revenue from individual program purchases rather than a flat fee.
35022 Price is another distinguishing characteristic between packaged, pay per view and subscription pay or specialty services. Take for example movies. A subscription pay service offering four or five channels of continuous movies over a full month is typically available to subscribers for less than twenty dollars. On the other hand, a considerably smaller set of movies from a pay per view operator would typically cost considerably more.
35023 I would further note that a pay per view operator must be careful to package in a way as to encourage additional purchases, but not unduly discourage purchases of its core product, that is a one-time view.
35024 So three things -- exclusivity, rights windows and rights payment structure -- in addition to our desire not to undermine our core product offering, collectively preclude pay per view operators from establishing a continuous varying service akin to a specialty or subscription pay service.
35025 As a wholesale pay per view operator, while we are marketing our pay per view wares to BDUs, their ultimate customers are Canadian TV viewers. To market most effectively and to distinguish our service from other pay per view services, Bell ExpressVu seeks access to the same packaging rules as other pay per view licensees. Also, in order to gain synergies between our two pay per view undertakings, we seek to maintain the same program packaging flexibility.
35026 Finally, I would also like to point out that pay per view shares many characteristics of video on demand. Indeed, VOD is simply a variation of pay per view in which the viewer has even more flexibility and control. Both allow purchase of individual programs on an à la carte basis. Both provide commercial-free viewing as per the Pay Television Regulations.
35027 Yesterday, Mr. Engelhart, speaking on behalf of the VOD applicants, told you that the rights windows for VOD would be the same as those for pay per view. The VOD panel also told you that they would likely distribute popular features such as Titanic on a schedule basis, like pay per view, rather than on an on-demand basis.
35028 From a programming perspective, VOD differs from pay per view only in that VOD undertakings are restricted by their nature and by the Commission's licensing framework from presenting live events. In its licensing framework, the Commission established a competitive model for VOD because it wished to promote its policy objective to foster fair competition and an increased reliance on market forces.
35029 Accordingly, we respectfully suggest that our pay per view undertaking should continue to have the same packaging options as afforded to current and prospective VOD operators.
35031 MR. ELDER: From a regulatory standpoint, Bell ExpressVu acknowledges that BDUs are obliged to carry only one general interest pay per view service in the official language of the area served. There is no intent on the part of Bell ExpressVu to claim any kind of access privilege that would preempt or remove the carriage of any licensed service. Our application fully respects the Commission's policy, as stated at Paragraph 44 of Public Notice CRTC 2000-6, that new pay per view services will not have access privileges.
35032 We will also accept all those conditions of licence and expectations that currently apply to our DTH pay per view service.
35033 And finally, we will offer services in both English and French to those BDUs that wish to provide pay per view in both official languages.
35034 MR. McLENNAN: In conclusion, the impact of a new terrestrial pay per view service on the Canadian broadcasting system as a whole can only be positive. Canadian terrestrial BDUs will have an additional satellite platform from which to obtain a digital pay per view services, meaning that BDUs will have more choice in terms of programming alternatives, pricing and packaging that they can then offer to their subscribers. Improved service offerings will necessarily result in more attractive programming packages for consumers.
35035 Canadian programming producers will also have additional outlets for their products and new revenue streams. This in turn should generate more and better Canadian productions and events.
35036 Given these benefits, we believe our application has significant merit and, therefore, as that you grant us a licence.
35037 We would now be happy to take any questions.
35038 THE CHAIRPERSON: Thank you, Mr. McLennan.
35039 Mr. McLennan, your proposed service is described both this morning and in your written application as a repurposing of your existing DTH pay per view service and repurposing for terrestrial distribution, and you say, I think today, in your presentation that the programming is intended to be identical.
35040 I would like to know whether it is possible to differentiate it or whether -- it's probably a sign of my ignorance -- it is possible technically and commercially to differentiate it from the DTH one?
35041 MR. McLELLAN: Yes, it would certainly be possible.
35042 I think the practical reality of what the product will turn into is going to be different depending on the cable operators' needs. I mean, there are many technical factors that they will have to evaluate, for instance in terms of size of pay per view offering, that sort of thing. So there will be many factors that may cause the product, from a cable perspective, to look different from our DTH service.
35043 THE CHAIRPERSON: So from our perspective, then, it would be open to the Commission to require something different, for whatever reasons we may discuss, in your terrestrial pay per view licence from what is in your DTH pay per view licence? Because I hear you saying that the probability is that there will be a difference between the two services.
35044 MR. McLENNAN: I'm saying it is certainly possible.
35045 What we are trying to do is something fairly simplistic here, is taking an existing service that is proven to be valuable to our subscribers and offer that to other BDUs. Now, if that means for, let's say, technical reasons that service has to have a little bit different composition, then we will have to have case-by-case discussions with each of the wholesale customers to determine what it would look like.
35046 Certainly I think some of the important themes that we would like to see maintained in the service are flexibility in packaging for instance. That is very important and offers significant value to the consumer, the viewer.
35047 THE CHAIRPERSON: But I just wanted to establish that from a regulatory perspective you are not necessarily asking for a carbon copy. This is an application for a new licence?
35048 MR. McLENNAN: That is correct.
35049 THE CHAIRPERSON: In your Schedule A, and throughout, you want the nature of service to be such as to encompass all categories of programming.
35050 I'm looking at Schedule A where you say:
"...consists of programming drawn from the categories set out in Item 6 of Schedule 1 of the Pay Television Regulations as amended." (As read)
35051 So all the categories of programming you would want to be a possibility of distribution on the service?
35052 MR. McLENNAN: That is correct. We would like to have the full gamut of programming.
35053 THE CHAIRPERSON: Also an important aspect is you want to have the ability to sell special events and programs on an individual as well as on a series basis. So these are two important bases of what the programming service would look like if -- this is what you are applying for.
35054 And, of course, these aspects, as well as other issues such as Canadian content, et cetera, have raised questions in the mind of the Commission which have been reflected in the Notice of Public Hearing and, of course, have been discussed throughout yesterday and also in the written process, interventions, replies, et cetera.
35055 The concern that these two facts may raise problems -- which today you explain are just not concerns that we should have -- that is the possible competition with services that we may licence in the next few months, or other services, as well as the possibility of morphing over time into something that resembles something different from what we think you are applying for today.
35056 So despite your explanations I think it is worthwhile looking at these aspects.
35057 At the moment, if I understand -- and I would like to clarify for myself whether I understand correctly -- what it is you are doing now and what you may do and what level of comfort in that regard you would be prepared to live with.
35058 So if I understand from your response to the first clarification question sent by the Commission was that 5 to 7 per cent currently on your DTH pay per view is non-feature film programming. Is that correct?
35059 MR. McLENNAN: Yes, that is correct.
35060 THE CHAIRPERSON: That excludes or includes sports, the 5 to 7 per cent?
35061 MR. McLENNAN: My understanding is that would exclude the sports programs.
35062 THE CHAIRPERSON: It is in the very first paragraph of your response, Question 1.
35063 I'm sure you have that letter with you, because I will be referring to it.
35064 MR. McLENNAN: Sure. I'm just --
35065 THE CHAIRPERSON: So approximately 5 to 7 per cent of the programming hours are non-feature films, but it doesn't address sports. Can we add to that "non-feature film or sports"?
35066 MR. McLENNAN: Yes, I did misspeak there.
35067 THE CHAIRPERSON: Okay.
35068 MR. McLENNAN: That would include, for instance, events of about 5.5 per cent, foreign programming, those types of categories.
35069 THE CHAIRPERSON: That are not films or sports.
35070 So, for example, the 12 hours -- at some period of time I understand there can be as much as 12 hours a day of Racing Network.
35071 MR. McLENNAN: Yes, that's correct.
35072 THE CHAIRPERSON: And that would be considered, by you, sports, and therefore would not be included in the 5 to 7 per cent?
35073 I'm trying to ascertain, other than feature film and sports, what is the percentage now on your DTH pay per view of non-feature film, non-sports programming?
35074 MR. McLENNAN: Okay. Why don't I just try to --
35075 THE CHAIRPERSON: And non-event as well.
35076 In other words, the other --
35077 MR. McLENNAN: Sure. Sure.
35078 THE CHAIRPERSON: -- programming that raises concern.
35079 MR. McLENNAN: I think there are -- other than movies and features there are foreign programming, there are events and what are called --
35080 THE CHAIRPERSON: Well, it would be -- let's include both Canadian and non-Canadian, just so we get a view of what it is that your service does at the moment --
35081 MR. McLENNAN: Sure.
35082 THE CHAIRPERSON: -- as a pay service. How much of your programming is not feature film, sports or events?
35083 MR. McLENNAN: If we bundle things into a residual type of category, about 4 per cent of our channels would be in that category. That would include documentaries, children's series, we have run fashion specials, things like that, and that would --
35084 THE CHAIRPERSON: And when you speak about children's, if it is a non-feature film aimed at children, would you put that in the feature film category or the children's programming non-feature film?
35085 MR. McLENNAN: We actually tried to -- in analyzing our service tried to split it in both, so the children's features would be in the feature category and the non-features would be broken out from that.
35086 THE CHAIRPERSON: Yes. Yes.
35087 The aim is to try to see what exactly is your service looking like now and, since you are repurposing it, what is it likely to look like, and meet somehow concerns, if they remain, about this competition morphing issue.
35088 MR. McLENNAN: Okay. Well, I think --
35089 THE CHAIRPERSON: Okay? So I'm trying to ascertain.
35090 So that will be in the 5 per cent range.
35091 MR. McLENNAN: Right.
35092 THE CHAIRPERSON: But sports would include a series like the Racing Network --
35093 MR. McLENNAN: That's correct.
35094 THE CHAIRPERSON: -- would be outside of what you consider non-feature film, non --
35095 MR. McLENNAN: That is correct.
35096 THE CHAIRPERSON: If I understand from the response to Question 2 of clarification, 1 per cent of that programming that would be non-feature film, non -- is Canadian?
35097 MR. McLENNAN: David, can I refer to that specific one, please?
35098 THE CHAIRPERSON: I think the response was to Question 2. You were asked -- I think it was in responding to the amount of Canadian content in non-feature film, non-event programming, somewhere you say it only is 1 per cent of the programming at the moment. One per cent is Canadian non-feature film, non-sports, non-event.
35099 I'm trying to find the reference.
35100 MR. McLENNAN: Sure.
35101 THE CHAIRPERSON: But that is -- does that sound right to you?
35102 MR. ARMSTRONG: I believe the response, Madam Chair, was that approximately 5 per cent of our programming was in the so-called residual category.
35103 THE CHAIRPERSON: Yes.
35104 MR. ARMSTRONG: And of that five one would be --
35105 THE CHAIRPERSON: One. Oh, 1 per cent of the 5 per cent not of the programming.
35106 MR. ARMSTRONG: No. Well, it depends on how you do your arithmetic, Madam Chairman.
35107 One of the five, if you will. It's not 1 per cent of 5 per cent, which would be a much lower number.
35108 THE CHAIRPERSON: Yes, okay. I have it now. It is response to Question 2 where you say -- where you are asked:
"What minimum Canadian content levels are you proposing for non-film, non-event?" (As read)
35109 And you answer:
"Under the existing licence only a small proportion (less than 1%) of the programming distributed is non-film and non-event." (As read)
35110 So I would be right to add "Canadian", then, on the 1 per cent, otherwise it conflicts with the 5 per cent.
35111 You don't repeat the word "Canadian", but I assume that that is what it means.
35112 MR. ARMSTRONG: I think that would be appropriate.
35113 THE CHAIRPERSON: Because the question is "Canadian content levels".
35114 Is that satisfactory?
35115 MR. McLENNAN: Well, I think that is --
35116 THE CHAIRPERSON: I read in "Canadian" because --
35117 MR. ARMSTRONG: That's correct.
35118 THE CHAIRPERSON: -- of the question.
35119 MR. ARMSTRONG: That's correct.
35120 MR. McLENNAN: That's right.
35121 THE CHAIRPERSON: Okay. Now, when -- well, we will look at Canadian content later.
35122 So the first question is: How much of this programming is non -- is what would be considered by those who have concerns to be non-feature film, non-event and non-sports programming?
35123 You continue to want to be able to package and offer on a series basis. What exactly do you mean by "series basis"? Since we know that the Racing Network is on for quite a number of hours at some time, how do you relate distributing on a series basis to the Racing Network?
35124 MR. McLENNAN: I think, you know, it manifests -- the whole issue of packaging and series manifests itself in a number of different ways depending on whether it is sports or film.
35125 Certainly in the movie genre, the feature film genre we have had tremendous success with packing films such as the Stanley Kubrick series of films where we offered five movies over a period of a weekend at a heavily discounted price. So that would be an example of, you know, a series of programming in the movie genre.
35126 THE CHAIRPERSON: If I may, I don't think -- I may be wrong, but I don't think that the intervenors who have a problem with presenting feature films on a series basis or in a package have a problem, so I think I want to address the non-feature film, the less obvious.
35127 Sports. What does it mean? That is why I related it to the Racing Network.
35128 MR. McLENNAN: I will ask Ian to supplement this, but the Racing Network is a series of live events daily. It is packaged on the basis of an annual type of seasonal thing, but you can also pay for it and subscribe to it on a monthly basis. But it is a series of -- really, it is characterized as a series of live events, one after the other.
35129 MR. GAVAGHAN: I think, with respect, as we mentioned in our letter of December 11th of last year to the Commission, we were looking at the packaging of the Racing Network on a number of different levels. We were conducting, I would term them, marketing experiments, if you will, with the way that was packaged. Fundamentally, we are looking at other ways of packaging the Racing Network.
35130 MR. ELDER: In our view, I guess, the Racing Network and the way it is made available is entirely consistent with the way other sports packages are made available to a pay per view audience; that is, on a variety of different price points, sort of by event, and also on a seasonal basis.
35131 If you look through the U.S., many, many sports are now available in this way.
35132 The seasonal price points tend to be rather big ticket items, too. So there is a practice in the industry of breaking these up into instalments.
35133 For instance, you are looking at a couple of hundred dollars for most of the seasonal sports packages. Obviously it is more consumer friendly if you can break that up a bit for them. It is easier to make payments.
35134 THE CHAIRPERSON: Is your comment intended to speak to the reasons why the concerns expressed about morphing/competing should not be taken too seriously? Is that why you mentioned the price?
35135 MR. ELDER: I do, and there was some of that discussion yesterday.
35136 I also think that the concern, as I understand it, is mainly that pay per view will be used somehow to launch, sort of through the back door, a specialty service. And I guess with the type of sports programming that we are talking about, we wouldn't normally see these as necessarily being a specialty service. They are more akin to the types of programming that are available on a pay per view basis.
35137 That is not to say that they couldn't be offered on the basis of a specialty service if they were licensed that way, but I don't think there is anything about the programming, or the nature of the programming, that makes it inherently akin to a specialty service.
35138 THE CHAIRPERSON: You will remember in your younger days, Mr. Elder, that there was a specialty application for a racing network or a horse network. I remember how you regaled us with your humorous comments at the time.
35139 MR. ELDER: Which I will avoid at this juncture.
35140 As I say, I think it is perfectly legitimate for something like that to be licensed as a specialty service.
35141 THE CHAIRPERSON: But you don't think it would be impeded from getting such a licence and succeeding if a pay per view licensee could offer something that looks like it.
35142 MR. ELDER: No. In fact, I think --
35143 THE CHAIRPERSON: I suppose it makes sense to lower the price so that it is more affordable.
35144 MR. ELDER: In fact, it would be. I think, in all likelihood, if there were such a service licensed, I am not sure what kind of business would be left for the pay per view end, just because of the way rights are negotiated and with the type of price points you are looking at.
35145 Most of the specialty services that we have now -- the highest one is around a $2 wholesale rate, and for these types of pay per view packages you are looking at price points of $20 or $30.
35146 THE CHAIRPERSON: So you are saying that those who may have the rights to this type of programming would be foolish not to sell it to a specialty service if it were licensed because of the penetration.
35147 MR. ELDER: I guess assuming that they think there is a realistic marketing plan and that they could achieve satisfactory penetration rates to make that work.
35148 Again to this notion of what is and what may not be a specialty service, I am also reminded of what has happened with the Family Channel, where in fact it was licensed as pay per view, but in many respects now -- I'm sorry, it was licensed as pay, and now, in many respects, it appears to be like a specialty service, the way it is priced, packaged, marketed and generally available.
35149 A lot depends on how you choose to license it or how it may be put together. It is not so much, I think, that it has to do with the nature of the programming itself.
35150 MR. McLENNAN: If I could just add, the Racing Network on our service today is a series of live horse racing events. It doesn't have the wrap-around programming of general interest to horse racing fans or related to the subject, which is really what a specialty channel would do in terms of their programming lineup.
35151 So the fundamentals of the programming are different. It is a series of live events.
35152 THE CHAIRPERSON: We are using, of course, the Racing Network as an example because it is well known that you are making it available. But this series-basis offering could be used for other sports or other types of programming.
35153 MR. McLENNAN: Yes, and in fact we can point to many examples of where that is happening. Other sports, hockey, football -- it is a very similar model to the Racing Network.
35154 THE CHAIRPERSON: Of course, over and above the concerns of competing/morphing, there is also the one about having a non-Canadian service without having to deal with the eligibility list, or something akin to it, over time, which could develop on a series basis, where you could achieve what is almost a foreign specialty service offering.
35155 MR. McLENNAN: I think in order to move the service from a pay per view event type of basis to that, then you have to get into the wrap-around programming and program it in that manner, which is something that there is no intention to do from a pay per view perspective.
35156 THE CHAIRPERSON: Is it your understanding or your belief -- and we are exploring here and trying to understand -- and yesterday's hearing was helpful as well in trying to understand what the concerns are and how serious they are and whether there is any need for regulatory intervention to fence in the various licensees or applicants for licences.
35157 Do you think that sports is a particular category of programming that lends itself to the series based in a manner that does not make it look like a specialty service?
35158 MR. McLENNAN: Yes, I think it really does. Take hockey, for instance. You are a hockey fan. You are focused on a season of hockey games and a specific team. That is a much different viewing experience than watching a specialty channel and the programming that goes along with that. You are there watching a pay per view event, and you just happen to subscribe to that for the whole season.
35159 That is really, I think, a fundamental difference from the viewing experience on a specialty channel.
35160 MS PAINCHAUD: If I could add to that, we also have the WWF Power Slam, which is a package similar to this, and it is one event per month. So that is clearly a pay per view type of viewing experience.
35161 As well, we have a new package called The English Premier League Soccer, which is one live Sunday game every week for 32 weeks.
35162 So, again, it is very much on a pay per view basis.
35163 MR. ELDER: If I could just add to that as well, I think it is fairly well known that broadcast rights have become an increasingly important part of budgets for sports franchises. The rights are going up. I think that conventional broadcasters are tending to purchase rights to broadcast fewer games than in the past.
35164 Obviously, the leagues and many of the teams, as we saw here this morning, think that pay per view is an attractive way to get a bit more bang for their buck with respect to marketing their services.
35165 THE CHAIRPERSON: If we were to say that with sports programming the concerns expressed are alleviated, how would you speak to series-based programming, non-feature film or events, for children, in light of the concerns expressed, which we have been discussing yesterday and today; that is, the competition with specialty services that are children's services, or with some even more narrow niche that we have heard applications for and may license?
35166 How would you alleviate the concerns with regard, again, to competition, morphing, having a non-Canadian service not on the eligibility list having something that looks quite like it?
35167 MR. McLENNAN: Again, I think we need to look at just what the fundamental programming is behind the offering.
35168 To give you an example in the children's area, we have offered Sesame Street Party, which is a series of specials: "Big Bird Gets Lost", "A New Baby in my House", and that sort of thing. "Cookie Monster." We have packaged those over a weekend and allowed viewers to see a set of related type of program offering on a pay per view basis, and I think that is, again, much different from viewing a programmed specialty channel.
35169 So the fundamental programming, I think, and the way it is packaged is quite different.
35170 THE CHAIRPERSON: But if you were the licensee of a children's specialty program, would you not think that this is unfair competition to getting audiences to the specialty service, especially with the possibility of time-shifting, et cetera?
35171 MR. McLENNAN: I don't think it is unfair. My view is that this is all about what the customer wants to watch. If the customer is focused on a Sesame Street offering, and that is exciting, that works with their children, I think that is a great product to be able to offer them.
35172 Now, that doesn't mean that they don't go on and watch something on a specialty channel for children as well. I think it just complements the whole category.
35173 THE CHAIRPERSON: Yes, but as we discussed with Mr. Engelhart yesterday, it is not just a question of what people want to watch, it is a question of an attempt, at least in this era, by the regulator to have a balanced offering, and one of the ways is to issue licences that have a nature of service attached to them and so on. So whether or not it is appealing to the customer is not the one and only concern for us; it is also to meet the concerns of those who say: I was granted a licence to do this, and now I have a competitor who was granted a licence to do something else, but he is doing the same thing as I am doing.
35174 MR. GAVAGHAN: Perhaps I could just state that I don't believe that we are a competitor, that in fact we supplement the specialty channels. The reason for that is because we are able to purchase only non-exclusive rights to programming for a very narrow pay window. Another differentiation is that we do not go out and develop programming.
35175 In fact, we are another market for specialty networks who develop their own programming and are willing to give up a portion of their exclusivity for a pay window. So just in pure economic terms, we don't actually compete.
35176 MR. ELDER: If I can jump in again, I know I have been very chatty for a guy in the back row, but just two points. I guess one, our carriage of children's programming right now I guess we see as in fulfilment of the expectations that the Commission gave us when they licensed.
35177 THE CHAIRPERSON: Yes. I understand, Mr. Elder. Everybody goes back to 1997 and 1999, et cetera, but there are different concerns developing as the system develops. We are in the process of giving a number of licences and I think as a regulatory lawyer you understand the system evolves and develops --
35178 MR. ELDER: Sure.
35179 THE CHAIRPERSON: -- and concerns that weren't there may suddenly be there.
35180 MR. ELDER: I just thought I would have been remiss.
35181 The other point I would make again is from a pricing perspective. I don't know that realistically the types of small packages that we are offering are really competitive or really do any harm to a specialty children's operator just because of the price point.
35182 The example that David gave, you know, we are looking at four titles for $3.95. I think a lot of these tend to be shorter pieces. $3.95 is several times the monthly rate for a fully programmed 24-hour children's specialty service.
35183 THE CHAIRPERSON: Yesterday at the end of a similar discussion, applicants for VOD licences offered some fencing if the Commission continued to have a problem even after this discussion and explanation with all of them. Would you be prepared to consider a restriction about the categories of programming, other than non-film, non-event, non-sports?
35184 MR. McLENNAN: I think as a distributor we need to retain some flexibility in terms of packaging. I feel very strongly that that helps us differentiate our service offering and in turn adds value to the consumer. So I think careful thought would have to be given to restricting that because that would certainly I think diminish the ability to offer these attractive types of --
35185 THE CHAIRPERSON: The numbers that were proposed by VOD services, some of whom thought that this problem was more of a pay per view problem than VOD problem, but suggested a 20 per cent, 25 per cent restriction; do you think that that would still be flexible?
35186 MR. McLENNAN: I think that's a tough proposition for us.
35187 THE CHAIRPERSON: So you are not amenable to any fencing?
35188 MR. McLENNAN: That would be my preference, yes.
35189 THE CHAIRPERSON: Preference and acceptance is two different things. You would not accept any limitation? Everybody prefers having a licence to do anything, everything.
35190 MR. McLENNAN: Look, you know, I think --
35191 THE CHAIRPERSON: If that's your answer, that's your answer.
35192 MR. ARMSTRONG: Perhaps we could have a clarification of precisely what we are being asked to consider.
35193 THE CHAIRPERSON: Well, if you understand the problem that is put forward, you don't agree that it exists. Some of the applicants yesterday didn't either. We were given intelligent help in understanding why it's not a problem, but there are still some who think it's a problem.
35194 If it were to be decided by us that it's a problem, how do you resolve it? If you understand what the problem as expressed is, what are the ways that you would find acceptable to alleviate it?
35195 MR. ARMSTRONG: I am looking for a little clarification around the 25 per cent you suggested. Were you referring to --
35196 THE CHAIRPERSON: I believe that that was, I would have to look at the transcript, but I believe it was the maximum programming, 20 I think in one case and I think 25 per cent in another, but at least as low as 20, no more than that would be a maximum programming other than non-feature film -- feature film, rather and, obviously, events as well.
35197 MR. McLENNAN: We are just trying to provide a robust service. If there are restrictions like that, then we would obviously have to work within those restrictions and we understand that process and that balance.
35198 But if we can take the view that this is where service providers, such as ourselves, can differentiate ourselves, I think that's a healthy process.
35199 THE CHAIRPERSON: Yes, and it would be up to you to say how it would be framed to meet the concerns which I do believe you understand from reading the record.
35200 MR. McLENNAN: And we do understand the concerns.
35201 THE CHAIRPERSON: With regard to multilingual programming, I take it most of it is films. Right? Is it?
35202 MR. McLENNAN: Multilingual, yes.
35203 THE CHAIRPERSON: So it would not be in that category. So how would it be framed so that there is a level of comfort? Are you intending to come back in reply? Maybe you can now think about it.
35204 MR. McLENNAN: If that's the magnitude of what we are talking about, that would be acceptable to us.
35205 THE CHAIRPERSON: Perhaps you can think about how it would be framed because it is not clear whether you would include in that 25 per cent sports which would exclude from the limitation such a thing as the Racing Network. So you think about what is possible and if you don't think there is any need for a restriction that's also a position you can take.
35206 Now, with regard to Canadian content, when you were asked in the non-film, non-sports what would the Canadian content relationship should be, I believe your answer in the response to the deficiency question was 1 to 20, which is I think something like 5 per cent.
35207 In the Bell ExpressVu reply I think or intervention -- in the intervention process anyway you responded in probably a reply and, unfortunately, I only have a part of it, the comment that 1 in 10 would be better and was acceptable to you. Am I correct?
35208 MR. McLENNAN: Yes, I think that was in our reply.
35209 MR. ARMSTRONG: The July 7th response, Madam Chair.
35210 THE CHAIRPERSON: Okay. I just have selective pages. Thank you.
35211 So a 1 to 10 ratio then instead of 1 to 20 of Canadian content in that programming that would be outside of non-feature film and sports and events?
35212 MR. McLENNAN: That's correct.
35213 THE CHAIRPERSON: And I notice that any restriction that the Commission would choose to place to fence in the service you would want as a guideline and not a condition of licence. Why is that, Mr. Elder?
35214 MR. ARMSTRONG: In fairness to Mr. Elder I wrote those words.
35215 THE CHAIRPERSON: Without checking with him?
35216 MR. ELDER: I get no respect.
35217 MR. ARMSTRONG: From our standpoint, Madam Chair, we believe that guidelines are adequate conditions of licence and require a little bit more observance internally in terms of our tracking. We felt that we would be quite comfortable meeting it, but just the guidelines would be adequate in order to meet the requirements. Nothing sinister, Madam.
35218 THE CHAIRPERSON: And 1 out of 10, of course, is 9 per cent, and that is a concern that has been raised with the intervenors who have the concern that we have discussed, and that is this type of programming which may be competitive with specialty services would have much lower Canadian content and requirement than what is placed on specialty services. That's one of the concerns expressed over and above the competition, the morphing.
35219 MR. ARMSTRONG: I would just like to speak for a moment about the ability to gain access to programming. Ian spoke about that a few moments ago.
35220 The type of programming in this so-called residual category, non-film, non-event, non-sports is really, as you have seen, a fairly minor component of our service. When we are looking for children's programming especially and trying to purchase rights for that, it's not necessarily readily available. Canadian service providers are looking for guaranteed revenue streams, justifiably so.
35221 We offer a service that is based on consignment -- sold on a consignment basis -- in other words, offering them a split. So it's sometimes difficult to obtain the Canadian content that we are looking for. Obviously we have had some success and we feel quite comfortable that we can live in a 1 to 10. If you want to calculate that as 9 per cent or 10 per cent, we are comfortable either way.
35222 We are quite comfortable we can live in a 1 to 10. If the Commission deems it in its wisdom that that ratio should be higher due to some concerns from specialty applicants that have not intervened on our application, by all means.
35223 THE CHAIRPERSON: With regard to French-language services you are targeting small cable systems. Are you anticipating that these systems would have the capacity to carry all the French and English channels that your service would offer?
35224 MR. McLENNAN: Again, I think that is up to the system operator in terms of, for instance, what their digitization plans are and just how much capacity they may have to lift a service such as the one we are talking about.
35225 So there is no generic answer to that. I think it is an operator-by-operator type of analysis.
35226 THE CHAIRPERSON: So it would be different affiliation agreements?
35227 MR. McLENNAN: Yes, they would be individual agreements with --
35228 THE CHAIRPERSON: What the condition of license would stipulate is that your service would be comprised of a minimum of one French channel for every three English, with a minimum of five channels, which I think is what you have in your DTH pay per view licence.
35229 MR. McLENNAN: On the DTH side, that's right.
35230 THE CHAIRPERSON: So an affiliation agreement, then, with the cable operator would allow that cable operator to not offer all this. You would offer it to him or her, but the cable operator wouldn't have to take this whole package and make it available to his or her subscribers.
35231 MR. McLENNAN: But we would have to craft the agreement such that it fit within the rules and restrictions that we have.
35232 THE CHAIRPERSON: I'm not sure I understand.
35233 Would the affiliation agreement say that that cable operator would be in a position to offer one French channel for every three English channels of pay per view purchased?
35234 MR. ARMSTRONG: I think the way we would have to craft the channels would be to ensure that we meet our requirements with respect to Canadian feature films and Canadian events. So we would ensure whatever package was provided to the small cable company would meet those requirements.
35235 With respect to the English/French mix, we recognize that some systems -- certainly they are going to be looking at trying to establish a pay per view system that meets the needs of their specific market.
35236 I think the common practice in today's analog world is for cable systems to acquire maybe a two-channel or a four-channel package. We are obviously, in a digital world, expecting that they will want a bigger, richer content from us. But the individual market in Weyburn, Saskatchewan -- Saskatchewan? -- may not want a French component. We understand that and, therefore, we will tailor an English package for them. Similarly, a small cable company operating in the Abitibi region may wish a straight French-language pay-per-view service and we would craft a package for them.
35237 THE CHAIRPERSON: So the answer is: The affiliation agreements would be the choice of the cable operator depending on his or her reading of what the market they serve is? Is that the bottom line?
35238 MR. ARMSTRONG: Yes. That is our intent, Madam. That is our intent.
35239 MR. McLENNAN: That's correct, yes.
35240 THE CHAIRPERSON: So that with regard to that offering, why do you feel that you have to abide by the other conditions that are imposed and not that one?
35241 MR. McLENNAN: Other --
35242 THE CHAIRPERSON: You addressed a list of the conditions that you would meet with regard to the mix of Canadian/non-Canadian feature films, et cetera.
35243 MR. McLENNAN: Certainly our intent would be to respect those conditions and, you know, have that as part of the agreement that we would have with any operator.
35244 I think we need to be flexible in terms of the operator's geographic territory and their technical and physical ability to offer a service of varying sizes, and that will change the look and feel, to some degree, of the service, but without, I would say, violating the core conditions that we do want to adhere to.
35245 MR. ARMSTRONG: With respect, on the English/French mix once again, our DTH pay-per-view service is, of course, a national service and we offer the appropriate split of English and French services throughout the country so that a Francophone in Weyburn, Saskatchewan can receive the full range of services.
35246 So it is appropriate that we have that mix and we continue to offer that mix.
35247 I can tell you right now that our mix is even richer than what we had proposed in our licence, or at least that is our experience in the past 9 or 10 months that we have been operating our service, that we are offering even more French relative to English than we had originally proposed.
35248 But now, this is a different licence, as you have pointed out. We are now asking for a pay per view licence for terrestrial purposes, and since we are repurposing we have this package, we have English and French and a combination and we do wish to be able to serve cable companies in whichever language is most appropriate for their market.
35249 THE CHAIRPERSON: So if I may summarize: You will continue to have available to the cable operator the French/English mix, but the cable operator will be left to choose, in the affiliation agreement, what he or she will offer to the subscribers. That is the condition of license that you mentioned?
35250 MR. ARMSTRONG: That is correct, yes.
35251 THE CHAIRPERSON: Which would be a variation on DTH pay per view for the reasons you just expressed.
35252 MR. ARMSTRONG: That's correct.
35253 THE CHAIRPERSON: Mr. McLennan, did you have something else?
35254 MR. McLENNAN: No, I just concur with Paul on that.
35255 THE CHAIRPERSON: Thank you.
35256 MR. McLENNAN: That is our intent.
35257 THE CHAIRPERSON: We have discussed with some of the applicants yesterday how you calculate the 5 per cent of gross revenues that has to be funnelled to an independent Canadian production fund. You were asked how the revenue split would work and you referred us to Schedule 32, which says:
"...gross revenue of the pay per view licensee consists of retail revenue, less the BDU licensee's entitlement, and the pay per view licensee's share of the gross revenue consists of gross revenue less all amounts remitted to the rights holder." (As read)
35258 I am fully aware that some of the basis for this question was very much the complication when there is a vertical integration between the pay per view or the VOD service and the distributor. It becomes a bit more complicated to decide what -- the correct way of calculating the 5 per cent.
35259 I understand that in this case it is not vertical, there is no vertical integration, but since -- I don't think you have reported on that yet with your DTH pay per view.
35260 We thought we would give you the opportunity to comment, if you wished, in case some new way of doing things was decided upon and it would have an effect on the expectation of how to report on your other licence.
35261 I am aware that this is one application, the other one is another one. You are not vertically integrated here, you are on the other one, but it is a matter that is on the table.
35262 You may wish to address -- percentage of revenue was discussed and I'm sure you understand the problem that when there is vertical integration it is difficult to allocate in a satisfactory manner, I suppose to the regulator, how to calculate it. So I'm giving you the opportunity to comment if you followed the discussions that have occurred today.
35263 MR. McLENNAN: Yes, I do.
35264 With many different parties -- and us being a wholesaler in this case it is a different dynamic than on the DTH side and I will ask Paul to comment on the mechanics that we have assumed in the business case as a wholesaler.
35265 THE CHAIRPERSON: I think the one for this licence is clear. I hope you understand --
35266 MR. ARMSTRONG: Certainly on this licence.
35267 THE CHAIRPERSON: -- I'm asking you if you are interested in commenting on what may affect your DTH pay per view way of reporting.
35268 MR. ARMSTRONG: On our DTH pay per view reporting, you may recall in our hearing in 1998 -- November/October or October/November of 1998 -- we had discussion about how we would allocate the revenues between the pay per view operator and the BDU in order to mirror the situation that was then in effect with arm's length transactions.
35269 So that is, in fact, what we do in our calculation of our 5 per cent, we mirror the situation so that the pot would be undiminished, if you will, if the two parties were at arm's length.
35270 So the net effect, our DTH pay per view operation, if you would look at it, pays more than 5 per cent, it pays a compounded rate based on the amount that also goes to the BDU. I think it works out in the order of 7 or 8 per cent is what happens on our BDU -- pardon me, our DTH pay-per-view service.
35271 Now, I notice the VOD operators were here yesterday, and I apologize, I didn't get an opportunity to listen to what they were proposing on the 5 per cent, but to the extent that the VOD operators if they are vertically integrated have a clarification on how their 5 per cent would be calculated so that we can have our calculations on the same basis, we would welcome that.
35272 THE CHAIRPERSON: Now, with regard to access, do I take it from page 11 of your presentation this morning that you are assuming that this particular pay per view licence will not have access privileges to any distribution system?
35273 MR. McLENNAN: Yes, that's right.
35274 THE CHAIRPERSON: And you will negotiate it yourself?
35275 MR. McLENNAN: Yes.
35276 THE CHAIRPERSON: Including the number of channels that the distributor is prepared to assign for the purpose will all be a negotiated deal with the BDUs.
35277 These are my questions unless my colleagues have some.
35278 Commissioner Williams.
35279 COMMISSIONER WILLIAMS: Good morning, Mr. McLennan.
35280 MR. McLENNAN: Good morning.
35281 COMMISSIONER WILLIAMS: ExpressVu panel members.
35282 What is the contour of the Nimiq satellite?
35283 MR. McLENNAN: The actual satellite covers North America. We do not broadcast or we don't have any customers outside of Canada though.
35284 COMMISSIONER WILLIAMS: You have indicated your target market is small cable systems.
35285 Have you considered selling your services to other cable or telco undertakings in markets outside of Canada but within Nimiq's satellite beam?
35286 MR. McLENNAN: No, we have not.
35287 COMMISSIONER WILLIAMS: That's my question. Thank you.
35288 THE CHAIRPERSON: Counsel.
35289 MR. STEWART: Thank you, Madam Chair.
35290 Just a question of clarification with respect to your proposed condition of licence concerning the French/English channel mix. I would like you to turn to page 47, I think, of Schedule 34, and it's Paragraph 3.
35291 Are you there?
35292 MR. McLENNAN: Yes, I am.
35293 MR. STEWART: It's the one that starts with, "If the number of offerings of channels moves above or below 30...". Can you just relate that to your discussion with Vice-Chair Wylie in terms of how what you said seems to be in contradiction to what you are proposing in your application.
35294 In other words, you were saying that it would depend on the negotiations with BDUs as to the mix of English to French channels, and yet here you seem to be proposing that the mix would be a function of whether or not there were more than 30 channels offerings.
35295 MR. McLENNAN: Go ahead.
35296 MR. ARMSTRONG: I don't think there is any contradiction at all. The condition of licence number 3 there refers to the total package we would offer to the small cable systems and we would maintain that ratio.
35297 As I mentioned earlier, it's common practice in today's environment -- perhaps I should say yesterday's environment -- in the analog world where the analog pay per view operator would have different size package that they would offer to different BDUs.
35298 Now, certainly our case is a little bit different because we have both an English and a French service and that is in fact what the application is for, terrestrial pay per view, both an English and a French service with the opportunity to provide both English and French where BDU wants both and by maintaining this condition of licence it's a reflection of the fact that we would again be repurposing our existing DTH undertaking, our DTH pay per view undertaking and that when we go to cable systems, this is the kind mix that we will offer. We will have services in that range that they will be able to choose from.
35299 Now whether each individual BDU that chooses to take our service, whether they maintain that ratio, that's a matter of negotiation to meet their market needs. But certainly we would meet all the other conditions in terms of the events and movies, and so on, on each package, each individual package that a BDU would acquire.
35300 MR. STEWART: So this mix, the 1 to 3 ratio, may not necessarily end up as the mix that the BDU distributes and, therefore, I am just wondering what is the value of that condition of licence given the importance of a condition of licence.
35301 MR. ARMSTRONG: I think I have sort of shot my bolt on this one. I have explained simply the fact that we would provide the cable companies an option in those ratios. Now, if it's more comfortable for the Commission to eliminate that condition of licence we are amenable to that.
35302 MR. McLENNAN: Just to add. I think the important thing here though is that we will offer on a repurpose basis this service in that format and it will manifest itself like that. So the content will be there in those ratios as laid out in the conditions. They would not necessarily depending on the demographics and regional requirements of any particular cable company. They may not flow through to the subscriber in that way, in that ratio.
35303 MR. STEWART: Excuse me. Just one follow up. If the number of channels moves below 30, how does that impact on the mix?
35304 MR. McLENNAN: Well, again, the mix would retch it down, and in fact it would be the subject of discussion with the cable operator as to, you know, what would they take of that particular programming.
35305 MR. STEWART: I am just seeking clarification of the condition of licence that you would be subject to in what you offer to the BDU and it seems to be contingent on whether or not there were more or less than 30 channels.
35306 My question is: What happens if there are less than 30 channels?
35307 MR. ARMSTRONG: The 30 channels in the condition refers to the offer, not to the agreed upon package that the BDU would take. So once again, the offer is when we go to Joe's cable company in Chibougamau, the offer is, "Here's our total package. It has this kind of ratio. What kind of ratio do you want?" and if they choose an all French package or if they choose an all English package we are comfortable with that and we believe that that's consistent with our licence.
35308 MR. ELDER: I guess all we are trying to recognize, I think as Paul explained earlier, our DTH licence is a national service and so by definition is bilingual, and so it's quite reasonable and appropriate to ensure an adequate mix of English and French programming. Once people are let out to a terrestrial world though we are in a different environment where individual markets in which the BDUs operate, some of them might be bilingual, but many of them will be francophone or anglophobe markets as you have defined that in the BDU regs.
35309 As a result those BDUs are in fact only obliged to carry a pay per view service in the language that suits their market and so we are just trying to allow for that flexibility.
35310 When we go to sell this package to terrestrial distributors, we won't say, "Well, I know you are in an entirely francophone market, but I have to sell you these English channels". We want to have the ability, if the cable operator feels it's appropriate for their market and that it's in compliance with the BDU regs, that they can carry the mix of language programming that's appropriate for them.
35311 MR. STEWART: Thank you.
35312 I simply ask the question because you simply have the word "accept" with respect to the proposed terrestrial pay per view licence and you would simply just accept what currently your DTH licence is subject to.
35313 MR. ELDER: I guess the reality is whether this condition becomes part of this licence or not, we are going to meet the condition of licence because it's part of our DTH pay per view licence and as we explained earlier, our intention is sort of to repurpose the service. Everything that will be up on the satellite will meet this condition of licence.
35314 MR. STEWART: Okay.
35315 Thank you very much, Madam Chair.
35316 THE CHAIRPERSON: Thank you. These are our questions, Mr. McLennan.
35317 MR. McLENNAN: Thank you very much for your time.
--- Pause / Pause
35318 THE CHAIRPERSON: We thank you very much for your cooperation in answering our questions and it completes your presentation.
35319 Thank you.
35320 MR. McLENNAN: Thank you very much.
35321 THE CHAIRPERSON: We will proceed with the two interventions and then take a break to allow the applicants to prepare a reply, if they have one. It will be a break of probably 10 or 15 minutes.
35322 Madam Secretary, please.
35323 MS BÉNARD: Thank you, Madam Chair.
35324 The first intervention will be by Viewer's Choice Canada Incorporated and Canal Indigo (Astral). Ten minutes are allowed for the presentation.
INTERVENTION / INTERVENTION
35325 M. BOURDAGES: Mesdames les Présidentes, Membres du Conseil, bonjour. Je suis René Bourdages, vice-président exécutif, programmation, ventes et marketing, Astral Télé Réseaux, qui assure la gestion de Viewer's Choice Canada, VCC, et Canal Indigo. M'accompagne aujourd'hui, Sophie Émond, vice-présidente affaires gouvernementales et réglementaires, Groupe de radiodiffusion Astral.
35326 Nous comparaissons devant vous aujourd'hui pour nous opposer à la demande de Bell Limited Partnership afin d'offrir un service de télévision à la carte numérique terrestre. Selon nous, la demande de Bell va à l'encontre de la politique du Conseil, étant donné que le service qu'elle propose sera directement concurrent aux services de télévision à la carte d'intérêt général existants, à travers le Canada, dont VCC et Canal Indigo.
35327 VCC is an English-language pay per view service licensed for Eastern Canada. Our service is currently carried by all major cable companies in our territory, a number of small and medium size cable companies, as well as by Look.
35328 We also have a DTH pay per view licence, under which we are offered to DTH subscribers through our affiliate Star Choice.
35329 For its part, Canal Indigo is licensed to offer a national French-language pay per view network which is carried by various terrestrial distribution affiliates. Canal Indigo also has a national DTH pay per view licence and its service is distributed by Star Choice.
35330 MS ÉMOND: The past few weeks at this hearing have underscored a large consensus among all players of the importance of diversity in licensing new digital services. In our view, Bell's pay per view application clearly fails to meet this key objective. Bell is seeking a licence to operate a general interest pay per view service, a service that, by definition, will offer predominately mainstream first window feature films and marquee sporting and other types of events, which is precisely what VCC and Canal Indigo already offer.
35331 Bell claims that its proposed pay per view service will not be directly competitive with existing services and that it will bring the same diversity as its current DTH pay per view service does. In particular, Bell has expressly noted that its terrestrial service will be an extension of its current DTH pay per view service.
35332 On the basis of this characterization, we have looked at their current DTH pay per view service. A careful assessment of their schedule reveals that their service effectively mirrors the essence of VCC and Canal Indigo. This is obvious for the following reasons.
35333 First, Bell admits that up to 95 per cent of its total program offering will consist of feature films. This block of films primarily duplicates VCC and Canal Indigo first run film titles. While they will tell you that they also carry third language titles and non-first run feature films which do not perfectly mirror our lineup, this does not change the essence of their pay per view service.
35334 This is not surprising, as the business case of any viable general interest pay per view service is first run films. Their schedule corroborates this. In the month of June, Bell offered 34 first run English-language feature films, 30 of which, or nearly 90 per cent, were also carried on our pay per view service.
35335 So what about the remaining 5 per cent of their offering? Bell has noted that most of it is events. Again, many of these events will be the same events we offer. When more than 90 per cent of the schedule is the same, this is far from an identifiably diverse service.
35336 Therefore, authorizing Bell's application will not add any diversity to the Canadian broadcasting system. It will merely lead to two duplicative services, in each language, effectively splitting the terrestrial BDU market. This will have a direct impact on our business plan and, therefore, on our economics.
35337 MR. BOURDAGES: Although digital distribution is surely improving the pay per view business, the fact remains that the terrestrial addressable base is of limited scale. The latest data reveals that only 60,000 households for VCC and 20,000 for Canal Indigo have access to our NVOD offer. This leads us to believe that our services need access to the entire terrestrial pay per view subscriber base.
35338 This is particularly the case in the very small French-language market. To date, Canal Indigo continues to experience losses, which are unlikely to be eliminated under current market conditions in view of the already competitive DTH pay per view sector, unless Canal Indigo has assured access to all of the addressable cable base. And as the Commission knows, since licensed, Canal Indigo has tried to find efficient ways to reach smaller and remote cable systems. Finally, it is in the realm of possibility to us.
35339 To be clear, in both English and French we already offer a full-range pay per view service to each market's needs that respects in every case our conditions of licence.
35340 In summary, allowing Bell's pay per view application to enter the market would be contrary to the Commission's policy not to license services that are directly competitive with existing pay and specialty services.
35341 The only exception to this fundamental policy has been in the context of DTH, where the Commission licensed Bell's DTH pay per view service. This exception was premised on the basis of a direction issued by the government, with the very specific objective of kick-starting the nascent Canadian DTH industry. DTH ostensibly needed pay per view to drive its growth and stem the grey market. In short, this was an exception justified by a very specific set of facts. We submit that it should remain an exception, as there is no similar reason in this case to justify a departure from the policy.
35342 Nor would licensing Bell's pay per view application bring any benefit to the Canadian broadcasting system. Any given BDU will only carry one general interest pay per view service. Licensing a second one will simply reduce our available market. Therefore, contrary to Bell's claim, licensing a directly competitive pay per view service will not translate in any additional contribution to the Canadian production industry; it will only replace our current contribution with the contribution from the new service, with no net benefit.
35343 In fact, not only would this be a "zero sum game", it would be far worse. Licensing a directly competitive pay per view service, especially a vertically integrated one like Bell's, will inevitably lead to a transfer of revenues out of the Canadian system and into the pockets of U.S. rights holders.
35344 Of course, Bell is promising not to upset the current industry standard revenue splits. This is far from reassuring to us, given our recent experience in the DTH sector in which precisely the opposite has occurred. Canal Indigo and VCC are already facing higher revenue splits since Bell's DTH pay per view service commenced operation less than one year ago.
35345 For these reasons, Madam Chair, we believe that Bell's pay per view application should be denied.
35346 Nous vous remercions de votre attention et sommes prêts à répondre à vos questions dans la langue de votre choix.
35347 LA PRÉSIDENTE: Monsieur Demers, s'il vous plaît.
35348 CONSEILLER DEMERS: Merci, Madame la Présidente.
35349 Bonjour, maître Raymond et bonjour M. Bourdages.
35350 My questions will cover competition, program rates, Canal Indigo and some general questions concerning pay per view and video on demand.
35351 I will start with two questions on competition.
35352 Your services are presently offered by most cable systems in eastern Canada. In what way do you have a realistic concern that a significant number of cable systems will switch from your service to Bell ExpressVu and why?
35353 MR. BOURDAGES: As I said in my intervention, I think what we are facing is an opportunity to expand into the non-served cable market, cable affiliates that couldn't historically access our signals that now are able to do so and that is what is of concern to us specifically.
35354 COMMISSIONER DEMERS: Maybe on a different theme, if cable systems think that their customers would be better served by Bell ExpressVu, the question is why shouldn't they be allowed to offer it instead?
35355 MR. BOURDAGES: I think that leads to differentiation or diversity and we think in this case diversity is not an argument. We think the essence of the two services are so similar, by comparison we have two elephants in front of us. One has a bow around the neck, but they are still two elephants, so that's our view, but we know by comparison, comparing our schedules that the essence of the service are quite similar.
35356 COMMISSIONER DEMERS: Thank you.
35357 On program rights, this morning you have indicated at the end of your presentation:
"Canal Indigo and VCC are already facing higher revenue splits, since Bell's DTH PPV service commenced operation,...."
35358 Could you elaborate? Could you give us more on this matter?
35359 MR. BOURDAGES: Well, as I said, since a year ago we have seen -- we knew pressure would be coming to raise the splits towards the U.S. rights holder and this is certainly something we have experienced during the last year by the fact that we are a non-integrated pay per view service. That, of course, is a very strong pressure on our business plan and we have experienced that this year.
35360 COMMISSIONER DEMERS: Would you have experienced that since the introduction of the ExpressVU DTH, would you have seen a substantial increase in the costs of programming since that time?
35361 MR. BOURDAGES: Yes, absolutely. In the case of movies, without getting into any confidentiality agreements, we have seen in some cases a 50 per cent increase.
35362 COMMISSIONER DEMERS: Thank you.
35363 On Canal Indigo, you have stated that Canal Indigo continues to experience losses, in your written intervention, and you underlined that this morning. Indications are from the Commission's documentation that Canal Indigo, DTH, pay per view return on operating profit is, before tax and income -- before income tax and so on is 32 per cent. While of course Canal Indigo terrestrial pay per view is losing, but the loss is diminishing, was 8 per cent and down to 9 per cent in 1998 and from 17 per cent in 1997. Do you consider Canal Indigo's performance to be within the usual range of expected losses for the early years of its operations?
35364 MR. BOURDAGES: No. The answer is no. Our business plan is directly related to distribution and number of channels. That's the key driver. Those are the key drivers of pay per view.
35365 Like many people, we thought that the digital roll-out would come sooner, but nevertheless we invested in a file server. We are currently originating with the two services combined, 88 channels of pay per view.
35366 Not everyone has access to that full-length offering yet and that is what is our concern, that it is still a step-by-step roll-out.
35367 MS ÉMOND: And I think, just to complete the development of the Canal Indigo, as was proposed in the application, it has been much slower. Obviously, having a directly competitive service would further impede our ability to pursue and develop Canal Indigo to its full potential.
35368 COMMISSIONER DEMERS: Thank you.
35369 Bell ExpressVu's service is not a dedicated French-language service, so in what sense would this service be preferred by a significant number of cable systems in French markets?
35370 MR. BOURDAGES: I have heard, just before coming to this table, that they intend to customize it to affiliates, so that certainly is a concern to us. We think that when we have an affiliate coming on board they don't control what is the essence of our service. We keep control of the content and our commitments to the Commission.
35371 We also have two distinct barker channels that really address specific needs, but certainly that they intend to customize it for the French market. That's what I heard.
35372 MS ÉMOND: And just to be clear, we have two services, one English language, VCC, and one French language. So every cable system gets the full range of the programming offered by both services. So a BDU that operates in the French market would have access, for example, to Canal Indigo which is a fully French-language service, programming being aimed and developed to take into account the specificity of that market.
35373 COMMISSIONER DEMERS: Thank you.
35374 On a more general question and these questions are more related to the fact that you are an established player in the market, so these questions, as you will see, are more general in nature.
35375 There are a number of examples on bundling, for example, and many examples of existing pay per view services selling programming in packages on a monthly, seasonal or bundled basis and not on a per view basis. What are the benefits or the advantages of permitting pay per view services to sell programming this way?
35376 MR. BOURDAGES: I think we have to make distinctions about the type of programming that we are looking at. I think by the nature of the category, the live events, by virtue of being live don't represent the same threat to other types of service.
35377 Certainly, for the movie category, I would see why other licensees would have a concern if we were to start to offer a weekend of movies of library titles or a week of programming in essence that is not pay per view. The three words just say it all, pay per view.
35378 So I think if you have an offer that is on a week, you cannot physically watch everything that you have paid for. So I think for the movie type of programming it is certainly something that we are not contemplating.
35379 COMMISSIONER DEMERS: Does the sale of pay per view programming on a monthly basis or seasonal or in packages increase the risk that pay per view services may directly compete with pay and specialty services?
35380 MR. BOURDAGES: Again, if it is limited to live events I think it's one thing. I think the threat is of less significance. Otherwise it could evolve into a de facto monthly subscription service, which is quite similar to a specialty or pay TV network.
35381 COMMISSIONER DEMERS: Thank you.
35382 On experimentation, as you know, the Commission is very flexible on the categories of programming on pay per view services.
35383 Should the Commission be concerned about potential programming overlap between pay-per-view, video-on-demand services and pay and specialty services?
35384 MR. BOURDAGES: I think by the nature of what we have experienced in the past, I think there is no threat, no significant threat. We have experienced a few things, but not to the extent that we would be a threat to any existing services or soon to be licensed service.
35385 COMMISSIONER DEMERS: Thank you.
35386 On Canadian content -- and this relates to your experience in the market -- what is the availability of Canadian non-feature film, non-event programming that is suitable for distribution on a page-per-view basis?
35387 MR. BOURDAGES: Well, we are starting to get very niche, as you just mentioned. The nature would be second window programming maybe, or how-tos. Again, a lot of that is already covered by some other services so I don't see that as a big revenue source.
35388 As many people mentioned, at this hearing and before, the essence of a pay-per-view service relies on the movies and the big ticket events and the other categories are really super niched, as I would say.
35389 COMMISSIONER DEMERS: The availability of such programming?
35390 MR. BOURDAGES: Well, I don't think we can --
35391 COMMISSIONER DEMERS: Canadian programming.
35392 MR. BOURDAGES: Yes. We certainly trigger production for these kinds of events. I'm just thinking about an event for Canal Indigo that we will be presenting this month, a sushi course. We did a barbecue session last spring. We certainly experienced that type of programming, but the trigger production of such original programming is limited.
35393 COMMISSIONER DEMERS: Thank you.
35394 Should Canadian content requirements for non-film, non-event programming of pay-per-view services be more in line with the minimum levels for pay and specialty programming in these same genre?
35395 MR. BOURDAGES: I think they should be more related to the guidelines with VOD kind of programming.
35396 COMMISSIONER DEMERS: Thank you.
35397 On revenue splits, could you tell us on average for Viewer's Choice what are the revenue splits between the distributor, Viewer's Choice and the rights holders?
--- Pause / Pause
35398 MR. BOURDAGES: I don't have the exact information that you are looking for.
35399 What I can tell you is that it is similar to what Bell has stated in their applications. We certainly, as I said, saw some increase from last year, significant increase.
35400 COMMISSIONER DEMERS: Thank you.
35401 Is it the same for Canal Indigo?
35402 MR. BOURDAGES: Yes.
35403 COMMISSIONER DEMERS: Thank you.
35404 The last few questions on carriage rules.
35405 The broadcasting distribution regulations require all Class A terrestrial distributors to carry at least one general interest pay-per-view service in the language of the market it serves. If a terrestrial distributor launches a video service, should it still be required to carry a general interest pay-per-view service?
35406 MR. BOURDAGES: You mentioned a video-on-demand service? If they launch a video on demand would they be --
35407 COMMISSIONER DEMERS: Yes.
35408 MR. BOURDAGES: I think so, yes. It would be still under the obligation of carrying one pay-per-view service.
35409 As I understand, the VOD licensees are prevented from presenting live events, so that would certainly be an area where they would definitely need a pay per view, and I would hope some other areas as well.
35410 COMMISSIONER DEMERS: Thank you.
35411 I have no further questions, Madam Chair.
35413 THE CHAIRPERSON: Counsel?
35414 MR. STEWART: Thank you very much.
35415 Just a quick question.
35416 Bell ExpressVu has indicated that its target market will be the small cable carriers that are upgrading their distribution networks to digital. Does that not give you some comfort in terms of the competitive threat?
35417 MR. BOURDAGES: First of all, I think it is an intention and, second of all, I think this is where -- I think particularly for a small market like Canal Indigo, this is where our future opportunity resides.
35418 Beyond the big MSOs we still have some growth opportunities. We just started to offer our service to these remote areas and we have a lot of satisfaction from the new affiliates that we have. So I think we see that as a real growth opportunity for us.
35419 MR. STEWART: Thank you.
35420 Thank you, Madam Chair.
35421 THE CHAIRPERSON: Thank you very much for your intervention.
35422 You are not tired of us yet?
35423 MR. BOURDAGES: Not yet.
35424 THE CHAIRPERSON: Not yet.
35425 CHAIRPERSON OF THE COMMISSION: Getting there.
35426 THE CHAIRPERSON: Thank you, Madam Émond.
35427 We will now hear the next intervenor.
35428 Madam Secretary, please.
35429 MS BÉNARD: Thank you, Madam Chair.
35430 The next intervention will be by WIC Premium Corporation.
35431 THE CHAIRPERSON: Welcome back.
INTERVENTION / INTERVENTION
35432 MR. ROBERTSON: Thank you.
35433 Madam Chairperson and Commissioners, I am Paul Robertson, President of Corus Television.
35434 With me today are Malcolm Knox, Vice-President, Operations of Corus Premium Television and Kathleen McNair, Vice-President, Regulatory, Corus Entertainment.
35435 We are appearing to speak to the intervention of WIC Premium Corporation, which now known as Corus Premium Corporation. The intervention opposes Bell's application for a terrestrial pay-per-view service for a variety of reasons.
35436 Today we want to focus on the intervention's primary contention that the service proposed by Bell ExpressVu will be directly competitive with the existing terrestrial pay-per-view undertakings. The application should be rejected, therefore, according to the terms of the digital licensing framework policy and the call for applications.
35437 In the digital licensing framework policy announcement the Commission stated that the rights and obligations of existing pay and specialty services would not be affected by the proposed framework. The Commission also confirmed that it would not licence programming services directly competitive with existing pay or specialty services.
35438 The terrestrial general interest pay-per-view undertaking now owned by Corus is a licensed pay television service. The issue then is whether the service proposed by Bell would be directly competitive with our existing service. There is no question that the two services would be directly competitive.
35439 The decision approving Bell's existing DTH pay-per-view service describes it as one which "will predominantly be made up of feature films".
35440 Hollywood feature films drive pay-per-view and Bell's current offering in this respect is very similar to that of the existing terrestrial licensees. The vast majority of the titles are identical. While some programming might be different, it is a relatively small percentage of the total offering. The bulk of Bell's pay-per-view offering and its primary economic engine are Hollywood feature films, the same popular films shown on our service.
35441 In the deficiency process Bell was asked what proportion of the service would be non-feature films. Bell replied 5 per cent to 7 per cent and that it was anticipated that this ratio would continue for the licence period. Accordingly, 93 per cent to 95 per cent of the service will be feature films and most of these will be top studio releases.
35442 The policy obstacle which Bell faces in this proceeding was clearly stated at the Vancouver hearing dealing with the disposition of the WIC assets. Bell intervened in that proceeding to urge, among other matters, the opening up of full scale, competitive pay-per-view.
35443 There was an exchange between Vice-Chair Wylie and Mr. Frank of Bell. To paraphrase, the Vice-Chairman confirmed her understanding that, quote:
"...the Commission was not going to licence competitive services..."
35444 And that the applications the CRTC would be prepared to hear:
"...would have to be not directly competitive with a general interest pay-per-view..."
35445 In response, Mr. Frank stated that "obviously there would have to be a public process." The full exchange between Vice-Chair Wylie and Mr. Frank is set out in the written intervention.
35446 Bell's existing DTH pay-per-view service is a general interest service which, if the application is granted, will be offered to all cable systems across Canada. In other words, it would constitute the very general interest competitive service which the Vice-Chair accurately pointed out was not contemplated by the call.
35447 Moreover, Mr. Frank acknowledged this to be the case and indicated there would have to be a public process to change the existing policy. Bell has taken the position in its reply to our intervention that this is the process.
35448 We strongly disagree. There are a range of policy issues which need to be considered, some of which are only touched upon in the intervention. It relates to such matters as the impact of competition on the three-way split of revenues, the impact on prices for foreign programming, the effect on support for Canadian feature films and other forms of Canadian content, the impact the VOD will have on pay-per-view, how extensive the competition should be in the interest of the broadcasting system, and so on.
35449 These are important matters that need careful and thorough examination before the Commission can determine whether significant change in policy in this area is appropriate. To argue that such matters are before the Commission in the context of Bell's application is a distortion of the call and the purpose of the proceeding.
35450 The existing licensing framework with its terrestrial division for pay television, including its pay per view element was developed and has been maintained to ensure the viability of these services and their contribution to the Canadian broadcasting system.
35451 When Allarcom was first granted a pay per view licence, the Commission discussed the licensing framework which established Viewer's Choice Canada as the pay per view provider in eastern Canada and Allarcom as the provider in western Canada.
35452 Throughout various licence renewal proceedings, the CRTC has maintained to date the existing framework for terrestrial pay per view. If there is to be a fundamental change to this policy approach to permit greater competition then surely this deserves a separate process to examine all the implications, just as Mr. Frank stated at the WIC hearing.
35453 In summary, Madam Chair and Commissioners, this application is premature, contrary to the clear direction given by the Commission in its public notices for this proceeding and should therefore be denied.
35454 THE CHAIRPERSON: Thank you, Mr. Robertson.
35455 Commissioner Wilson.
35456 COMMISSIONER WILSON: We meet again, Mr. Robertson, or should I say we have to stop meeting like this. I believe this is the third time that we are talking during the course of the hearings. I miss your accountant, but I noticed that he is in the audience. I thought he said he wasn't going to be here this morning.
35457 Seriously, it's been a long hearing and you are the final party to appear before us -- actually that's not true. We haven't heard Bell yet. But the final intervenor, I could say that and it's quite likely that my synopsis are not firing as quickly as they were when we started all of this.
35458 I just wanted to sort of take you through your arguments. You have refined your approach, I think in your opening remarks, your spoken intervention this morning, but you raised some issues in your written intervention that I would like to go through if you don't mind.
35459 If I can sort of start by summarizing the argument and then ask you some specifics. Your bottom line really is that you feel that we need to initiate some kind of full public process to explore the issue of introducing competition into terrestrial pay per view and that too much competition in this area, because of the limited size of the market, too much competition is going to jeopardize the viability of the businesses and jeopardize the contribution to feature film which is a sector of the industry that is quite fragile, and that that would undermine sort of this balanced approach we have to the broadcasting system in Canada.
35460 So it may bring lower prices to consumers, it may give them choice, but there are a number of puts and takes that we need to examine in a larger process?
35461 MR. ROBERTSON: Yes, I think that's a fair appraising of what we are saying. It's an intricate situation and the degree to which it's fragile, I think, needs to be explored. There is a lot going on in this marketplace for movies, and we embrace change in that way and are ready to compete aggressively as time evolves, but we know that perhaps there will be an Indie channel that will come into being over the next 12, perhaps there will be other theme channels that will come into being as well as a result of the digital network hearings.
35462 Also we expect that there will be additional video on demand licensees, and we have talked about how the cable companies will play a big role in this and how movies ultimately may go the way primarily of video on demand.
35463 We have seen the direct to home satellite business among the largest digital player go over to Bell as a dedicated service and these changes are great in relatively short period of time. And then to layer on top of these fundamental changes to the business, a further change which licenses another terrestrial pay per view offering, even though the intent of that offering is to start at the smaller end of the market, although there is no restrictions from it in terms of the application of it playing in a broader field, that it's time, if we are going to make fundamental change to the original policy, that we step back and we consider all the implications of this in terms of the benefits to the system and that's our contention today.
35464 COMMISSIONER WILSON: I mean, in view of the conversation that we had last night about VOD and you made the comment last night that you could see the whole pay per view business changing very much. You have just said that again right now, that the movies would probably migrate to VOD and for that very reason you applied for a VOD licence to try and balance, you know, the properties that you deal -- or the broadcasting rights that you primarily deal in. So if that's the case, if movies are going to ultimately migrate to VOD, then why should we not start introducing the competition into pay per view right now?
35465 MR. ROBERTSON: Well --
35466 COMMISSIONER WILSON: On a terrestrial basis, I am talking about.
35467 MR. ROBERTSON: Well, that may be a conclusion one would come to. Our contention is that we really haven't had that process that would put all the considerations on the table to make that determination. Genuinely, when we read the call, we really didn't think that this application was a valid response to the call and because of that, we didn't really come prepared.
35468 I mean, we may have been an applicant for a new service in pay per view and maybe others would have been too if indeed it was clear that this was a call for competitive applications on pay per view. Ultimately, we exist in the west with Astral existing in the east. Perhaps there might be an interest in either one of those parties wanting to extend their market coverage. We really haven't considered these things in light of the understanding of the call which didn't seem to be asking for competitive pay per view licences.
35469 So I guess we just find ourselves here at a process that we think is a very significant application that's before you, that if approved would only really air part of the broad understanding of what we need to understand in this marketplace that's fast evolving.
35470 COMMISSIONER WILSON: Our legal counsel just spoke with Viewers Choice and Canal Indigo and asked if they were comforted at all by the fact that Bell service proposal target smaller BDUs. Does that give you any comfort at all?
35471 MR. ROBERTSON: Well, not a lot because we don't see any restriction in terms of the application itself. There is no requirement for it to only attract those types of systems. I guess the other thing is that we do think that there is the opportunity for their service offering to be appealing to more than just the very small systems.
35472 I guess the other aspect of this is we inspected the video on demand equation, we said well if movies migrate to video on demand, at least during some transition period, which could be lengthy, in the small cable system there is going to be an opportunity for those frequently played movies to continue on pay per view, and that will probably the lifeline in a movies context that will still be available to the pay per view players. That gave us some comfort. It was nice to hear that from the technical presentation, and the like, and then to have another intrusion on the other side into the small players where we thought perhaps we would have a longer haul movie business despite video on demand, it kind of puts us in a potential squeeze there.
35473 Again, it's a complex situation and one that we think needs a full policy hearing to get all the issues on the table.
35474 COMMISSIONER WILSON: I want to ask you about the effect on program rights and the increase in cost of program rights.
35475 What kind of upward pressure has there been on the cost of rights?
35476 MR. ROBERTSON: There has been intense pressure on the splits that would go to the U.S. rights providers over the last year, since the Bell DTH system went into place. We would be prepared to file in confidence some details on that, but suffice to say that we are being pressed on all fronts to increase what has traditionally been a third, a third, a third remittance into something much higher than that. As much as one might say, "Well, in a non-competitive situation what leverage does a U.S. program supplier have to press a higher split", the truth of the matter is all they do say is, "We won't provide programming any more to you".
35477 As soon as they do that, they have a lot of leverage, particularly if they provide a big chunk of popular movies. And that is exactly the kind of pressure that we are under right now, and there is no question that it is going to result in a change to the traditional remittance to the U.S.
35478 COMMISSIONER WILSON: We talked a bit last night actually about the issue of program bundling, and our Vice-Chair of Broadcasting, Madam Wylie, spoke with Bell this morning about program bundling or packaging and offering the Racing Network, and the argument that something like the Racing Network is, essentially, a pay per view property. Even though it is offered 12 hours a day for so many months of the year, it is essentially a pay per view property and there is very little likelihood that the rights holder for that property would go to a specialty service and offer that property. They probably wouldn't be able to pay the money that it would cost to carry it.
35479 What is your view of that -- that level of experimentation in terms of the overlap -- the potential overlap with existing specialty channels, or preventing specialty channels that might emerge in those areas?
35480 MR. ROBERTSON: I think that sports is a particular genre in this regard, in the sense of the idea of saying: We will provide a full package of games or races or whatever over a period of time and you will be able to get the games or races that aren't available on television, the sort of fringe games that you don't generally get access to. That is a valid use of pay per and fits nicely within the context of pay per view.
35481 We are not involved in any existing sports channel, so that may temper our view on this, so we are perhaps less concerned --
35482 COMMISSIONER WILSON: Of course that wouldn't bother you as much as children's programming, for example.
35483 MR. ROBERTSON: We could talk about children's programming as well, because perhaps we are less fussed about that than you may think.
35484 But in the sports area it does seem to be a very logical use of pay per view.
35485 COMMISSIONER WILSON: Okay. So you think it is appropriate.
35486 Would you suggest limits on other genres of programming?
35487 I don't know if you were here when Bell made its opening presentation and they talked about the different kinds of programs, and some of them were children's programs: "The Secret World of Santa Claus", "Arthur", "Silver Wolf" -- and I think they talked about Sesame Street packages that they had.
35488 Last night you talked about a 12 hour limit. Would you suggest the same kind of limit here?
35489 MR. ROBERTSON: I am going to take that a little more broadly, and then I will come back to the specifics.
35490 We are more concerned about the other part of the equation. We are more concerned about the 95 per cent movie part.
35491 I mean, we are here today to say that it is the movies that are the driver of these services, and now what we are contemplating is an application for a second terrestrial DTH provider that would provide almost the identical movie service that we provide.
35492 So in terms of our core concern, it would relate to the 95 per cent that is movies that would be similar or identical to what we provide.
35493 In fairness to your question, you were concerned with the other side of the equation, and if --
35494 COMMISSIONER WILSON: I think what I was thinking was that perhaps this whole program packaging issue relates more to pay per view rather than VOD. Last night we were discussing VOD and this morning we are talking pay per view, so I thought I would let you put another hat on.
35495 MR. ROBERTSON: I know we have just been through a long process relating to digital networks and how they are going to fit in with the broadcasting system in total, but these are services that have yet to be licensed, and we come to you with a longstanding service that is in the marketplace, that is licensed, that has many realities, and the primary reality is a fear of duplication of our programming service, as it relates to movies in particular.
35496 So I guess it is, Commissioner Wilson, a sort of flip of the concern. We think that we should be concerned today with the movie side of the equation and how it relates to the existing DTH providers -- pay per view providers -- rather than be overly concerned about the digital networks which have yet to be licensed.
35497 COMMISSIONER WILSON: One of the arguments that you raise in your written intervention is the issue of vertical integration, and I was wondering if you could explain to me what the nugget of this argument is.
35498 Because if you look at the two companies, acknowledging the structural separation between Corus and Shaw, you all basically have the same stuff. You have DTH-BDU, DTH-pay per view, SRDUs. You have terrestrial pay per view; they are asking for terrestrial pay per view. You are applying for VOD.
35499 Explain to me why the vertical integration argument makes sense for you in this case.
35500 MR. ROBERTSON: I guess our only contention as it relates to vertical integration would be to comply with the general policy of structural separation, which we have done in every way.
35501 I think that perhaps Kathleen would like to add to this point.
35502 MS McNAIR: Bell, clearly, is totally vertically integrated. As you know, Corus is structurally separate, independently managed. There is no duplication on our board of directors and Shaw's board of directors. We are not a subsidiary of Shaw Communications. It is only through family ownership that we are affiliated.
35503 So the vertical integration benefits that can easily flow --
35504 COMMISSIONER WILSON: And you don't talk.
35505 MS McNAIR: And we never speak to them.
35506 The vertical integration benefits that have been recognized even by the Commission in the Convergence Report and IHAC, and the government in its convergence statement, flow much more easily between a totally integrated company or a company that has a parent and two subsidiaries.
35507 One of our concerns with the Bell ExpressVu application is that we don't feel that it accords with government policy or CRTC policy. We think that if they want to operate a programming undertaking, it should probably be done through a structurally separate company. That ensures that there will not be undue preferences flowing back and forth, as has been acknowledged.
35508 So that, essentially, is our argument on the vertical integration issue.
35509 COMMISSIONER WILSON: Both you and Astral -- and I think that Astral actually is -- they are probably a little more definitive in how they describe this, but both of you kind of suggest that because -- and this refers to the direction with respect to competition in DTH pay per view.
35510 You both kind of suggest that because the government hasn't told us to do it, we shouldn't be doing it. Now, that is not really my understanding of how the CRTC operates with the Broadcasting Act on the one end of the spectrum, giving us sort of the broad framework within which we regulate the Canadian broadcasting system, and directions on the other end, which are usually in response to very specific situations, though they may be worded fairly broadly.
35511 Are you suggesting that the fact that there has not been a direction with respect to competition in terrestrial pay per view means that we can't, even through a licensing process like this, decide to introduce competition in terrestrial pay per view?
35512 MS McNAIR: No, we are not suggesting that. We recognize that the Commission has full authority to regulate and supervise all aspects of the Canadian broadcasting system.
35513 I think what we were suggesting with respect to the DTH direction to the Commission is that that was an exception. I think that even your licensing framework, the digital licensing framework reinforces or acknowledges once again that the longstanding policy of the Commission that it will not licence directly competitive services.
35514 So we aren't suggesting that you can't change that. I think the establishment of Category 2 licences is a very significant change to that policy, in the sense that new licences could be directly competitive, but they still can't be directly competitive with existing licensees.
35515 So I guess our approach is that it would be such a fundamental change to introduce direct competition in this, the terrestrial pay per view market, that it deserve a full policy hearing, and that if you then decide it's appropriate to do it, we think you have the authority to do that certainly.
35516 COMMISSIONER WILSON: I noticed towards the end of your intervention you have a heading in here "Change is Constant, Competition is Inevitable". So you are prepared to face the possibility of this competition, but you want it managed by the Commission, taking into account the particular characteristics of the Canadian market for pay per view services?
35517 MR. ROBERTSON: That's right, and ensuring that the existing licensees can meet their requirements under their conditions of licence and that the Canadian programming and other aspects of the Broadcasting Act are best served.
35518 COMMISSIONER WILSON: Thanks. Those are all my questions, Madam Chair.
35519 THE CHAIRPERSON: Madam Bertrand.
35520 CHAIRPERSON OF THE COMMISSION: I had some difficulty following you and I guess it's because I am not part of that family. You said yesterday that in your view the way it is going to evolve is pay per view will become an advanced type of programming undertaking and that VOD will be the film part.
35521 Shaw has a VOD licence that they haven't acted upon. It has not been implemented. You are asking for a VOD. So there would be like two possibilities of having the film distribution or film type of offering to their subscribers. I am not talking about some Category 1 and Category 2 in the type of film.
35522 And yet you are saying that the part you are concerned with is here and now the 95 per cent of film which you were saying yesterday that it's something that will disappear in your view. So really, I have a difficulty tying up, and although you have corporate structure and all this, it remains -- and I am not saying it should not be, obviously it is not what I am saying, but I am just trying to understand.
35523 I understand the fact that you are saying you are coming with the competitiveness portion, but even you, as an undertaking is changing and evolving -- it's almost like you are saying, well, the other part should not move. So that's where I -- it's either yesterday or today, but it seems to me that the speech of yesterday doesn't fit with the one of today.
35524 MR. ROBERTSON: We think both messages are consistent. Perhaps I could make an effort to explain in what way.
35525 I think we are all seeing that pay per view in the movie context is likely, over some period of time that movies are likely to go totally video on demand and maybe that's in totality sort of 10 years off, or we're not sure, but over the long haul.
35526 During that period there is going to be a roll for pay per view and movies and it's very important to us to maintain that business. One such role that pay per view could have is that even if a system has gone to a VOD-type system that the frequently played movies could remain on pay per view, and certainly pay per view would remain for those smaller systems that hadn't yet transferred over to be able to handle full video on demand. This is perhaps a five, 10-year evolution that we are referring to here.
35527 What we have done is asked for the Commission to grant us a video on demand licence. We have admitted that we don't know exactly in what way we will participate, but we wanted the flexibility to be able to participate in any way we could and through partnership with the BDUs. I guess one would have to say that our long-term participation in a VOD context in terms of Corus Entertainment is a question.
35528 But what isn't a question is that there is an existing pay per view business that is 95 per cent made up of movies and that has to this point been solely responsible in western Canada for delivering this service and we are considering a licence for a directly competing service.
35529 CHAIRPERSON OF THE COMMISSION: But don't you think with the evolution, the further consolidation that has occurred, that there has been some environmental changes to the landscape in broadcasting that could lead to some different conclusions than the one we were bringing into play three years ago, two years ago, five years ago?
35530 MR. ROBERTSON: Absolutely. This industry is a challenge to regulate and a challenge to participate in. It's one of the most exciting and most dynamic markets you could be involved in right now.
35531 Television in general, and perhaps the movie side of it in particular, is really moving. And because of these changes and how rapid they are, we think that it's time to take a deep breath and make sure that we go at this marketplace from a policy standpoint, rather than make what seems to be -- rather than make what we believe is a fundamental change to historical policy at a time when the participants, us for sure, didn't think that this was the proper time or platform to call for competitive applications.
35532 So we agree with you totally. Things are changing at such a rate and all we would say is let's have a full process to deal with all the issues and make sure that we are doing the right thing here.
35533 CHAIRPERSON OF THE COMMISSION: Thank you.
35534 THE CHAIRPERSON: Commissioner Williams, please.
35535 COMMISSIONER WILLIAMS: Good morning, Mr. Robertson and panel members. In your opinion why is it that ExpressVu is not pursuing the United States market? Is the marketplace that you operate in that lucrative that competitors would rather try and eat your lunch, rather than attend a much larger banquet south of the border?
35536 MS McNAIR: I'm not sure why. I don't know whether they would require a licence to do it in the States, but I know that I would assume ExpressVu is only buying Canadian rates for their programming and they wouldn't have North American rates, so they couldn't legally sell it in the U.S.
35537 COMMISSIONER WILLIAMS: We are going back and forth between this pay per view and video on demand thing, so maybe I will spend a minute there as well.
35538 Yesterday much was made of the fact that Shaw Cable had a video on demand licence and by granting one to Corus the family of companies may in fact have two licences as a result, and it was again mentioned a few times this morning. Has Shaw Cable the same depth of experience as a programming aggregator as does the Corus team?
35539 MR. ROBERTSON: The Corus company is totally a program driven company. That's our historical expertise. That's where we come from. So I guess one would summarize the work of the programmers and broadcasters and that the Shaw side of the business is distribution based.
35540 COMMISSIONER WILLIAMS: Would it be reasonable to expect a distributor to utilize the Corus expertise?
35541 MR. ROBERTSON: Yes, and in the pay per view context they do, as do many other BDUs we work co-operatively with to play a role in their near video on demand offerings.
35542 COMMISSIONER WILLIAMS: Assuming Shaw would be satisfied with Corus' VOD offering performance, I wonder might they return or allow to lapse their currently unused video on demand licence? I guess, could this possibly be a condition of licence for the Corus VOD application?
35543 MR. ROBERTSON: We really don't know what the intentions of Shaw would be in this matter, nor could we really comment on what they would be prepared to do.
35544 I don't know whether Kathleen would like to add to that.
35545 MS McNAIR: I would just note that the Shaw licence is a 50/50 partnership with Alliance Atlantis, so I would think that before Shaw does anything I would assume they would be talking with their partner.
35546 As far as our particular conditions of license, because we can't direct them to do something we wouldn't be comfortable with such a condition.
35547 COMMISSIONER WILLIAMS: Thank you very much.
35548 I have no further comments.
35549 THE CHAIRPERSON: Mr. Robertson, things do change. You are now appearing as Corus to save the day for WIC Premium. That wasn't the case yesterday -- I'm using "yesterday" loosely -- so things do change very quickly.
35550 The competition you were worried about, is it WIC Premium's ability to sell pay per view to the terrestrial systems in western Canada that are not affiliated with Shaw and to which neither Shaw nor Corus have been able to sell VOD with the turnkey systems you spoke of yesterday that you would be able to propose to smaller systems if you got the licence you applied for?
35551 Is that the competition you are worried about, the ability to sell pay per view in western Canada to those cable systems, other than those that I just mentioned and to which VOD is not marketable?
35552 MR. ROBERTSON: Yes, that would be our primary concern.
35553 We have a very positive relationship with Shaw as it relates to the provision of pay-per-view services and we don't expect a disruption in that. So although in a structural separate situation, I presume if they were offered a service with better value and quality maybe they would have a hard time saying no to it.
35554 But yes, our primary concern would relate to the other systems out there that could find this new offering attractive.
35555 THE CHAIRPERSON: So have you calculated, before filing this intervention, just how many subscribers that would be, those small systems that as an SRD you, Bell ExpressVu, would be aiming at?
35556 MR. ROBERTSON: Well, we didn't know how strict a definition to really take of that. We know that --
35557 THE CHAIRPERSON: No, but you know what the commercial realities are, and the commercial realities are what we know -- if we keep talking like this I could also say and I could be a nun, as I have said before, you know.
35558 There is an affiliation between a very large cable operator in the west, you, who already has a VOD licence, and an affiliated company as now owner of the pay-per-view licence. So we are trying to determine here in commercial reality, what is the extent of the competition that will result from this licensing that requires a full-scale hearing other than an entire week we will have -- or a good part of a week that we will have spent discussing VOD and new pay-per-view licensing.
35559 What is the extent of the harm that can be reasonably expected from Bell ExpressVu getting a pay per view licence to offer services in western Canada to small services using its SRD capacities as well?
35560 MR. ROBERTSON: Well, one could start with all the systems that aren't Shaw-related and you could be up in the 40 per cent of the western market range. Among those, perhaps if you looked at a per cent of the total western market that would be small systems, you are probably dealing with in the 10 per cent range. But we see no restriction in the application that it would be just small systems.
35561 THE CHAIRPERSON: Just as I can be a nun, ExpressVu presumably could sell services to Videon, to Rogers, if it still has subscribers in the west, yes. But we are just trying to look at here once the owner of the pay-per-view licence, the large cable companies like Cogeco, Videon have both applied for a VOD licence, how -- what is the future going to hold for pay per view in that context is another question.
35562 But I am just trying to reduce your concern to a manageable commercial reality check and to the extent to which it is such a departure and it requires a full-scale policy hearing.
35563 MR. ROBERTSON: I appreciate the nature of your question.
35564 We think that there is enough of a concern as it relates to the small systems perhaps extending into the medium, or even the larger systems that are non-Shaw-related, that there is no real restriction in that way as part of the application. So we are not really sure where it would end.
35565 But it's hard for us to take just this one aspect without considering the full realities of the marketplace that I think you would agree are very dynamic and changing at such a pace that -- just to add to it one thing we have heard a lot during the process here is the U.S. splits and the element of competition as it relates to increase in the amount of revenues going south of the border. Then one would have to say: Well, I understand your desire to want to isolate this to small systems and perhaps minimize the impact there, but to take that in isolation of the impact of increasing and the splits and the cost going to the U.S., I mean that is also a major element of this.
35566 THE CHAIRPERSON: Yes. It is always quite interesting to see how licensees are not prepared to take seriously any consideration of affiliation and what commercial realities will flow from them, but they want a lot of certainty of what it could do to revenue splits, the money flowing to the -- you know, that requires a lot of evidence and a full-scale hearing.
35567 The suggestion that the commercial realities will develop according to what we see before us, including affiliation and corporate relationships that we should not take into account, but the other requires a fuller scale hearing than what we have had.
35568 It is not easy for us to look into how revenue splits may work as a result of decisions. These are uncertainties, they are weighed in our decision and we will take them into consideration as best we can. We will take all the circumstances into consideration.
35570 MR. STEWART: Thank you, Madam Chair.
35571 In your oral presentation you referenced paragraph 47 of the framework and, in particular, the statement that the Commission would not license programming services directly competitive with existing pay or specialty services.
35572 Do I infer from this that you are taking the view that Bell ExpressVu's application is an application for a Category 2 programming service?
35573 MS McNAIR: No. We don't consider the VOD or pay per view to be Category 2 applications.
35574 I think we had -- at least on our VOD application -- numerous discussions with CRTC staff, but we believe that the overall framework of new licences will not be directly competitive with existing licences would apply.
35575 MR. STEWART: Thank you.
35576 Well, then why did you refer to paragraph 47, which was very clear, where the Commission said it would not license Category 1 or Category 2 programming services? You seem to be interpreting it in a broader fashion.
35577 MS McNAIR: I don't know why we put 47 in our opening remarks. I think what we were trying to reinforce is that it is the Commission's policy not to license competitive services and we were also -- in reading the original licensing framework, I think that it is made very clear that the new services, be they Category 1 or Category 2, are not to be directly competitive with existing pay or specialty.
35578 MR. STEWART: Thank you.
35579 Thank you, Madam Chair.
35580 THE CHAIRPERSON: Thank you very much, Mr. Robertson, Ms McNair.
35581 We will take a 10-minute break and then hear the replies.
35582 Nous reprendrons dans 10 minutes.
--- Upon recessing at 1217 / Suspension à 1217
--- Upon resuming at 1233 / Reprise à 1233
35583 THE CHAIRPERSON: Welcome back to our hearing.
35584 We will now proceed to the reply stage of the hearing of the video and pay per view applications.
35585 Madam Secretary, please.
35586 MS BÉNARD: Thank you, Madam Chair.
35587 We will now hear the reply from Bell ExpressVu Limited Partnerships.
REPLY / RÉPLIQUE
35588 MR. ROBERTSON: Thank you, Madam Chairperson and Commissioners.
35589 Recognizing that I am last, I assure you that means I will be very brief as well.
35590 A little earlier we described the proposed pay per view service emphasizing the benefits to the system of presenting small cable systems with a second source of full range of Canadian programming services, including pay per view.
35591 We also described to you how packaging could add value to pay per view purchases making them more attractive to viewers. We also described the structural considerations built into pay per view that ensures that full time programming is not presented under the guise of a pay per view product.
35592 With respect to some of the interventions that we heard this morning, first I believe it's absolutely clear from the public notices that led to this hearing that pay per view would be considered separately from both Category 1 and Category 2 licences, that is the competitive issues and other licensing criteria identified in the Commission's framework apply only to Category 1 and Category 2 specialty services.
35593 But even if this criteria did not apply to pay per view, we believe that our presentation and mix of programming sufficiently distinguish our proposed service from that of the incumbents, such that a licence should be awarded.
35594 We also do not compete with the existing licensees for the acquisition of programming as it is on a non-exclusive basis and no one is trying to deny that we don't have similar programming for a large portion of our service, but the fact is that, as is many times in business, if you can distinguish yourself at the margin and differentiate your service at the margin, that gives an important advantage to consumers and to the service provider. And that's what we have really done with our DTH service here.
35595 We distinguished at the margin through packaging, through other presentation to our customers and it's worked well and we would like to apply that to the terrestrial service as well.
35596 Second, it's important to underscore the fact that Bell ExpressVu's proposed pay per view service will not materially impact incumbent terrestrial pay per view undertakings. The reality is that the incumbent pay per view services are integrated with the large MSOs -- Rogers, Shaw, Vidéotron and Cogeco -- that collectively service more than 80 per cent of the cabled households in Canada, as well as about 40 per cent of the DTH subscribers in Canada.
35597 It's very difficult to imagine that our proposed pay per view service would pose a material threat to their subscribers. The incumbents are on the threshold of explosive growth as they ride the coat tails of their shareholders' roll out of digital cable.
35598 Realistically, we don't expect that any of the Rogers, Shaw, Vidéotron or Cogeco systems will really ever subscribe to our service. Our market is a smaller, non-allied system and our business plan reflects that.
35599 In the past three years, pay per view movie services owned and operated by these operators of pay per view services have experienced growth as never before. Pay per view services in Canada are no longer the fragile entities that they were before and I think the business promises a significant additional growth with the widespread roll out digital cable.
35600 With respect to the splits issues that were raised this morning, integrated program aggregators like Astral and Corus have significant advantages in terms of purchasing content and in any event, it is not in our best interest to unilaterally drive up the cost of programming for our service either. So I think our interests are aligned and we chase minimal splits just like they do.
35601 Approval of our application will bring direct benefits to the Canadian broadcasting system. Without this licence, our chances of a viable hits business to compete with CANCOM and offer choice to non-aligned BDUs would be significantly reduced.
35602 Denial would only weaken the company's hits offering to the direct benefit of no one but the dominant SRDU operator and the incumbent terrestrial pay per view licensees.
35603 With respect to a restriction on the residual category of pay per view programming -- and what I mean by that is non-movies, non-sports and non-events -- we discussed the restriction of 20 to 25 per cent earlier in our presentation and we would find that an acceptable restriction.
35604 When we were here last week, Madam Bertrand spoke to us of the balance that the Commission seeks in its licensing decisions. We believe that on balance, the benefits of licensing our pay per view service around our hits offer has significant merit and we also believe that it will strengthen the Canadian broadcasting system and, therefore, we ask that you do grant our licence application.
35605 I would like to thank the Commission for its attention to our presentation today and also patience and perseverance during this long process.
35606 Thank you very much.
35607 THE CHAIRPERSON: Madam Bertrand.
35608 CHAIRPERSON OF THE COMMISSION: You haven't made any mention, and I am wondering if there are any that you wish to make about the francophone market. Is there a view that it's exactly the same in English and French? The element put forward by Indigo in saying in the francophone market it's a different environment, and we have heard about that dimension in argument on many other files in the last three weeks and a half.
35609 What is your view on that point?
35610 MR. ROBERTSON: There is no question that the markets are different. I think the merits of us delivering a pay per view, a terrestrial pay per view, service into the francophone market is very valid and that to the extent that we can offer things differently, distinguish ourselves in that market with those francophone consumers, that's a value and a value to the consuming public.
35611 So I think from that part, the model that we are proposing is very valid in the francophone markets as it is in the English markets.
35612 CHAIRPERSON OF THE COMMISSION: Thank you.
35613 MR. STEWART: Those are our questions.
35614 Thank you.
35615 MR. ROBERTSON: Thank you once again.
35616 THE CHAIRPERSON: Madam Secretary, this completes the oral part of the hearing of 87 applications for new Category 1 digital specialty TV services and two applications for new pay per view services and four new video on demand services.
35617 MS BÉNARD: Yes. I would just like for the record to state that the remaining applicants have advised that they do not wish to appear.
35618 THE CHAIRPERSON: Thank you.
35619 Parties are reminded that Category 2 applications are also on the agenda of this hearing and are being dealt with on a non-appearing basis.
35620 The Commission may have some follow up questions of clarification for some of the Category 2 applicants after the oral phase of this hearing. All follow up questions will be placed on the public examination files of the applicants, and applicants will be asked to file a written reply and will also be encouraged to file an electronic version of their reply.
35621 Interested parties may inspect the public files to check for such questions and replies.
35622 Ceci complète la partie orale de l'audition de 87 demandes de nouveaux services de télévision spécialisée numérique de Catégorie 1, de deux demandes de nouveaux services de télé à la carte et de quatre demandes de nouveaux services vidéo sur demande.
35623 Nous vous rappelons que l'agenda de cette audience publique contient des demandes de licences de la Catégorie 2 bien que celles-ci soient traitées sur une base non-comparante.
35624 Le Conseil peut décider de poser des questions de clarification à certaines des requérantes de la Catégorie 2 après la phase orale de cette audience publique.
35625 Le Conseil placera ses questions aux dossiers d'examen public des requérantes en question. Le Conseil demandera à ces requérantes de soumettre une réponse écrite et les encouragera à soumettre aussi une version électronique.
35626 Les parties intéressées pourront inspecter les dossiers d'examen public afin de vérifier si des questions et réponses ont été soumises dans les dossiers.
35627 We want to thank all applicants and intervenors for the quality of their participation and for their cooperation. We want to thank the staff for their indispensable support and the court reporter and interpreters for their patience.
35628 Of course, our many thanks to the gentlemen whom I have been irreverently calling "Mr. CPAC" for the last four weeks. I hope we have not made their lives too difficult.
35629 I would, of course, be remiss if I didn't thank my colleagues for their support, hard work and timeliness, the latter achieved not without some insistence from the Chair.
35630 Nous tenons à remercier les requérantes et les intervenantes pour la qualité de leur participation et leur coopération. Nous voulons aussi remercier le personnel pour leur appui indispensable et le "court reporter" et les interprètes pour leur patience.
35631 Évidement, nous remercions les charmants jeunes hommes que j'ai appelés chacun à leur tour "Monsieur CPAC" pendant quatre semaines. J'espère que nous ne leur avons pas rendu la vie pas trop difficile.
35632 Je tiens évidement à remercier mes collègues pour leur appui, leur travail et leur assiduité, bien que leur assiduité ait exigé quelques efforts supplémentaires de ma part de temps à autre.
35633 Alors nous remercions tous les participants et vous entendrez parler de nous probablement avant Noël, Madame la Présidente.
35634 We thank everyone and you will hear from us, according to the Chair of the Commission, some time before Christmas.
35635 Thank you.
--- Whereupon the hearing concluded at 1245 /
L'audience se termine à 1245