ARCHIVED - Transcript / Transcription - Gatineau, Quebec - 2003-05-27
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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 TELEVISION LICENCE RENEWALS
DEMANDES DE RENOUVELLEMENT DE LICENCES DE TÉLÉVISION
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Portage IV Portage IV
Outaouais Room Salle Outaouais
Gatineau, Quebec Gatineau (Québec)
May 27, 2003 Le 27 mai 2003
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
APPLICATIONS FOR TELEVISION LICENCE RENEWALS
DEMANDES DE RENOUVELLEMENT DE LICENCES DE TÉLÉVISION
BEFORE / DEVANT:
Charles Dalfen Chairperson / Président
Andrée Wylie Commissioner / Conseillère
Joan Pennefather Commissioner / Conseillère
David Colville Commissioner / Conseiller
Cindy Grauer Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
James Wilson Legal Counsel /
Sylvie Jones Conseillers juridiques
Tandy Greer-Yull Hearing Coordinator /
Coordonnateur de l'audience
Pierre LeBel Secretary / Secrétaire
HELD AT: TENUE À:
Conference Centre Centre de Conférences
Portage IV Portage IV
Outaouais Room Salle Outaouais
Gatineau, Quebec Gatineau (Québec)
May 27, 2003 Le 27 mai 2003
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE / PARA
APPLICATION BY TELETOON CANADA INC. / 281 / 1715
APPLICATION PAR TELETOON CANADA INC.
Application No. / No de demande 2002-0942-0
APPLICATION BY THE SCORE TELEVISION NETWORK LTD. / 408 / 2052
APPLICATION PAR THE SCORE TELEVISION NETWORK LTD.
Application No. / No de demande 2002-0891-9
APPLICATION BY THE COMEDY NETWORK INC. / 504 / 3045
APPLICATION PAR THE COMEDY NETWORK INC.
Application No. / No de demande 2002-0896-9
Gatineau, Québec / Gatineau (Québec)
--- Upon resuming on Tuesday, May 27, 2003
at 0930 / L'audience reprends le mardi
27 mai 2003 à 0930
1713 THE CHAIRPERSON: Order, please, ladies and gentlemen. Good morning, everyone. We will proceed with the questioning, Mr. Secretary.
1714 Madam Wylie.
1715 COMMISSIONER WYLIE: Good morning, ladies and gentlemen.
1716 One of the amendments you are asking for is to change prime time, which instead of 6:00 to 12:00 would become 2:00 to 8:00. There are two main reasons. One is that two thirds of your fall audience in 2002 was found to be between 2 to 11 during that period. Also something we can discuss is the difficulty of broadcasting the type of programming you are licensed to broadcast after 8:00.
1717 That is also reflected then in your second requested amendment, which is to add some categories to your nature of service, which we will discuss as well.
1718 The question which is raised, and has been raised by the staff in deficiencies, is the difficulty of having the 60 per cent calculation allowing you to have possibly no Canadian content at all between 8:00 to 12:00 and possibly even between 6:00 and 12:00. I haven't look at this calculation.
1719 Your response to that of course is that you are prepared to continue to have your Cancon distributed evenly during the day.
1720 What are actually your plans as to how much Canadian content would be broadcast after 8:00 if the Commission accepted this redefinition of prime time or basically what is the evening period at the moment?
1721 MR. COCHRANE: I think we should say first that we are asking for this redefinition of prime time, but we also stated for the record that we want to stay with the 60 and 60. I think when you look at our audience, we are quite distinct. Like all the kids oriented services, a higher proportion of viewers is in that afternoon period.
1722 I think if we can give maximum exposure to Cancon, we could really be consistent with the broadcasting policy objectives.
1723 One of the huge reasons that we really struggle with prime time being 6:00 to 12:00 is that in the six years that we have been in business, we have only been able to get four Canadian adult shows, all of which have only 13 episodes except one, and we really struggle.
1724 If you take something like "Undergrads" from Decode, we show a strip every night, 13 episodes. We are looking at every two weeks we have a repeat. What is happening is we are really declining in our viewership.
1725 We have some stuff in development, and I would like Carole to mention it. It is not our intention to get away from go Canadian between 8:00 and 12:00. It is our intention to actually grow the business and to continue to develop Canadian adult animation. It has just been a big struggle for the producers to produce more than 13.
1727 COMMISSIONER WYLIE: Before Madame Bonneau answers, when you say we have had only four I think you said four?
1728 MR. COCHRANE: Four.
1729 COMMISSIONER WYLIE: Are you talking about animated product?
1730 MR. COCHRANE: Yes.
1731 COMMISSIONER WYLIE: Go ahead.
1732 MS BONNEAU: Yes, we are. As Len was saying, it is very difficult for the producer because of the structure of their financing and the global demand on adult animation. We are certainly not giving up on our teen and our adult audience. We have projects in development right now. We have a series coming up this fall for teens. So we are not saying we are going to give up.
1733 What we are saying is that it is difficult for the producer to come and coproduce these series with international partners, because the demand for adult animation is not out there.
1734 COMMISSIONER WYLIE: As we will discuss in the next subject, your other request for amendment is to add to your categories and also to add animation related product. I take your comment that adult animation may be difficult, but there would be more than that possible if both of these amendments were approved.
1735 In that case, what is your commitment to Canadian content in 8:00 to 12:00 if the Commission were to change your prime time?
1736 I will discuss with you further the possible effect of adding categories and the way that animation related is defined. When I ask how much Canadian content are you prepared to commit to from 8:00 to 12:00, you speak of animation, but there would be possibly far more than that possible.
1737 MR. COCHRANE: I think when you look at the sub categories we have asked for, what we are seeing right now is we have a 90 per cent and a 10 per cent. In that 10 per cent we can show under our current licence any movie. We could show "Lethal Weapon". What we are seeing is in the 10 per cent, which is no different from what we can show today, we really want to refocus that 10 per cent on animation-related programming.
1738 I think that is actually narrowing the focus, staying with the notion that we really truly are an animation service from the fact that we have 90 per cent.
1739 I think Stephen may want to add something to this.
1740 MR. ZOLF: Thanks, Len.
1741 Commissioner Wylie, in terms of commitments between 8:00 and 12:00, we think the balance struck in our response to the deficiencies is an appropriate one. As Len said, the proposal is to still meet a two part Cancon commitment, which is 60 all over and 60 during this newly defined prime time.
1742 In addition, Teletoon agreed in response to deficiencies that a commitment to schedule Cancon reasonably through the day was amenable to it. Therefore, we think that is an appropriate balance and would not want to do anything more in terms of a specific 8:00 to 12:00 depart.
1743 COMMISSIONER WYLIE: Reasonably through the day may exclude 8:00 to midnight. What about reasonably between 8:00 and midnight?
1744 MR. COCHRANE: I think you have to go back to the fact that if we work and develop new adult and teen animation we can't show it in the morning. We would obviously have to program it during the correct time. We spend a lot of energy working with producers trying to get them to deliver teen and adult animation.
1746 MS BONNEAU: Just to add to this, we have a series like "Quads" that we could not air prior to 10:00 p.m.
1747 COMMISSIONER WYLIE: But those are the very series you say are not easily available and that is why you are asking to change. Presumably there could be many weeks where there isn't this type of material.
1748 The very reason that you are shifting is that your main audiences are children and between 2:00 and 8:00, and the type of program that you are licensed to broadcast is difficult to have it produced and increasingly difficult, from what I gather, when it is aimed at adults.
1749 What are the reasons for that, the state of the market of adult animation?
1750 MR. COCHRANE: I think if you go back and talk to any of the four producers who have actually produced adult let me go back to "Undergrads", which was one of the first ones we actually put on air. It has been actually quite successful with a small cult audience. Decode managed to sell it to MTV in the states. After one season it didn't do reasonably well, so they actually cancelled the show.
1751 When you look at animation, you are thinking to manufacture this is $450,000 a half hour. Obviously Teletoon can't come up with anywhere close to that on our licence fee. So Canadian animators usually have four, five, six different sales around the world to finance the project.
1752 Something like "Quads" or "Undergrads", which is very North American, they have had absolutely no sales to the rest of the world. Decode is very successful at selling their kids animation around the world. So it is a big struggle for them and us because of the repeat factor. It is really hurting our viewership, and it is declining. That doesn't help any of us.
1753 MS FIRESTONE: I would just like to add something, Vice Chair.
1754 One of the other issues is that the return on investment for adult oriented animation is not as much of an incentive as it is for child oriented animation. The ancillary revenue opportunities from youth targeted property are much greater with merchandising and licensing. So that further provides an incentive for the world market to skew more towards children's animation than adult animation.
1755 COMMISSIONER WYLIE: It doesn't seem to have hurt your results to date, your financial success, and the fact that in your core animation programming you are really doing quite well. You mentioned in your presentation yesterday you are, I think, first place in Québec and third place among specialties.
1756 In the response to deficiency question 15(e) you state that your projections were based on the premise that the Commission would indeed allow you to change your prime time. Then when asked what would be the impact if the Commission did not allow it, you talked about burden and more repeats, et cetera.
1757 So I assume that there has been some projected incremental advertising revenue and audience share in the adult 18-plus as a result of this change in the prime time.
1758 What is the level of the change?
1759 If we ask you what will happen if we don't allow it, you say it will be a burden, et cetera, but your projections include it. So there must be some incremental revenues that you have factored into your projections.
1760 We don't have what the status quo would give, but I am assuming that there is an increment. What is the level of it, and how would it have been calculated?
1761 MR. COCHRANE: Hillary.
1762 MS FIRESTONE: Basically the way we calculated it, it is a very in-depth calculation and it factors in the advertising rates, viewership estimates. So when we redid our figures for the licence, what we were counting on with the 2:00 p.m. to 8:00 p.m. prime time was that we would reasonably be scheduling our Canadian content between 8:00 p.m. and midnight, which would allow us to improve our viewership because we would be reducing the repeat factor that has been causing declines in our viewership up until now. That increased viewership would in turn result in increased ad revenues, 40 per cent of which would be funnelled back into the system.
1763 We would need to do the whole calculation to specifically identify what that difference would be with continued definition.
1764 COMMISSIONER WYLIE: Considering that it appears to have an impact if it is denied, you have to have factored in an impact if it is approved. Why wouldn't you have filed status quo projections?
1765 MR. COCHRANE: I think if you look at the change and never mind that it is a huge benefit to Cancon and you have to remember we are still talking about 60 and 60. So we are still going to deliver exactly what we are doing. We are just saying being very strongly, and our demographic being kids 2 to 11, we can do a much stronger job by delivering that 60 per cent in the new prime time.
1766 We would gladly do the math, and we can come back to you, if you would like.
1767 COMMISSIONER WYLIE: Yes, to show us what the status quo would be and what the increment is if this is changed. That will allow us a better view of how to --
1768 MR. COCHRANE: We could file that during deficiencies when we are back, if that is agreeable.
1769 COMMISSIONER WYLIE: Yes. Mr. Wilson will speak to you about that.
1770 Is it not true that one could avoid Canadian content between 8:00 and 12:00 and still be within one's conditions of licence?
1771 MR. COCHRANE: Yes. I think if you took it in the purist sense, but that is not why we are here today. We are saying that we are having a hard time. Why would we continue to develop adult programming with our producers if we had some other thing in mind?
1772 COMMISSIONER WYLIE: Yes. You are here today to convince us that you will have Canadian content between 8:00 and 12:00, and we are here to ensure that that is what will happen.
1773 What would be something reasonable that could be imposed, so that this is laid to rest for seven years, between 8:00 and 12:00 and that would eliminate this concern, just as you will see when we discuss your other amendments can become a problem.
1774 MR. ZOLF: Madam Vice-Chair, as I said earlier, in fact we took our inspiration from the Commission's suggestion in deficiency, which was "Would you agree to a condition of licence to schedule Canadian content reasonably through the broadcast day?" In fact, we think that is a reasonable commitment.
1775 COMMISSIONER WYLIE: That's what you think. That's what the staff thinks. How do you measure reasonable?
1776 MR. ZOLF: I guess you know it when you see it, but in fact just to be clear --
1777 COMMISSIONER WYLIE: We have all been unreasonable parents when we thought we were very reasonable.
1778 MR. ZOLF: Right. For one thing, maybe perhaps a commitment to include that scheduling within the eight to twelve would be suitable, but nothing more than that. I mean Teletoon has never reneged on any of its commitments, so that would be something maybe that would strike the balance.
1779 I think you would recognize it if you saw it. For example, if the eight to twelve day part was totally absent of Cancon through a seven month period, perhaps I think you could argue maybe it wasn't meeting a commitment or a condition to reasonably schedule through the day.
1780 As Len said, with a two part 60/60 that Teletoon will continue to live with, with its core audience, of 60 per cent of its core audience which is between two and eight, we think that an additional specific commitment for eight to twelve may be drawing that line a little too harshly.
1781 COMMISSIONER WYLIE: But if you are so satisfied that this is what's going to happen, is there not some modicum of assurance that can be given measured over a period -- well, think about it -- measured over a period that's long enough, but not simply left to "reasonably", which can be terrific, one week, one month and asking for other weeks.
1782 For fear that we think of what's reasonable, maybe you should tell us one notch above what reasonable would be if this change along with other changes were approved by the Commission.
1783 MR. ZOLF: Yes. We will do that and come back to you.
1784 COMMISSIONER WYLIE: Let's move now to the nature of service questions. Currently you have no nature of service -- no description in your nature of service. You have agreed to a description that the Commission has put forward to you.
1785 However, in your application at 1.7(b) which would be on pages 5 and 6 of the application, we get the introduction of the words "animation related programming".
1786 Then the Commission asked you to define animation related, which you do at some length in your response to deficiency question seven at part (a). At the same time you ask in your application to add a number of categories of drama, category 7, that are not allowed on your service at the moment or that are not part of your nature of service.
1787 That would be basically you have (d) and (e), right, so that would be basically the rest of (a) -- seven, excuse me.
1788 MR. ZOLF: With the exclusion of subcategory (f).
1789 COMMISSIONER WYLIE: Except (f), okay. So (a), (b), (c) and (g) would be added.
1790 MR. ZOLF: That's correct.
1791 COMMISSIONER WYLIE: I would like to relate that to your definition of animation related. If you turn to your definition, which is in answer to question 7 of the deficiencies -- I won't read it all, but presumably that would be the test to see whether this drama and presumably also the drama that you are now allowed in the category which is other than animation -- which one is it? (b)? (b) is animation and (d) is not.
1792 MR. ZOLF: And (d) is not.
1793 COMMISSIONER WYLIE: Okay. So you would add then (a), (b), (c) and (g) and to that a lengthy definition of animation related.
1794 What I want to discuss with you is the possibility that with this definition, which is quite broad, with the addition of all these other categories of drama with eight to twelve often not having Canadian content, the extent to which we could end up with an animation service, which is doing very well and which would keep its focus in the afternoon period or early evening period, and then compete between eight to twelve in the drama category, what the possibilities are of that, and then discuss whether this definition of animation is too broad combined with these other factors.
1795 For example, you say -- I won't read it all because it's quite long -- that a program would be acceptable if there was a nexus to animated programming. I hope one of you have that in front of you there because I am going to paraphrase and I would hate to mislead, so you will correct me.
1796 It would be overall animation scenes, programming with a nexus to animated programming, programs that share characters, programs that share lead actors, programs that are based on the same underlying works, could include programs that provide a behind the scenes view of the making of animated programs and programs that provide commentary on the show's creators or stars.
1797 That could be movies, as you say. It could be Spiderman. It could be a movie about Tarzan. It could be a movie about many characters, many possibilities. Could it be biographies? Could it be an actor that simply provided that any movie he is in and he provided a voice-over in an animation? Could it be based on the "Marriage of Figaro" because of the Bugs Bunny cartoon that we all know? Just mentioning it once -- you should see him.
1798 It's very broad. When you see words "nexus", "share actors", "share underlying work", how many possible blockbusters could appear between eight and twelve on Teletoon -- on tele-animated?
1799 MR. COCHRANE: I think if you go back, and we say we are still talking about the same 90/10, and if you take the broadcast day of 18 hours a day and that 10 per cent means about 1.8 hours that we could actually --
1800 COMMISSIONER WYLIE: We can discuss the hours. Now I'm talking about animation related.
1801 THE CHAIRPERSON: I'm going to ask Carole to give you some examples so you will be able to understand where we are going with this.
1802 COMMISSIONER WYLIE: Right. Or answer the questions how many movies could it be? Could it be biographies? What about these examples? What about somebody who provided a voice-over in a cartoon? Is it any of the movies that he or she is in?
1803 MS BONNEAU: To give you an example of a program that we are originally inspired by or have a nexus to animated or illustrated character would be "X-Man". Right now we have the series "X-Man". We would be able if the series will be available to -- in parallel would be animation to present "X-Man", the drama series, and the movie.
1804 When you talk about biography, we did a special on Chuck Jones recently when Chuck Jones passed away. If there would have been a special or a drama available on his life, we would have been able to show that program.
1805 COMMISSIONER WYLIE: Madam Bonneau, I don't have a problem with those. My question is how do we present, if that's what should happen which we can discuss, your eight to twelve portion of programming to become a place for blockbusters? What is the answer to a voice-over is enough to have all the movies that that actor has made which can be argued in the paragraph?
1806 How do we limit it towards not having drama like blockbuster drama, American movies, in that period if indeed the Commission should -- now, we can discuss genre and drama in a more generic way afterwards, but if we were to say, as you seem to say here, "We are an animation service, we will be animation, but we also want to be animation related", how far can that stray from animation?
1807 MR. COCHRANE: I will start off and I will pass it to Stephen.
1808 I think if you look at our current licence we can show 10 per cent non-animated any theatrical movie.
1809 COMMISSIONER WYLIE: Now, Mr. Cochrane, I'm not talking about the 10 per cent and how many hours that gives you. I'm talking about the definition of animation related to keep it within your framework because by my calculation you possibly could have 10 per cent of how many hours. I mean how many hours a week could it be?
1810 MR. BUREAU: Madam Wylie, it seems to me that we are probably going through some confusion here. We are maintaining completely the 90 per cent of the programming grid to be animated, period, animation, period. The 10 per cent currently we have the right to show any type of movie.
1811 We looked at the overall situation and we said we are successful because we are an animation station. We would like to have access to subcategories of programming to help us within that 10 per cent to continue to be successful and at the same time not lose the character of an animation station.
1812 That's why we came to you and we said instead of having the freedom of showing any type of movie, related or non-related to animation, during that 10 per cent, we would like to have more access to subcategories of programming provided they are animation related.
1813 Now, I agree with you that the definition of animation related is something that is a little bit difficult to cerner, en français, to grasp. The way we have expressed it in the answers to the deficiencies may not be the adequate way to describe it.
1814 We have worked since then on some type of description of what animation related could mean. In that case, again I repeat, that animation related thing with the new categories would only apply to the 10 per cent where currently we have the right to show whatever movies we want, animation related or not.
1815 If I may suggest, maybe Len or somebody else could give you the description of animation related if it would help orient or clarify the position that we are proposing.
1816 COMMISSIONER WYLIE: Yes. Now, I realize that you can now, using category 7(d), broadcast films, but your freedom to do it between eight and twelve will be increased now with the change in prime time if we agreed with that.
1817 How much American programming is aired on Teletoon between -- or non-Canadian programming between eight and twelve currently?
1818 MR. ZOLF: They are just looking at the schedule that was filed with the application that shows what is on the schedule between 8:00 and 12:00.
1819 COMMISSIONER WYLIE: My recollection, it shows quite a number of non-Canadian hours -- and while you do that, my recollection is also that you state that you are already doing 60 per cent between 2:00 and 8:00.
1820 MR. ZOLF: First, I think we have an -- Ms Bonneau has an answer on --
1821 MS BONNEAU: It looks like it's 35 per cent.
1822 COMMISSIONER WYLIE: It looks like 35 per cent. And, have you -- considering that you are going to show us an increment in adult audience and in advertising revenues, what is your plan for the -- that is the schedule for the coming year -- for the coming term, a snapshot schedule for the coming term or what's there now?
1823 MS BONNEAU: It's what is there now.
1824 COMMISSIONER WYLIE: And, what would be a schedule for the future in those hours? What would we see there, what kind of programming would it be?
1825 Since we say well reasonable Canadian content, no commitment, but we will have a different 8:00 to 12:00 schedule. What are your plans?
1826 MR. COCHRANE: I think you will see a schedule with a lot less repeats. I think you will see a schedule -- we actually filed it with the Commission to give you an idea -- if we were to look at that you would see that it's not -- between 8:00 and 12:00 has nothing Canadian, that's not intent.
1827 COMMISSIONER WYLIE: Now your nature of service description has been looked at by the Commission and there has been a suggestion that there be a change in the condition that allows programming in categories 12, 13, 14 and 15 and, right now, the way it's written, I understand it is not -- the 90 per cent that Mr. Bureau was referring to is not -- It's 90 per cent of what is not 12, 13, 14 and 15 as it is drafted at the moment.
1828 So the question was asked whether we could delete the preamble with the exception of -- do you agree, Mr. Zolf, that that's the text right now?
1829 MR. ZOLF: Yes, I do.
1830 COMMISSIONER WYLIE: It's whatever is not those categories, what's left -- 90 per cent of what's left has to be animation --
1831 MR. ZOLF: Correct.
1832 COMMISSIONER WYLIE: -- from (d) and (e).
1833 And now you propose instead to put a cap on 12, 13, 14 and 15 of 5 per cent?
1834 MR. ZOLF: Yes.
1835 COMMISSIONER WYLIE: So then, what would be left would be 95 per cent of your programming of which 90 per cent would still come from (d) and (e) and so that would 85.5 per cent. So that would be 9.5 per cent of all your programming left for (a), (b), (d), (e) and (g) and possibly more if you did list 12, 13, 14 and 15.
1836 MR. ZOLF: That's correct, Madam Vice-Chair. But just to clarify, I think we said in response to deficiency that we could live with a cap on those 12, 13 and 14 --
1837 COMMISSIONER WYLIE: Yes, 5 per cent.
1838 MR. ZOLF: Five per cent, so it really would be 5 per cent, 10 per cent on the non-animated and leaving 85 per cent --
1839 COMMISSIONER WYLIE: Five per cent of your programming maximum on 12, 13, 14 and 15.
1840 MR. ZOLF: Yes.
1841 COMMISSIONER WYLIE: So that you could have, presumably, all of your programming from other categories, that you are allowed.
1842 MR. ZOLF: Correct.
1843 COMMISSIONER WYLIE: All of 7 but (f), right?
1844 MR. ZOLF: Yes.
1845 COMMISSIONER WYLIE: If you didn't do any PSAs, any of the others -- if you did the cap of 5 per cent you would have 95 per cent of your programming in category 7, correct?
1846 MR. ZOLF: If we didn't do any on those?
1847 COMMISSIONER WYLIE: Exactly. So, if you did 5 per cent you would have 95 per cent of your programming left, if not you would have 100, you could have 98. And of that block left, 90 per cent would be 7(d) and (e)?
1848 MR. ZOLF: Right.
1849 COMMISSIONER WYLIE: But it would have to be animated?
1850 MR. ZOLF: It would have to be...? Yes, we didn't come at it from that way, but I see how you --
1851 COMMISSIONER WYLIE: But you have asked for some amendments and so I'm trying to see what it would all mean with the amendments. Wouldn't it mean that it would all have to be animation from (d) and (e)?
1852 MR. ZOLF: Yes. The only thing I would like to clarify is that, obviously, some of the categories: Category 13, PSAs; Category 14, infomercials, may not be animated programming.
1853 COMMISSION WYLIE: Oh no, I understand that.
1854 MR. ZOLF: Yeah, okay.
1855 COMMISSIONER WYLIE: But we are still saying a cap of 5 per cent if you accept what you have on those categories, whether they are animated or whatever.
1856 MR. ZOLF: Yeah.
1857 COMMISSIONER WYLIE: So then, 95 per cent of your programming is left?
1858 MR. ZOLF: Is left, yes.
1859 COMMISSIONER WYLIE: Of which 90 per cent has to be animation --
1860 MR. ZOLF: Correct.
1861 COMMISSIONER WYLIE: -- from (d) and (e)?
1862 MR. ZOLF: Well, I think the way we have read it is that we start at a hundred, and 90 per cent must be animation. I mean, if I read the condition of license as it reads now, when you except out of those categories, a minimum of 90 per cent of all the programs shall be animated. And I guess you are asking is what's left once you subtract 12 through 15.
1863 COMMISSIONER WYLIE: Yes, I read your -- rather than do what was suggested by the staff to remove the words, "with the exception of programs drawn from" you would have categories to a maximum of 5 per cent, right?
1864 MR. ZOLF: Yes.
1865 COMMISSIONER WYLIE: And then we would continue?
1866 MR. ZOLF: Right.
1867 COMMISSIONER WYLIE: After that cap --
1868 MR. ZOLF: Out of the 95.
1869 COMMISSIONER WYLIE: -- a minimum of 90 per cent of all programs shall be animated programming drawn from category 7(d) and (e).
1870 MR. ZOLF: Right. And so, when you subtract that --
1871 COMMISSIONER WYLIE: The way we would draft it would be, and I would think, is to say take out that 5 per cent for 12, 13, 14 and 15 as a maximum and whatever is left, whether that block is 4 per cent or 5 per cent, is 90 per cent of your programming.
1872 MR. ZOLF: Yeah, of that --
1873 COMMISSIONER WYLIE: Ninety-five per cent, excuse me.
1874 MR. ZOLF: Yeah.
1875 COMMISSIONER WYLIE: Of which 90 per cent are to be animated programs from (d) and (e).
1876 MR. ZOLF: Yeah.
1877 COMMISSIONER WYLIE: So --
1878 MR. ZOLF: And unfortunately -- I'm just trying to think whether that is just another way of including 12, 13, 14 and 15 within our 10 per cent, which is something we didn't agree to in response to deficiencies.
1879 COMMISSIONER WYLIE: No, no, the way I would say it would be 12, 13, 14 and 15 of whatever kind --
1880 MR. ZOLF: Of whatever kind.
1881 COMMISSIONER WYLIE: -- we set aside, then we have 95 per cent of your programming left of which 90 per cent must be animated. It leaves about, you say 10 per cent, it leaves 9.5 to 10 per cent of programming. So, you calculate that over 126 hours?
1882 MR. ZOLF: Correct.
1883 COMMISSIONER WYLIE: And so you end up with about 12 hours per week, it depends. Suppose you focus on -- how many hours, in your view, would that give?
1884 MR. ZOLF: Nine and a half of 126.
1885 COMMISSIONER WYLIE: Would you count it 8:00 to 12:00 if you had a big movie that you could show? When would you show it? You would have quite a bit of an opportunity. And if you calculated 12 hours lets say per week available, you could have four hours of American movies or a movie every night.
1886 MR. ZOLF: Just to follow-up, that is true, technically. First of all, the way you have explained --
1887 COMMISSIONER WYLIE: It's true, potentially.
1888 MR. ZOLF: Potentially, potentially. And I just wanted to pick-up on that because, Madam Vice-Chair, even under the current condition today or since the service was licensed in 1996, up to 2.5 hours between 8 and 12 -- or between 6 and 12, I should say could have been an unrelated feature film, an action feature film that had nothing to do with animation. But I think you will find that that wasn't on the schedule.
1889 So there is no hidden intent here to jam in all kinds of unrelated animation programming between that day part. Even today the licensee has free reign to put 2 1/2 hours of feature films now. And where we were coming from was that this was the renewal, this was an opportunity to clarify those conditions and given the amount of serious programming and other programming that they couldn't log, we thought it would be a very appropriate time to say lets rebalance that limitation to make it more symmetrical and also to introduce a more limiting or a more narrowing focus on the service. Because, I mean, I think when we came at this, we came at this we came at it from one per genre of policies.
1890 So I just wanted to give some context to where we were coming from on that.
1891 COMMISSIONER WYLIE: I think what's happening is the way your -- Mr. Bureau was right and so are you that, without this description of service, the 7(d) is not even defined to be related to animation.
1892 So your position is you are coming here to make yourself more pure than we made you when we licensed you. But you are asking for a change in your prime time, not only in your categories which, of course, then raises our level of sophistication as to what the possibilities had been in the past and what will the potential be in the future. So perhaps we can --
1893 MR. ZOLF: Commissioner Wylie, may I add that the response to deficiency when the Commission asked for a definition of "animation-related", this was -- we tried in responding to that to provide a non-exhaustive example. This really doesn't read like a pure definition. We have been giving it some more thought and have come up with, at least, the bare bones elements of animation-related, so we could at least tell you what that is now, but we would be happy to file that later with the Commission.
1894 COMMISSIONER WYLIE: Now, would it not be -- the concerns that have been expressed, would they not be better addressed by a commitment made in content during that period?
1895 You were here yesterday, you heard kind of a bit of a general discussion about genre and the question of drama, with regard to genre, has been put forward and maybe whether the Commission should be less restrictive if it's Canadian drama.
1896 Number one, let me ask, you just said that you came here in the spirit of one per genre. You still think that that's working for you? Do you think that's working for the industry in general? There have been suggestions that we shouldn't be concerned about this, that maybe you would have peak hours in your schedule that would be vaguely related to your genre, which is animation.
1897 Is it your view that the one per genre policy ought to be relaxed in some circumstances, depending on what is proposed or what the service is? For example, would you have a problem with other people doing animation?
1898 MR. COCHRANE: I think when we look at the one per genre we really like the idea and it's really worked for the industry. I think we have to remember that the one genre doesn't necessarily mean that we have a monopoly on animation. When you look at some of the other players, you look at CBC, Télé Quebec, TVO, YTV, Treehouse, Family, all show animation. So it's not as if we have a monopoly. We are just really focused and we are saying, as our license says, we are going to be 90 per cent animation and I think maybe Stephen would like to enhance on that.
1899 MR. ZOLF: I can't really add any thing to that. I thought Len answered that well. I mean, as Len said, there are lots of services out there who have little or no restrictions on animation programming and I think there is a significant level of competition already, certainly for kids animation, from all kinds of Canadian and non-Canadian broadcasters that are available and distributed in Canada.
1900 But nonetheless, it's not a perfect science, but I think the one per genre policy is something that has benefited Teletoon and enabled to put together such a high quality service and I don't think we would want to depart from that.
1901 COMMISSION WYLIE: Do you think, in a more generic way, that it's still central to the broadcasting systems held among specialty services?
1902 MR. COCHRANE: Yes, I think when you look at the goals of the Broadcasting Act and you see that what it has driven, it has driven a lot of high quality, it's driven a lot of diverse programming. So I think -- and the goals of the Broadcasting Act have really worked with the one genre.
1903 COMMISSIONER WYLIE: Now the genre, of course, tends to --
1904 MR. ZOLF: I'm sorry, I think Mr. Cassaday wants to add to that.
1905 MR. CASSADAY: Madam Vice-Chair, I was just going to add that we too share the view that the existing policy is working. I think during the recent digital licensing decisions that policy was eased somewhat by licensing some quasi directly competitive services. So we think that we are blessed with an excellent system that is working.
1906 The quid quo pro is obligations, which we are all exceeding -- at least many of us are exceeding to a significant degree, and we believe that if we were to change the one per genre framework, that it would require us, as an industry, to go back and look at the overall framework, specifically the obligations that each entrenched competitor now has relative to those that might be given to a new player.
1907 So we certainly would endorse the continuation of the one per genre policy.
1908 COMMISSIONER WYLIE: What are your comments, any of you, to the suggestion that one tries to get loyalty or a brand -- yours is animation, others are sports, some may be outdoor life -- but that the one that you can always find yourself a niche is drama, other than your own.
1909 In other words, the belief that you can attract an audience, for example, between 8:00 and 12:00 with movies, despite the fact that everybody knows Teletoon is animation, mostly for children during the day; that drama is a separate one that, besides your branding, you can have a drama niche in some periods of the day, and that is the one that everybody watches, prevent them or restrict them from having more than so many movies or, which many speciality services have restrictions on drama.
1910 Is it a type of programming that somehow you can manage to have a brand that is completely away from it and have a little part of the day where people know they can go to watch movies?
1911 MR. BUREAU: We could have done that, Madam Wylie. We could have done that with --
1912 COMMISSIONER WYLIE: I am asking a very general question here.
1913 Is it your view that that is a comment that we should retain, that everybody can try to have a spot?
1914 We are trying to get general comments.
1915 MR. BUREAU: Are you talking about kind of dual personality, dual type of brands?
1916 COMMISSIONER WYLIE: Yes, that you can do drama, that you can do cartoons, or you can be outdoor life or you can be a food network, but somehow -- and that is your brand, but people know that there is a niche somewhere where they know they can get movies.
1917 MR. BUREAU: Well, for specialty services in general, at least the ones in which we are involved, it never worked.
1918 We would never contemplate going into a direction of having kind of a dual type of brand, dual type of personality, dual type of --
1919 COMMISSIONER WYLIE: Maybe it's one fifth, not dual.
1920 MR. BUREAU: Well, if it's only after 11:00 at the night or whether it's one fifth in terms of the overall programming grid, I think that what works is when you give the audience, or you give the potential audience what they expect from you from day one.
1921 And when we are a History Channel or Historia, for example, we would never depart from that. Even if we know that some other programming could be more popular, we would never depart from that because we would lose our core business of attracting history lovers.
1922 And the same thing with Canal D, the same thing with VRAC, the same thing with, at least the services that we know of, and we believe that we have to be very loyal to the brands that we are trying to push and to work for, otherwise, for the secondary audience that may be attracted, you could lose your fundamental audience, you could lose your basic audience.
1923 So for us at least, it never worked, we would never do that.
1924 COMMISSIONER WYLIE: Why would a viewer -- oh, I am sorry, go ahead.
1925 MS FIRESTONE: Sorry, I just wanted to add to that. I mean, the cornerstone of Teletoon's success has been about animation and we have done a ton of research over the last six years, and what viewers love is the fact that they know that 24 hours a day they can come and be entertained in the world of animation, whether it's the 90 per cent animation or animation-related, and that security is fundamental to our brand and fundamental to the continued success of our brand.
1926 COMMISSIONER WYLIE: But why wouldn't Madame Carbonneau or Mr. Smith not see you as the animation -- child's safe haven until the early evening, and then a great movie provider from 8:00 to 12:00? Is that not possible?
1927 MS FIRESTONE: I just think it would be inconsistent with our brand. And people -- I mean, one of the beauties of specialty is that people know what they are going to get when they go there, and if they go there anticipating animation and it's not there, it weakens the brand and it weakens your point of difference in the marketplace.
1928 COMMISSIONER WYLIE: So, your view then is the Commission shouldn't worry about limiting drama whenever anybody applies to air it, that their brand will ensure that it -- you are not so sure about your neighbours?
1929 MR. BUREAU: Madam Wylie, my English may not be good enough to --
1930 CONSEILLÈRE WYLIE: Allez-y en français
1931 MR. BUREAU: -- to get your exact point, but I'm a little bit worried by the terms -- the very general terms you have used concerning drama.
1932 We all are concerned by the fact that on the English language side there is not the flourishing of drama that exists on the Francophone side of the broadcasting system, and so whatever can be done to support this new vitality of Canadian drama, we are all in favour of that.
1933 If this is what you have in mind, we are --
1934 COMMISSIONER WYLIE: Yes, why not --
1935 MR. BUREAU: -- we are in favour of that, which doesn't mean that we would feel that there should be -- to be very blunt -- another Pay TV service.
1936 COMMISSIONER WYLIE: No, no, no, if it is free, it is even better for the --
1937 MR. BUREAU: No, no. no.
1938 COMMISSIONER WYLIE: If you add it on to the Food Network, it would be better.
1939 So, that brings us to the conversation we had with CHUM with yesterday where their view -- I hope I don't misrepresent it -- was that when it is Canadian drama, we should not worry about it, the more there is the better. You seem to be in agreement.
1940 So, what would you think of between 8:00 and 12:00 saying no more than X amount of non-Canadian drama, between 8:00 and 12:00, excuse me, which would hit the Canadian content drama?
1941 You know, you are saying if we approve both your requests which is to change your calculation of Canadian content and to enlarge your categories, and the underlying basis for that is the lack of animation for adults, so I am not -- if I believe you, there is not going to be a hell of a lot more in the short-to-medium-term or ever, and you are going to have animated-related programming, which you tell me is not going to be the average block buster.
1942 Could we not then say, during that period, you can't do more than X amount of non-Canadian drama -- we would have to pick the categories or feature films or whatever?
1943 MR. ZOLF: Well, if I could answer that --
1944 COMMISSIONER WYLIE: Which would then meet all our goals and satisfy all our pre-occupations.
1945 MR. ZOLF: Right. First of all, as we talked to about earlier, we are going to come back to you with something that may give more comfort that's greater than reasonable scheduling through the broadcast day.
1946 But, apart from that -- and as we talked about earlier -- already, a film could have been shown every night of the week, a non-Canadian feature film --
1947 COMMISSIONER WYLIE: But you didn't.
1948 MR. ZOLF: And the proof is in the pudding.
1949 COMMISSIONER WYLIE: But you didn't, and now you refer us with amendments, so now we are getting very clever.
1950 MR. ZOLF: Right.
1951 COMMISSIONER WYLIE: So you will have to meet our cleverness.
--- Laughter / Rires
1952 MR. ZOLF: I think I will turn my mike off now.
1953 COMMISSIONER WYLIE: Go ahead, but don't repeat you could have done it, you didn't.
1954 MR. ZOLF: Right.
1955 COMMISSIONER WYLIE: I want to know what you are going to do for the next seven years, or if you prefer, six, five, four.
1956 MR. ZOLF: Well, we are going to come back to you with something more than reasonable later.
1957 COMMISSIONER WYLIE: But what about the question of possibly limiting certain categories, non-Canadian, during that period?
1958 MR. ZOLF: Can we get back --
1959 COMMISSIONER WYLIE: You can think about that.
1960 MR. ZOLF: Can we think -- thank you.
1961 COMMISSIONER WYLIE: Which would meet the concern that we do not allow prime time sections for drama that is not Canadian.
1962 MR. ZOLF: Right.
1963 COMMISSIONER WYLIE: In that case, your definition of animation-related may not be as worrisome if you had this limitation, since you tell me you have no indication of creating that block as your secondary or dual draw.
1964 Now filler programming, normally, we do not allow it on specialty services but it was intended more for filling in between on Pay services.
1965 You did not have it originally, but -- it is my recollection, or my reading --
1966 MR. ZOLF: I believe, in fact, filler was on the initial nature of service --
1967 COMMISSIONER WYLIE: When it was 12, I think.
1968 MR. ZOLF: Right, and then --
1969 COMMISSIONER WYLIE: When it was changed to 15 and when we revised your conditions of licence to make them fit our new categories it remained there.
1970 MR. ZOLF: Yes.
1971 COMMISSIONER WYLIE: And, of course, for specialty services, the Commission asked you to actually justify it, and you did, and you were asked in Question 9, even though you justified it, why it is relevant, we are not quite clear as to why, especially if you were granted additional categories, why you needed to clock categories -- to log, rather, categories?
1972 MR. COCHRANE: I think I will start off, Madam Vice-Chair, and pass it to Carole, but I think one of the things that we have is a large pre-school block with no advertising and, as you know, with programs of 22 minutes and the filler really helps to bring it back to the half hour and hour.
1973 So, it's very important for us to have that filler.
1974 COMMISSIONER WYLIE: So, it is because of the fact that you have a lot of programming without advertising that -- but still, those fillers in between, can they not be logged as categories that exist?
1975 MR. COCHRANE: No.
1976 MS BONNEAU: No, they couldn't, we log them as fillers for --
1977 COMMISSIONER WYLIE: No, that is how you do it, but could you not do it like everybody else by attaching it to one of the categories that you are allowed, especially if we expanded the 7?
1978 MR. ZOLF: I think Ms Bonneau could clarify this, but I believe that in our discussions some of those programs were less than 30 -- more than five minutes, but less than 30 minutes and they were more appropriately logged as filler, as I understand it.
1979 MS BONNEAU: Yeah, we use the category 15 as filler when they were just over five minutes, it was never for a 30-minute program.
1980 And the same thing for the pre-school, when they were less than two minutes, and this is when we use them.
1981 COMMISSIONER WYLIE: It doesn't answer the question though, why they cannot be called whatever else -- whatever they are, in fact, those small pieces. What is the five minutes?
1982 MS BONNEAU: I guess when they are animation, we could log them as animation, but we log them as fillers because they were less than two minutes.
1983 COMMISSIONER WYLIE: But where do you get the five minutes less or more, is that a regulation I am not aware of.
1984 MS BONNEAU: No, but we have --
1985 COMMISSIONER WYLIE: I am going to get impeached here if I am not careful.
1986 MS BONNEAU: No, no, it is for "Caillou", for instance, that it's just a little bit over five minutes and we have another show called "Untalkative Bunny" that we schedule as -- but you are right, we could have scheduled it as a program.
1987 COMMISSIONER WYLIE: It would be easier for us to, you know, if it's a number of five minutes in a day, it would easier for us to calculate how much animation and how much of the categories you have if they were logged as a category other than filler, which does not tell you what it is.
1988 MS BONNEAU: Yes.
1989 COMMISSIONER WYLIE: Think about that. And we can -- it is more a matter of having a proper --
1990 MR. ZOLF: But without these additional sub-categories though, I'm not sure under existing --
1991 COMMISSIONER WYLIE: No, but my premise was if you had the additional categories, would it change your view about the need of 15, because it does not tell us what kind of programming during those five minutes.
1992 How many of those could there be in a day?
1993 MS BONNEAU: We could calculate --
1994 COMMISSIONER WYLIE: Just a ballpark figure.
1995 It could add up to, what, probably an hour of programming, or...
1996 MS BONNEAU: I have it somewhere.
1997 MR. ZOLF: I see where you are going, Commissioner. I mean, that probably could be withdrawn, conditional on the other sub-categories, so it would be --
1998 COMMISSIONER WYLIE: It would give a better picture of what you are actually airing, especially if we get into this more minute calculation, simply identifying it.
1999 Now in your definition of animation-related, there seems to be the possibility of something like a "how-to" programming, how you make a movie, how you make animation.
2000 Could it be that you -- how would you log that?
2001 MR. ZOLF: We noticed that in our response, and I think to clarify, for the record, you are quite right. There is no category that is either current or proposed that would do a "how-to", and perhaps we envisaged some --
2002 COMMISSIONER WYLIE: Add 5(b) perhaps as a category.
2003 MR. ZOLF: Perhaps.
2004 COMMISSIONER WYLIE: Which is informal --
2005 MR. ZOLF: That's right.
2006 COMMISSIONER WYLIE: Education --
2007 MR. ZOLF: In fact, that may have been an omission on our part. That may, in fact, be well within animation-related and relevant to animation, particular if filler is withdrawn. That may be something --
2008 COMMISSIONER WYLIE: Think about whether you would need an additional category.
2009 You are satisfied that 5 per cent cap on 12, 13, 14 and if we didn't have 15. So possibly we could remove 15 and you are satisfied with a 5 per cent cap.
2010 MR. ZOLF: I think so, and subject to the other discussions about the new subcategories, yes.
2011 MS BONNEAU: And that's what we have right now. That's what we have, 5 per cent.
2012 COMMISSIONER WYLIE: That's what you are airing now?
2013 MS BONNEAU: Yes.
2014 COMMISSIONER WYLIE: A very, I am told, unofficial calculation shows more than that, according to the staff, about 7.9 in French and 9 --
2015 MS BONNEAU: But it's probably because it was animation.
2016 COMMISSIONER WYLIE: Animation 12, 13.
2017 MS BONNEAU: Yes.
2018 COMMISSIONER WYLIE: But I think we have all agreed that that won't be relevant. Right?
2019 MR. ZOLF: Correct.
2020 COMMISSIONER WYLIE: That all of the 12, 13, 14 would be whatever -- would be 5 per cent cap animated or not.
2021 MR. ZOLF: Yes.
2022 COMMISSIONER WYLIE: Correct?
2023 MR. ZOLF: Correct.
2024 COMMISSIONER WYLIE: And then the rest would be -- your expenses, you have a CPE of 40 per cent which is just below your PBIT slightly. You tell us that at Question 16, in answer to Question 16, that in the next licence term you will spend $176 million and that somehow rolls to $185 million in the next licence term in your presentation.
2025 I am a bit puzzled about that. That is what your 40 per cent would yield. If you look at your 5(d) schedule, it shows more something like $154 million. I am wondering what happened somewhere between here and your accountant.
2026 What it looks like is that added to that was exactly the sum left over in your last year of this term.
2027 None of that is confidential. Correct? No? Not for specialties? So 154.2, if I take what is left over for your last year I get $176. Is that what happened?
2028 Look at 5(d) in your application and it seems that the total is 154. How do we get to 176 and then to 185?
2029 MR. BUREAU: Madame Vice-Chair, maybe we could give you the exact breakdown of the numbers.
2030 COMMISSIONER WYLIE: You did, you did. Look at 5(d). You have year one to year seven, total 154. Total Canadian telecast expenses, 154.213. See that?
2031 Now, if you take your last year of licence term it shows 22.8, that's 40 per cent, which would add to 176. Is that what happened?
2032 MR. LOCKE: Madam Vice-Chair, the Canadian Cancon also includes CTF utilization plus closed captioning.
2033 COMMISSIONER WYLIE: They are not included?
2034 MR. LOCKE: They are included in our calculation, but they don't show on 5(d) as an amortization expense, but they do show up as programming expenditure to meet the Cancon condition.
2035 COMMISSIONER WYLIE: Yes. So if they are there that's 154.
2036 MR. LOCKE: If you add the 154 to the CTF utilization and closed captioning, it comes up to the 185.
2037 COMMISSIONER WYLIE: And that's how you get to 185.
2038 MR. LOCKE: Yes.
2039 COMMISSIONER WYLIE: But if I calculate 40 per cent each year, which I didn't do, would I get to 154 or to --
2040 MR. LOCKE: To 185.
2041 COMMISSIONER WYLIE: To 185. So the 154 would make you short if I did the calculation of 40 per cent of the previous year's revenue.
2042 MR. COCHRANE: Only if you didn't include CTF and closed captioning, which is an expense.
2043 COMMISSIONER WYLIE: I'm not entirely sure what you are saying. Where are your closed captioning expenditures, for example, in those lines?
2044 MR. LOCKE: They are going to be included in other Canadian programming administration further down.
2045 COMMISSIONER WYLIE: Oh, yes, I see. But there is nothing in that line, is there? So I would have to add the 5.4 million in that line, other Canadian programming?
2046 MR. LOCKE: Portions of it, yes.
2047 COMMISSIONER WYLIE: Portions of that.
2048 MR. LOCKE: We can submit a breakdown.
2049 COMMISSIONER WYLIE: Would you, because when I look at 5(d) it's very difficult to arrive at $176 million or $185 million. Well, now I understand this more than 154, but how do you get there using 5(b).
2050 Did you file anything else that broke it down more than this?
2051 MR. LOCKE: No, we didn't, but we certainly can.
2052 COMMISSIONER WYLIE: Would you please clarify that?
2053 Now, you state that you are going to spend more money on Canadian production, put more money for Canadian programming in the system over the licence term, assuming wholesale rates are sustained. I get that from your application in Part 3.2C, at page 12 of your application.
2054 Do you have any indication that those wholesale rates will, in fact, be different or be contested or...?
2055 MR. LOCKE: We are actually in negotiations right now with the BDUs and they have been very tough and intense.
2056 Maybe I would like Darrell to comment on that.
2057 MR. ATHERLEY: Madam Vice-Chair, it is very challenging when 88 per cent of our subscribers come from six of our top largest BDUs and we have challenging negotiations with them. But the assumption does hold that we would hang on to the rates that we at least have today.
2058 COMMISSIONER WYLIE: How is that calculated? How, for example, have you made your projections? Are you on discretionary everywhere or are you on basic anywhere?
2059 MR. ATHERLEY: We are on basic in about 5 per cent of the homes.
2060 COMMISSIONER WYLIE: Five per cent. For the other 95 per cent, what is your basis for negotiation, your benchmark? Is it the old system, or the current system, of --
2061 MR. LOCKE: Our rate is 42 cents, Madam Vice-Chair. The rate we have today is 42 cents.
2062 COMMISSIONER WYLIE: And it's 35 on basic.
2063 MR. LOCKE: Thirty-five on basic, that's correct.
2064 COMMISSIONER WYLIE: And how do you get to 42? What is the formula?
2065 MR. ATHERLEY: There is no formula. That was the agreement that was made, if you recall, back in 1997 with Vision.com and that was the agreed upon rate that we agreed upon to go on the third tier with the major BDUs at that time. There is no formula.
2066 COMMISSIONER WYLIE: But that is what you have used to prepare your financial projections and the consequent amount of money that would go to Canadian programming.
2067 MR. ATHERLEY: That is correct.
2068 COMMISSIONER WYLIE: Do you think that this is going to hold over time and is this a good way of doing it in this increasingly competitive environment?
2069 You may want our "éminence grise" here to comment. I have to make your trip worthwhile, Mr. Bureau and Mr. Cassaday.
--- Laughter / Rires
2070 COMMISSIONER WYLIE: You are experienced participants in the broadcasting industry and we have been licensing specialty services for quite a while. Things are changing. There is more competition. There are more and more services.
2071 Do you think this is going to hold, and should it because you are basically using what was your original wholesale rate as a benchmark.
2072 MR. COCHRANE: That's exactly what my opening statement was, that having that 35-cent basic rate gives us the benchmark to negotiate.
2073 I think when you look at wholesale rates -- and I am sure John or André may want to comment on this -- but the wholesale rates are based on a public process, and I think we and the broadcasting industry get great comfort in that fact and the way that that public process has evolved, the way that you have been able to give us that benchmark.
2074 If that goes away and it goes to something like dispute resolution, it's basically done behind closed doors. Today anybody in Canada can comment on the public process. I think that's a huge benefit for us as broadcasters because, as the BDUs get larger and larger, we become a smaller fish.
2075 COMMISSIONER WYLIE: I don't quite understand the public process part of it because the subscriber who is at the end of the line pays whatever the BUD requires and it may or may not have a relationship close or far from your wholesale rate.
2076 So I don't understand how it's a public process for the subscriber, or even for us. We certainly don't know how things are divvied up in a tier because the BDU at the end of the day decided that, obviously, based in large part on how much he is paying, but what is public about it?
2077 MR. COCHRANE: I think when we came here seven years ago we asked you for a licence. We gave you a business plan. We showed you the cost of animation. We showed you the cost of doing the business. When you looked at MuchMoreMusic, the basic rate was three cents and that was based on their business plan. I think that's why it's a public process.
2078 We came to you in good faith and said: "Here is what we want to do. Here is how much we believe it's going to cost". Animation, as I stated earlier, is $450,000 a half-hour, not $75 for a half-hour of programming that was mentioned yesterday by CHUM.
2079 So obviously we are very much different and the ability for the Commission to actually take all that information and come back and say: "We believe you should have a basic rate of 35" comes back to the benchmark to negotiate".
2080 COMMISSIONER WYLIE: Should we look at other aspects of the industry? The success of the genre? The financial or commercial success and the level of profit? Should we look at these things and maybe entertain changes in wholesale rates, or say maybe that is not the best way to go because the market will now decide what is popular and what is the best product?
2081 MR. COCHRANE: I would like André and John to answer this.
2082 MR. CASSADAY: Madame Vice-Chair, having heard you ask Mr. Viner this yesterday afternoon, I just made a few notes.
2083 COMMISSIONER WYLIE: It fits that I ask you too.
--- Laughter / Rires
2084 MR. CASSADAY: I will just refer to my notes and make a few comments.
2085 I think, first of all, specialty channels by nature are unique. They appeal to different demographics. They have different programming costs. Clearly, the program costs for Treehouse are quite different than they are for Sportsnet or TSN. They all have different conditions of licence.
2086 We continue to believe that fees, rates, have to be set on a case-by-case basis as they have in the past.
2087 To your question of: Are there factors that should be considered, or criteria, there are a wide number of them and I think just to mention a few, what is the macro environment like at the time that the subjects under consideration? Is it stable or in flux? Today broadcasters are faced with the economic impact of post-war. In Toronto specifically, we are faced with the impact of SARS, which undoubtedly will affect the entire economy of Canada. Mad cow may or may not be a huge detriment to our economy.
2088 I think also we have, again from a macro point of view, not yet faced the impact of a large number of new entrants because the penetration for the Diginets is still so low, they are not advertising-friendly networks yet. So as a result the impact that they have had on the advertising sales of the established specialty channels is virtually nil, and I think it is going to be probably two years down the road before we start to see the impact of that.
2089 I think another factor to keep in mind is technology. We are not yet aware of what, if any, impact PVRs will have. I think on the other side of the equation, it may be possible that we get the benefit of a huge cost reduction as the result of technology in the future and that is going to have to be taken into account.
2090 Competitive factors are an issue. When we acquired the Women's Television Network several months ago it was thought by many of our critics that we overpaid for that service, but we felt that it had far greater potential than had been realized up to that point in time. We made a number of fundamental changes and our audiences are up over 50 per cent. Our ad revenues are now up almost 30 per cent. So there is a lag effect.
2091 My point is that somebody has gotten hurt by the fact that we did so well. So I think we have to keep in mind the competitive factors as well.
2092 I mentioned earlier the ad market. That's another consideration that has to be taken into account, and importantly my point here is that the ad market is not homogenous. If we hear numbers like specialty ad sales are up 12 per cent, we should not assume that all participants in the market are going to be able to benefit on an equal basis.
2093 Many participants go after demos that are, in fact, in decline at any particular point in time. If you look at the kids' market, for example, that is a particular ad segment that started to level off and decline as a natural result of declining growth rates. There are less kids today and there will be even less in the future than there are today. That undoubtedly is going to have an impact on it.
2094 I think the impact that we have on our partners, the BDUs, is a concern that has to be kept in mind and I think that it is an important relationship that we have with them and their ability to remain profitable is important, but I think we have to keep in mind their ability to withstand price increases. Assuming they can pass on merited price increases to their subscribers, then there is no harm done.
2095 I personally don't subscribe to the CCTA argument that simply because over a certain period of time rates have grown from 20 to 25 per cent of their revenue that that is an indication that the system is in imbalance. Quite frankly, if we were to do that study today given the revenue that has been created through the Internet we would probably find programming costs as a per cent of the revenue are back even below the 20 per cent level.
2096 I guess my other comment parenthetically is that as a retailer having your cost or product sold in the 20 to 25 per cent range does not seem onerous to me.
2097 I think merit is another consideration that has to be kept in mind. Are these services, in fact, adding value to the customer and do they deserve an increase? If you take an example like YTV, which is one of the top two services in the market at a considerably lower rate than others, it may be possible that simply on the basis of merit, not necessarily need, one could argue for a change in rate going forward.
2098 My final point is that what I really would discourage the Commission from doing is accepting the notion that I think was put forward by Cogeco that there should be some balancing based on the mid-point. I think that that will only force us into basically rewarding mediocrity. I think it ignores the possibility that operators could improve their margin simply by good management.
2099 For example in YTV if we avoid the temptation to compete against CanWest and CTV for prime-time teen series, and as a result manage to control our program costs, well good for us. On the other hand, if we start going to Hollywood and spending aggressively to compete, even without the benefit of simulcast and depress our margins, I don't think we should be before you asking for a rate increase to help offset that.
2100 So I think that what we want to be able to do in this industry is look at it on a case-by-case basis, not punish success, and recognize that we all are in the business of appealing to capital markets and we need to show our ability to have stable and growing margins going forward and certainly relative to our U.S. peers.
2101 While we may look good here, relative to our U.S. peers, we are not competitive. I think we have to keep that in mind.
2102 In conclusion, this is going to be a sticky wicket going forward. I think, as Len said, the comfort of having an established base rate is good for all of us. Then our ability to negotiate with our partners on the distribution side will be dependent on how effective our services are operated and how valuable they are to them in maintaining their subscriber base.
2103 COMMISSIONER WYLIE: Your condition of licence says that you can charge a maximum of 35 cents on basic. So it is still true, then, that that becomes the base for negotiating.
2104 Your view as a specialty service licensee would be that you are entitled to something very close to that maximum 35 cents, which is what was set when you first applied for a licence. It is a maximum of 35 cents. So your negotiations are based on 35 cents.
2105 MR. COCHRANE: Yes, using that benchmark.
2106 COMMISSIONER WYLIE: And whatever on the discretionary tier will amount to 35 cents.
2107 MR. COCHRANE: That is the benchmark we use in the negotiations.
2108 COMMISSIONER WYLIE: And it works.
2109 MR. COCHRANE: And it works.
2110 COMMISSIONER WYLIE: To date.
2111 Do you know what the mark-up is on that by the BDU?
2112 MR. COCHRANE: No, ma'am.
2113 COMMISSIONER WYLIE: None of you know? Mr. Cassaday?
2114 MR. ATHERLEY: Typically what we have been told is that it is 100 per cent, but it varies from BDU to BDU. So I don't know that we could use it as a benchmark.
2115 COMMISSIONER WYLIE: In negotiations do you ever discuss if they charge less than the maximum? Or is that irrelevant because you are going to be stuck in a tier anyway and nobody knows how much they are paying?
2116 MR. ATHERLEY: In the cases of my discussions, it doesn't come up.
2117 COMMISSIONER WYLIE: Mr. Cassaday, of course punishing success is not something the regulator should do, but should the regulator use success to say maybe you can do a little more of what we are supposed to aspire to do, that is spend more on Canadian content?
2118 MR. CASSADAY: Of course, that is completely at your discretion and I guess it is up to the programmer to either accept or not the proposal.
2119 I think importantly what I would like to add to that particular conversation is the fact that we look at our businesses as a portfolio. In our portfolio we have, like you might have in a stock portfolio, winners and losers. What we try to do is drive the winners as hard as we can to offset the losers.
2120 You heard earlier in this discussion today some of the difficulties that are being experienced in the production business. We are in the production business in a big way. We are making a substantial contribution to Canadian content through our ownership and investment in Nirvana. Right now we are trying to steer that ship through very, very rocky waters and as a result I am very grateful for the fact that we have some businesses that are performing better.
2121 We are an active participant in the radio market. Our revenues swing based on BBM surveys three times a year. Quite frankly, in Vancouver this past period we got hit very hard. We are going to take a substantial revenue hit as a result of that.
2122 As one thinks about the decision about whether to ask Teletoon to pay more or less or ask YTV to pay more or less or TSN to pay more or less, I would simply ask the Commission to take into account that this is just one unit within a portfolio of assets, and all of those assets are contributing in some way to the Canadian broadcasting system.
2123 If we keep whacking back the good ones, I wonder if we would have the metal to stay the course on some of the investment requirements that we have within our system.
2124 COMMISSIONER WYLIE: You would agree though that for us this is a difficult exercise, because we have never done it that way; that is, look at the fact that you have winners and losers and it may all come out in the wash. We have each service between us, and some broadcasters have very few services. So it is very difficult to start looking at the whole picture when we are looking at specifics of whether 40 per cent Canadian content is a good CPE or it should be 42 or 43. To look at the whole stable of services that one has is not an exercise we have gone into very deeply to date. We have started to do it with television stations.
2125 MR. BUREAU: Madam Vice-Chair, if I may on this specific subject -- and forget about the different components of the portfolio that we could have. If the Commission were to start looking at regulating our businesses based on the profit margins of the different components, I think we are looking here at a pretty fundamental type of change in the way of regulating or imposing conditions on the licensees. I would not object at all to looking into that. I think it is perfectly normal that the Commission, after 40 years, could look at different ways of doing what they are authorized or in fact legislatively empowered to do.
2126 I don't disagree with the question itself. I think that the forum should probably be extended to include all of the potential participants and interested parties.
2127 For example, when we are looking and when we see that we receive interventions saying that our profit margins are excessive compared to what the intervenor has as a BDU, in those BDU numbers you have a lot of other things than just the transmission of our services. There are other investments that have been made or other expenses that are carried there which have in fact over the past five years reduced the margins of profitability of these companies from 44, 45 to 37, 36.
2128 If we were to look into the possibility of looking at regulating on the profit margins, we should probably have a forum for that, have a process for that, where we would look not only at the specialty services but also at the conventional television services, also at the BDUs themselves, to determine whether there is a need for some cost separation, for example, in the BDU's way of calculating their margins.
2129 At the present time, it is a futile exercise to try to determine what is the real cost of transmitting our services when you look at the bottom line of those BDUs.
2130 I am merely suggesting that if we want to take that as a rule or as a criterion, in all fairness it should be done after some process where all of the parties would have been exposed to that, would have probably filed their comments. And those, for example, who do not have the margins that a service like Teletoon has would probably come up with some suggestions on how to deal with situations like that.
2131 We may come up with a better formula than the one that exists at the present time, but the one that exists at the present time is a pretty good one. For every dollar that we receive in revenues, there is a portion that is going there. So it is a formula that applies to both the very successful ones as well as the ones that are unfortunately less successful.
2132 COMMISSIONER WYLIE: I have a few more questions after we take a break, but before we take the break the Chairman has some questions.
2133 THE CHAIRPERSON: Just to follow up on that line of questioning if I may -- and I take your point, Mr. Bureau, about the need for an appropriate forum for discussion of any kind of dramatic change in the methodology we use on the one hand.
2134 On the other hand, the Notice of Public Hearing suggested that we wanted to discuss criteria for rate setting, and I think we have had a number of those discussions now. I wondered whether you had anything to add.
2135 I heard your comment on not going to a rate-based methodology without further discussion. Do you have anything to add, though, as to criteria that we might employ consistent with the Notice of Public Hearing in this proceeding?
2136 MR. BUREAU: Without trying to limit in any way the kind of authority or right that the Commission has to look into all of these aspects and until we get to the point where we have a complete review possibly of these kinds of approaches, I would suggest that when the Commission hears an application for renewal and the licensee comes up and shows that they have met the requirements that were agreed upon or imposed on them at the beginning of their licence, that they have been successful, you should expect that we do more. There is no question about that. You should expect that we do more. We are in the position of doing more.
2137 So we should look at what we can do to make sure that we can contribute more to the success of the overall system.
2138 In the case of our Teletoon service, we believe that the fact that in the next licence term, with all the challenges that we are faced with concerning negotiation of our wholesale rates and all of these things, or the big impact approach or the changes in the way the services are marketed, leaving that aside and believing that we will find a solution to that, we say we will more than double the money that we will invest in Canadian programming in the animation sector.
2139 We come to you and we say maybe we should consider the fact that that $185 million that we believe we will be able to invest in the following seven years is many times more than whatever contribution the animation sector gets from government funding -- many times more.
2140 We are very proud of that. We are very pleased with that. We are trying to make sure that we will continue to provide quality programming that will allow us to have that sort of contribution to the production industry.
2141 I believe there are a number of factors to take into account.
2142 In this case here, maybe one of them is there is good quality service. We don't have any complaint about our quality of service; on the contrary. In addition to that, we are contributing to maintaining a sector of the production industry that is vital to the success of the overall specialty services system. If the production industry doesn't get that kind of support from us, unfortunately it will disappear or it will be weakened to the point where our services will not be able to continue providing those kinds of services.
2143 It is more diffused in terms of criteria than some mathematical type of approach. I think that it should not be forgotten.
2144 THE CHAIRPERSON: I wish we had some mathematical approaches. What we seem to have so far is a listing of criteria that are, each of them, qualitative in consideration rather than quantitative. The longer the list, the more elements to balance -- not that the list is an illegitimate one.
2145 I wonder whether it raises questions about the appropriate methodology for rate making -- and again, this needs to be amplified both in this hearing for the applications we have before us and going forward -- in terms of being fair to all the interests involved.
2146 I took careful note of your effort to do that, Mr. Cassaday, to balance the various interests involved in coming to an appropriate solution.
2147 I want you to pick up on a comment that you made, Mr. Cochrane, where you said that setting the basic wholesale rate works because you then use it as a benchmark. This has been said by others in the hearing as well.
2148 What do you do when you try those benchmark negotiations, you say we have our wholesale rate, and you can't come to an agreement with a given BDU for a given service that you have? What do you do then?
2149 MR. COCHRANE: I think we would be coming to use the Commission's dispute resolution.
2150 THE CHAIRPERSON: Right. What would be lost if the process began with that, taking account of the complimentary --
2151 MR. COCHRANE: I think what I said earlier is that that was set through our application. It was set at the time based on the business plan, and that is what we went out on the street with. It is even more vital today, because we are dealing with extremely large companies.
2152 I think Darrell said earlier six companies control 90 per cent of our subscribers. It gives them a very large stick when we are negotiating, and we really need to have that benchmark.
2153 THE CHAIRPERSON: I take that point. You have not been intervened against, because you are not applying for a rate increase, in the Bell ExpressVu intervention. So I am going to give you an opportunity to comment on a paragraph in here in regard to a different approach to benchmark.
2154 This is paragraph 8 from the Bell ExpressVu intervention in this proceeding against the applicants who are seeking rate increases in this proceeding.
2155 It says:
"All of the services licensed in 1996 are well established in the marketplace. They are generally distributed as part of analog discretionary tiers on cable and in digital discretionary packages on DTH; that is, each of the services has negotiated a wholesale rate with a number of distributors that differs from the regulated rate. But rates are generally based on the regulated basic rate. ExpressVu submits that the starting point for a negotiated rate in future periods need not be a new basic rate established by the Commission but rather the rates in effect with each distributor at the termination of the prior agreement and rates in effect with other distributors. Market forces can be relied upon to ensure a balance between the needs of the consumers, services and distributors. Services and the BDUs are sufficiently protected by the Commission's rules against undue preference and, if necessary, can fall back on the dispute resolution mechanism set out in the BDU regs." (As read)
2156 Do you have any comments on that as an approach?
2157 MR. COCHRANE: I am sure some of my colleagues may have some comments.
2158 My feeling is that if I was sitting here yesterday with Sportsnet and saying we have one heck of a service here and we have lost $30 million because my basic rate is 78 cents, maybe they have an opportunity to convince you that they need more.
2159 Obviously Bell wants to keep their price down from suppliers as low as possible. In the last year, I think even in the last eight months, Bell has had two price increases. They recently added $2.99 every month on my ExpressVu bill. It's called an access fee.
2160 So they are not prone to not increase the price. They are running a business. They have a huge investment, and they are trying to find ways. I think if I was ExpressVu I would be saying the same thing: How do we keep rates down?
2161 That is the beauty of the system, having Sportsnet come in front of you saying: Here's why we need the increase.
2162 THE CHAIRPERSON: Why would that not be open to you under the dispute resolution procedure if you didn't agree? Why would that not be open under sections 12 to 15 of the Regulations?
2163 MR. COCHRANE: I think it goes back to say that if you in your deliberations decide that Sportsnet doesn't need an increase, that is the benchmark that they will have to negotiate from. If you decide that it is the same as TSN or something in between, that is the benchmark that they can go back to negotiate in.
2164 I think that is where the process works.
2165 THE CHAIRPERSON: I follow that. Where I am coming from is that given the difficulties that all of us are having for establishing those kinds of criteria and given the nature of the maturity of the market and the competitiveness overall of the market, why wouldn't this be a better thing to be left to a process of mediation or arbitration with recourse to the Commission should parties fail to agree so that the right to present to the Commission in open forum or other wise would not be denied you but that you would have a more quick and dirty approach to it so that you could get on with your lives and one that would be mindful of ongoing market realities?
2166 I am not advocating this. I trying at this point to explore, because in both the submissions in writing and at this hearing it is difficult for people to do other than try to provide listings of qualitative factors that need to be taken into account and balanced as a substantive set of criteria.
2167 The alternative is a procedural method that's different from the way we have it now where when we can't dispute and disagree at the end of the day, it's a number that has to be picked which would then serve to go forward and whether that isn't a more appropriate method.
2168 Part of my concern is that by purporting to do rate regulation without appropriate criteria, you are essentially left with a case by case approach, as you say, where you are in effect -- there is a risk that you are perceived as pretending to have fine-tuned and twisted and turned all the dials, but at the end of the day you are picking a number.
2169 If that is the reality, wouldn't it be more transparent and straightforward to put it into a process where there is no pretence, that is the reality, and yet if you felt that if there was an injustice with the number that was emerging, you would have recourse to the Commission to go over why in your particular case a better method should be chosen.
2170 These are thoughts that I hope we will be able to continue exploring throughout the hearing. The reason I specifically asked you to comment now is that you won't be given an opportunity to comment in the formal part of the proceeding on the express view submission. I thought if you had views that I would welcome them. I don't know whether Mr. Cassaday --
2171 MR. COCHRANE: One of my colleagues may want to respond.
2172 MR. CASSADAY: I agree with your premise. I think that right now the process is the establishment of the basic rate. Clearly, there aren't going to be any services go on basic analog in the future, so everything is going to be discretionary with the basic rate being the floor.
2173 Now, the only mechanism that exists for programmers to resolve a dispute in the absence of going to some sort of mediation process is to withdraw the service. That's the one hammer that we all have. We would be reluctant to do that as I am sure you would be reluctant to see widespread use of that device.
2174 Ultimately, as long as there is a court of final appeal, whether it's based all style arbitration or some form of general mediation of the parties, you know, then I think we can work this out amongst ourselves, you know.
2175 We shouldn't be relying on the Commission going forward, you know, playing God on this one because there are too many factors for you to really I think make the call here. It's ultimately how appealing is this service to the viewer.
2176 Is this going to help our partners at the various BDUs, whether it be satellite or cable, attract new viewers? If it's not, then they are going to have a tough time making a case that they should even maintain their rate, never mind build it in the future.
2177 On the other hand, if you are clearly adding value to that service, then you should be rewarded. I think that's a negotiation as between the parties that should take place.
2178 MR. BUREAU: I suppose that in fact when you first approve a rate it's at a time when there is competition between different applicants. That's one of the elements that you are considering.
2179 In addition to that, the Commission has tremendous experience, expertise and data to determine whether the costs that are invoked or that are presented by the applicants are serious or frivolous or artificially amplified or something like that.
2180 I believe that at the time of the licensing you are the ones that are in the best position to establish the original benchmark. Then after that, at the time of renewals and things like that, then the procedure that you were talking about could help the parties to try and come up with a solution, but to envisage that we would forget about this original approach and we would go immediately to the dispute mechanism there, I believe we would be missing something, apart from the fact that in the first place, not only is it competitive but it is open for everybody to comment on.
2181 Forget about that and get back to the other proposed approach. I believe that you would end up with a lot of cases where you would have to determine finally what it is after going through another process before coming to you, the Commission. I'm not sure that it would be a better approach finally from a regulatory point of view.
2182 By the way, when we are talking about criteria that seem to be not mathematical criteria but qualitative criteria, it's probably part of the business we are all in. The Broadcasting Act does not establish mathematical criteria for licensing or for whatever. The law says that it has to be quality programming using the resources of -- Canadian resources and things like that. It doesn't impose any criteria, mathematical criteria.
2183 I don't think we will be able to find those fantastic mechanisms that could be just applied and that's it without looking at the nature of the service, without looking at the themes, without looking at the orientation and things like that.
2184 THE CHAIRPERSON: Thank you very much. We will break -- did you want to follow up, Commissioner?
2185 COMMISSIONER WYLIE: Yes. The combination of guaranteed access and a maximum wholesale rate that becomes -- would access be something that should be looked at so that the BDU would say "This is a product I sell. I am going to decide what each of these products are worth", or is it important to the system -- you don't like that one, Mr. Bureau, the idea.
2186 MR. BUREAU: I believe -- thank God it was not in the report. He's there. He will take care of it.
2187 The fact is, Madam Wylie, that we are going into a situation where the negotiations, call it that way, between the programming services and the BDUs will become more and more difficult. It has nothing to do with the people that are involved.
2188 I am looking at the situation itself. The way the services are marketed, for example, the way where -- frankly, the programming services have nothing to say about it. MusiquePlus is not part of the music package that is offered by one of the BDUs. MusiquePlus says "Why not? Why am I not in that package?" The BDU says "No, we don't need you there".
2189 It's much more complex than just giving access or providing a benchmark. It helps. This is fundamental. This is vital. But once we have said that, the rest remains to be discussed. The rest remains to be negotiated. That's very, very difficult when we look at the future and we have benefited from being part of tiers that had 80 per cent penetration.
2190 Well, in the future when everything becomes digital, forget about that. What will happen then? For example, VRAC, which tracks very young children, there are 27 per cent of Canadians that have children, families that have children.
2191 We currently carry where we reach everybody. If tomorrow morning we were carried only on -- I don't know -- 30 per cent of the homes, a few grandparents that like it to help them, so how can we continue to provide the same service?
2192 We are not coming to the Commission and saying "Please change our wholesale rates in that fashion". We are trying to negotiate these things.
2193 I am just trying to say that the fact that the Commission will establish a benchmark and provide access doesn't resolve all of the issues. A number of very important issues remain to be discussed. The quality of the service is absolutely fundamental, more than it ever was to try and convince the BDUs that we should be part of a number of packages.
2194 I believe that if we were to try and look at establishing criteria, whichever they are, and whether we are perceived as being too aggressive, too excessively profitable or not should be possibly the theme of a public process where everybody will be a participant, BDUs as well as program providers.
2195 COMMISSIONER WYLIE: Just one more issue. Of course, my recollection is that many of the specialty services were first licensed with an ability to advertise which was lower than it now is as well as infomercials, et cetera. I think in many cases the number of minutes that could be sold per hour has increased, has it not?
2196 That's another factor one would have to look at, the amount of money that a specialty service is able to garner from advertising. I haven't focused on yours until now, but would you not agree that this may also be a factor that has changed the --
2197 MR. BUREAU: Well, if we were to look into that in terms of the number of minutes to be sold and things like that, that's pretty fundamental again because it means that if you don't get the revenues there we will try and fall back on the wholesale rate.
2198 The fact that we have the same wholesale rate for 15 years, for example, in some cases is, thank God, because we have been able to attract advertisers, advertising revenues. If we were to re-look at that in the overall picture of the financing or the funding of services, I think it's a pretty major --
2199 COMMISSIONER WYLIE: I wasn't suggesting reducing it. I was suggesting that it has changed the picture in relation to this discussion we have just been having about the rates.
2200 MR. BUREAU: Absolutely.
2201 COMMISSIONER WYLIE: I look quickly at your first tier revenue. About half of it is advertising. Correct? How much was it projected when you first came as a percentage of your revenue? Anyway I can look at that.
2202 It's another factor that has changed and is, of course, based, that point, on competitiveness and quality.
2203 Thank you, Mr. Chairman. I will have some questions after the break.
2204 THE CHAIRPERSON: Thank you.
2205 I would remind parties that a number of you have undertaken to file additional comments or submissions. If you could do that before the end of the week so that we have an opportunity to look at them and distribute them before the intervention phase starts on Monday.
2206 Thank you.
2207 We will break now for 15 minutes. Nous reprendrons dans 15 minutes.
--- Upon recessing at 1130 / Suspension à 1130
--- Upon resuming at 1145 / Reprise à 1145
2208 THE CHAIRPERSON: Order, please. Your counsel is on his way back. He doesn't get any fees deducted.
2209 COMMISSIONER WYLIE: Welcome back. A bit distancing ourselves from philosophy but going down to numbers, when you refile with us a better explanation of how you get to your Canadian content expenditures, will they exceed 40 per cent of the previous year's revenues or will they be 40 per cent of your previous year's revenue?
2210 MR. COCHRANE: I think one of the great things about the genius of the system is that that 40 per cent floats from the point of view when we put our business plan in, we said we are going to spend $42 million in the next licence term or, everything being equal, we are talking about spending $185 million.
2211 If you spin that out and say how much production does that do for the Canadian animation industry, having very good licence fees that have actually tripled in the last licence term, we are talking about 900 or almost a billion dollars worth of Canadian animation that we will be involved in.
2212 Having the 40 per cent in a float and the fact that we are going to double it I think is a tremendous kick to the system. The 40 per cent really works. When you look at the other kid's oriented services, we have higher than any other kid's oriented service with the 40 per cent.
2213 COMMISSIONER WYLIE: I'm not sure that it answers my question. Eventually the Commission looks at compliance by seeing whether in fact -- I know these are projections, but in fact there has been 40 per cent of the previous year's revenues spent on Canadian programming.
2214 Is that what is going to occur or will it be more?
2215 MR. COCHRANE: That's what's going to occur.
2216 COMMISSIONER WYLIE: It will be 40 per cent.
2217 MR. COCHRANE: Yes.
2218 COMMISSIONER WYLIE: And, of course, it's a good tremplin, a good springboard for asking you why not more?
2219 MR. COCHRANE: I think I could go back to my first answer owing to the fact that we are going to in real money give you $185 million everything being equal. Then it will be actually almost five times what we originally said we were going to do in our original projections and double what we did in this licence period.
2220 COMMISSIONER WYLIE: Yes, except that when you say five times more, presumably that means because you have done very well, right, because it's based on revenue.
2221 MR. COCHRANE: Absolutely.
2222 COMMISSIONER WYLIE: I moved with how well you are doing.
2223 MR. COCHRANE: And that's what the genius of the system is.
2224 COMMISSIONER WYLIE: You mentioned the $42 million. That is a condition of licence under 5(b) and then there's condition of licence 6. Would you look at those. They appear to me as having somewhat of a contradiction. I'm wondering whether -- well, number one, let me ask you: The $42 million, you say you spent way more than that.
2225 MR. COCHRANE: Yes. The $42 million was the original projection and we by the end of this current licence term are projecting $92 million spent.
2226 COMMISSIONER WYLIE: Of the $42 million, 50 per cent -- first let's look at this. 5(b) says to be expended on development, the creation of programs and 50 per cent shall be set aside for parties other than the licensee, its shareholders and affiliates, et cetera, and 6 says the licensee shall not remit any development funds to its shareholders or affiliated corporations.
2227 How do you interpret these two conditions? They appear contradictory.
2228 MR. COCHRANE: Stephen.
2229 COMMISSIONER WYLIE: And which one did you follow?
2230 MR. ZOLF: Madam Vice-Chair, if I could answer that.
2231 The licensee has endeavoured to comply with both. I do acknowledge that they are somewhat contradictory, but in all cases in terms of actual cash outlays of program development funding, in all cases condition of licence No. 6 was complied with, meaning that none of those funds went to any independent producers who were shareholders or affiliate corporations.
2232 COMMISSIONER WYLIE: Considering that it is somewhat contradictory and that you followed none at all rather than presumably 50 per cent --
2233 MR. COCHRANE: Correct.
2234 COMMISSIONER WYLIE: Would that be the satisfactory one for the future?
2235 MR. ZOLF: Yes.
2236 COMMISSIONER WYLIE: And it would allow us to remove 5(b) then, would it?
2237 MR. ZOLF: Well, actually the answer to that is no because I think the way we have read this, our expenditures in the following years -- 5(b) I should say relates to expended on development and creation of new programs.
2238 COMMISSIONER WYLIE: So it's only part of your CPE.
2239 MR. ZOLF: Correct.
2240 COMMISSIONER WYLIE: And the difference is, it says, development and creation of new programs as opposed to production of.
2241 MR. ZOLF: Or acquisition of correctly. I think at the minimum this was read more in relation to acquisition.
2242 COMMISSIONER WYLIE: Which one was read as acquisition?
2243 MR. ZOLF: The 5(b).
2244 COMMISSIONER WYLIE: One could read it almost as script and concept development instead of production.
2245 MR. ZOLF: Yes. Well, I see where you are going and that's where the conflict is more pure, but in fact in actual practice I believe every cent of those development funds was being remitted to non-affiliates.
2246 COMMISSIONER WYLIE: Yes. Well, what is your view as to what is an appropriate percentage of money? You know we have rules in most services with regard to independent production. What is your view as to what would be a cleanup of 5(b) and 6 in addressing the moneys flowing to independent production as opposed to your own shareholders, especially considering the production companies that are owned by your shareholders?
2247 What is a reasonable rewrite of 5(b) and 6?
2248 MR. COCHRANE: I think the fact that Teletoon has a reasonable high Cancon requirement going back to the 60 and 60, it requires really a large source of supply of animated programming both related and unrelated and we have to remember that we produce nil programming. And when you look at the animation genre, it's relatively small compared to some of the other genres that are manufactured. And when you look at Playback and you analyze their statistics and if you looked in the year 2000 the animation production industry did $300 million. The last year that we have numbers for, which is 2002, a Canadian production animation industry did a $195 million. Of that $195 million Nelvana and Cinar produced 60 per cent. So we actually feel that what we have today, 50/50, is adequate.
2249 COMMISSIONER WYLIE: So then, obviously a lot of 5(b) would disappear because 50 is in your subsequent years of operation, which you have reached, and it remains then to be a little more clearer as to what development and creation of new programs. That's other than acquisition, I mean if there's --
2250 MR. ZOLF: Well, in order to bring some rationality to 5(b) versus 6, it seems to me that 6 is a subset of 5(b) and that is expenditures on the development and creation of programs of something larger and perhaps then 6 would be no longer valid, that if 5(b) would be in accordance with the 50 per cent restriction.
2251 COMMISSIONER WYLIE: Just drop 6 altogether.
2252 MR. ZOLF: Correct. I think that's more logical.
2253 COMMISSIONER WYLIE: And only retain the 50 per cent.
2254 MR. BUREAU: Madam Wylie, in all fairness for the commitments that were made by the original founders of this service, our commitment was that if we earmarked some money for pure investment in the development of new projects this money would all go to non-interested or owners party, that's the amount that they are. What is the amount on that? A hundred and fifty thousand dollars per year that is going to non-affiliated producers. The rest of the money that is either for investment, creation, acquisition, all of that is split 50/50 and that's what we are asking for now. I agree with you that the wording of the two conditions of license are somewhat confusing because we use the word investment in both I believe and development, sorry, in both. And so --
2255 COMMISSIONER WYLIE: We have this notion of strict and concept development and also the notion of the 75/25 imposed on other services. So you are making the point that it should be, in your case, at least 50 that could flow to independent...to your affiliates.
2256 MR. BUREAU: Yes, and that's in line with what we have presented with the Commission --
2257 COMMISSIONER WYLIE: Yes, but not in line with the conditions as they are drafted.
2258 MR. BUREAU: Well, I think that the interpretation may have come out of the discussions that we have had at the time and based on the, if you remember, the MOU that was existing between the parties at the time?
2259 COMMISSIONER WYLIE: Yes.
2260 MR. BUREAU: The shareholders...it may be that it is the cause of the confusion between the two paragraphs, so it may need to be --
2261 COMMISSIONER WYLIE: Cleaned up.
2262 MR. BUREAU: -- more appropriately --
2263 COMMISSIONER WYLIE: Yes. And in light of the fact that your counsel is confused as well --
2264 MR. BUREAU: No, no, I would never say that, he's probably --
2265 COMMISSIONER WYLIE: I, at a minimum, agree that I am right to be confused. We will ask him to redraft 5(b) and 6, which in any event have to be changed because you are now at 50?
2266 MR. ZOLF: Correct.
2267 COMMISSIONER WYLIE: And make sure that the language reflects the...I don't think we are at all as to what it should mean, it's just that it doesn't. As I said earlier, we grown very sophisticated since Mr. Dalton's appearance on the scene. We are cleaning up --
2268 MR. ZOLF: We will file that as well by the end of the week.
2269 COMMISSIONER WYLIE: That was good. Okay, now this $42 million is now going to grow to?
2270 MR. COCHRANE: The $42 million was what we projected in the first license term, we will actually finish up at $92 million and that's going to grow to $185 million in the next license term.
2271 COMMISSIONER WYLIE: So obviously Mr. Zolf will remove the $42 million.
2272 MR. ZOLF: That's correct.
2273 COMMISSIONER WYLIE: And substitute it.
2274 MR. ZOLF: Yes. It will be based basically on the first year of the license term of percentage.
2275 COMMISSIONER: Yes. And the 50 per cent, you have just justified why it should be 50 rather than 75/25 as we have often seen. Now, in the original decision the Commission didn't...not a condition of license, but noted your commitment that you would commission 500 and...oh I have trouble with --
2276 MR. ZOLF: Seventy-eight.
2277 COMMISSIONER WYLIE: -- 546 --
2278 MR. ZOLF: That's correct.
2279 COMMISSIONER WYLIE: -- half hours. Is that what you say has been 2,000 instead in your presentation at page 5?
2280 MR. ZOLF: I believe that is the case. MS BONNEAU: That's correct.
2281 COMMISSIONER WYLIE: Now, would it be a good idea to change the annotated condition of license and continue the same level of production in the future?
2282 MR. ZOLF: Well, I mean --
2283 COMMISSIONER WYLIE: How many do you anticipate? You have reached 200,000 half hours, correct? Two thousand half hours since your launch, in 1997. What do you anticipate doing in the next license term?
2284 MS BONNEAU: We anticipate doing 150. You mean the whole license? This is based on the situation of the license with 2,000 hours. You can notice that this here we have a diminishing in the amount of half hours that we produced. So we feel that --
2285 MR. COCHRANE: Yeah, I think you come back to the point, Vice-Chair, that because we have this rolling 40 per cent, we have to spend it.
2286 COMMISSIONER WYLIE: Except that this is original.
2287 MR. COCHRANE: We spend every nickel of that 40 per cent and original. The last two years we bought no shelf, because what we find in our research is that's what our kids are looking for, they looking for new shows and we go where the demand is. And we could give you the same 78 half hours and feel very comfortable, but we don't know what the future lies and that's why I keep coming back to the genius of this 40 per cent. If everything being equal and we deliver what we say we are going to do, it's going to be much more than 78, like it was in the first term. But we really have to have that flexibility.
2288 COMMISSIONER WYLIE: And you are noting that it will be approximately how many new half hour per year? You had here 546 half hours during the term, the seven year term. You are saying you already achieved 2,000 half hours, correct?
2289 MR. COCHRANE: Correct.
2290 COMMISSIONER WYLIE: So what would you be prepared to commit in the next license term...commit to?
2291 MS BONNEAU: I think we would feel very comfortable with a 100 half hours per year.
2292 COMMISSION WYLIE: Per year.
2293 MS BONNEAU: Per year, which would be 700 half hours.
2294 COMMISSIONER WYLIE: A hundred half hours per year. But would have a problem if this commitment was converted into a condition of license that you would reach 100 per year?
2295 MR. ZOLF: I don't mean to sound like a knee jerk reaction, but I would probably think all things being equal it should remain as a commitment because quantifying that by condition could be problematic. It is a projection, I think the licensee is comfortable in meeting it but and it would be increased, but I think it's more appropriately framed as a commitment.
2296 COMMISSIONER WYLIE: That would be, if you don't meet it, one of the criteria for lowering your wholesale fee next time.
2297 MR. ZOLF: No.
2298 COMMISSIONER WYLIE: So 100 half hours per a year, which would be about 700 half hours, which would be less than you achieved.
2299 MR. ZOLF: Yes, I mean there is --
2300 MS BONNEAU: Yes, and it's based on the blocks and on this year's and competition and the global environment.
2301 COMMISSIONER WYLIE: And the fact that you are a more mature service with more product. Now, you are time shifting and the notion of you being a safe haven for children is picked up, was picked up by the Commission in its decision and is picked up by you, for example, in you supplementary brief at page nine and also in your application at page 16. How do you see yourself in the future as a continuing safe haven for children?
2302 MR. COCHRANE: I think I would like to make a few comments and ask Hillary to finish up. I think the problem, Commissioner Pennefather mentioned it yesterday, is really a digital issue and the fact that they can get multiple feeds and the fact that we have two feeds of Pacific and an Eastern can cause some trouble. And I think Hillary, we faced that fact for the last couple of years and Hillary and her team, with Carole, has come up with some really creative ideas. I think you have to also remember that on those digital boxes there is the ability of the parental lock and everything that we do is coded V-Chip, which the Commission was a big part of. Hillary.
2303 MS FIRESTONE: Thanks, Len. I would just like to start off by saying that we, like the Commission, take the responsibility of airing our adult programming within watershed hours very seriously. Our core audience is, you know, kids and pre-schoolers and tweens and we are committed to them and we have been extremely proactive in that regard.
2304 Our 18+ targeted programming airs no earlier than 10:00 p.m., one hour later than the 9:00 p.m. watershed hours. When we launched Teletoon in 1997 we specifically launched with dual feeds on our English service in Eastern time and Pacific time specifically for that very issue and that on our primary feeds we respect the watershed hours in all time zones. As Len mentioned, challenges have arisen over the course of our license with digital.
2305 And again, I think Darrell Atherley will be able to speak to the more technological things that we have implemented. But from a non-air perspective, we have done a number of things to mitigate the concerns raised by out of market feeds. We have branded all our adult programming in what we call Teletoon Unleashed, which starts at 10:00 p.m. and we have spent the past year and a half raising awareness that this is programming intended for adult audiences.
2306 The branding of that block is very distinct from the rest of Teletoon, so the awareness has been raised over the last year and a half. We have an 18+ plus rating at the front of every program that is intended for adult audiences. As well, we have appropriate warnings saying that viewer discretion is advised and that this programming is for adult audiences that airs at the beginning of the program as well as coming after commercial breaks. And I think Darrell can talk to you, as Len mentioned, some of the parental controls and the V-chip ratings that we have implemented as well.
2307 MR. ATHERLEY: Thanks Hillary. Just technologically with the digital boxes and the different suppliers, DTH and Cable, they all have the ability to recognize the parental guidance ratings. We had an incident, as a matter of fact Teletoon spurred it on, one of our viewers contacted us about a rating that the box didn't pick-up on and as a matter of fact the IPG provider did not pick-up the Canadian ratings. We have had those now changed to reflect the Canadian ratings on all the IPG boxes in that particular case they now recognize these parental guidance locks.
2308 The other thing that these boxes have the ability to do is block out channels and time, so even if a care-giver doesn't want their children watching certain programming at a certain time, they have the ability to block it out over and above the ratings.
2309 MS FIRESTONE: Sorry, I would just like to add something too, in that we feel that we have done everything possible to mitigate the circumstances and I think if you look at the correspondence we have had with viewers, in the last eight months we have received zero complaints with respect to watershed issues. In fact, over the last two years we have received less than a dozen.
2310 And I think it is important to note that we take those complaints seriously and that of those less than a dozen that we have received in the last two years, close to half of them were about two specific programs which we have since decided not to renew, specifically because they did raise issues. So that we constantly monitor our programming and how it is being received and make the appropriate adjustments as we go.
2311 COMMISSIONER WYLIE: So you are fully cognizant of the, I would presume, added difficulty that you are branded as a child service, but that some portions are not --
2312 MS FIRESTONE: Yes, we do.
2313 COMMISSIONER WYLIE: -- children oriented, which exacerbates to a certain extent. The problem then requires you to be more vigilant in how you separate this second genre, Mr. Bureau. You have stated at page 16 of your application under programming quality 4.4, that you still consider that a safe haven concept is central to your service and that between 6:00 a.m. and 6:00 p.m. you try to ensure that it is material that is suitable for unsupervised viewing by young children. And that 25 per cent of broadcast week is commercial free programming, specifically during weekday mornings and afternoon when your primary audience is pre-school aged children and care-givers.
2314 Rather than have 25 per cent of the broadcast week commercial free, would it not be better to say 25 per cent of the period between 6:00 a.m. and 6:00 p.m.? What in practice occurs?
2315 MR. ZOLF: I believe, given that is where the pre-school is, it ends up being during that block, the 25 per cent that is.
2316 COMMISSIONER WYLIE: And it is your intention to continue that in the future?
2317 MR. ZOLF: In terms of the commercial free, are they 25 per cent limitation?
2318 COMMISSIONER WYLIE: Yes.
2319 MR. ZOLF: Yes.
2320 MS BONNEAU: And it is even higher in the French market.
2321 COMMISSIONER WYLIE: What is the ratio between the advertising that you would get between 6:00 and 6:00 p.m. compared to 6:00 p.m. to midnight?
2322 MS FIRESTONE: I don't understand the question, the ratio?
2323 COMMISSIONER WYLIE: What is the ratio of the amount of advertising revenue you would garner in the day, because of the fact that you are a children service and you have some commercial free air time?
2324 MS FIRESTONE: I'm not sure of the specific ratio, but I know that whenever we have programming that is targeted to children it's eight minutes, compared to 12 minutes when it is not targeted to children.
2325 COMMISSIONER WYLIE: And you are number one in Quebec, so...number one service, what is the effect of the advertising laws there, advertising to children...on your ability to advertise?
2326 MS FIRESTONE: We have no advertising targeted to children in Quebec.
2327 COMMISSIONER WYLIE: You have none.
2328 MS FIRESTONE: It is all teen and adult advertising.
2329 COMMISSIONER WYLIE: So that that would in itself --
2330 MR. ZOLF: We follow the Quebec law.
2331 COMMISSIONER WYLIE: -- keep you a safe haven with regard to commercials?
2332 MS FIRESTONE: Yes.
2333 MR. ZOLF: And that is something, Madam Vice-Chair, that was identified in the original license decision as having the two services in French and English and part of that was to be complying with Quebec laws.
2334 COMMISSIONER WYLIE: The subject of audio description was raised with all applicants and we have your comments in your application at pages 22 and 23 and also in a couple of answers to the deficiency questions 22 and 23. What is the state of your involvement now in attempting to advance this cause and resolving the issues that remain for specialty services?
2335 MR. COCHRANE: I think our position would be that, and we are very involved in people like CSUA, looking for an industry wide solution that really has to be an end to end solution and we are certainly willing to make the upgrades to our broadcasting centre when that end solution has come to pass.
2336 The biggest problem we have, Madam Vice-Chair, is that in Edmonton we have no satellite capacity to add descript video. When you look at the transponder that we have, there is 27 megabits, they are 10 to one, which is a very high ratio of compression. So you take the average video signal of being 2.7, we take the stereo audio which we deliver in it becomes 2.5, which is really about -- If you go a bit less in compression of 2.5 megabits it really affects the quality.
2337 So for us to add descriptive video the only way we could do it out of the Edmonton uplink, because there is no capacity, is we would actually have to move our 2.5 down to 2.3. It becomes a huge issue. We even talked to Cancom about what if we fibred it down to Calgary, what if we fibred it to Vancouver and when you look at the cost of doing that it is horrendous. But just to give us an idea and they said Calgary is full and Vancouver is full.
2338 So it is not just the technical issues on the end to end solution, it's that we have to find a way to get that other point to times and services to really deliver and if we do that it is really going to hurt the video quality. And I don't think the average person watching Teletoon wants to see a degradation in the signal.
2339 COMMISSIONER WYLIE: You don't see at the moment other issues than the resolution of this technical difficulty.
2340 MR. COCHRANE: Not at the moment. I think everybody is working hard to figure it out, but when you look at the IRDs and the headends, again every one of those would have to be replaced. The modulators would have to be replaced. So there is a huge technical issue coming back to this end to end. It's not what we do. It's what everybody does and I think CSUA and the BDUs and their sellers as a broadcast industry are trying to figure out how we can best do that.
2341 COMMISSIONER WYLIE: Are there actually organized ongoing discussions about this issue?
2342 MR. COCHRANE: CSUA has really taken a leading role on this.
2343 COMMISSIONER WYLIE: It's active at the moment.
2344 MR. COCHRANE: Yes, very active.
2345 COMMISSIONER WYLIE: And they are participating as well.
2346 MR. COCHRANE: Yes.
2347 COMMISSIONER WYLIE: If it were resolved -- since you are here and you may not be for seven years -- what is your view, in your particular core genre, of the type of programming that would be the first to benefit from the description?
2348 MS BONNEAU: I would think it would be older audiences.
2349 COMMISSIONER WYLIE: And not the core audience which is children, which is two-thirds of your service?
2350 MS BONNEAU: I would have to look into that.
2351 MR. COCHRANE: I think we would have to look at the demographic of people who are blind in Canada. I am sure CNIB could say two-thirds of the blind people in Canada happen to be adults, or whatever the number is.
2352 COMMISSIONER WYLIE: The demographic rather than what your core service is because the NBRS would tell you, of course, would tell us anyway, that it's very important for children as well.
2353 MR. COCHRANE: Absolutely. We are not saying that we wouldn't do it for children, but what we are saying is that we have to start off with the greatest need.
2354 COMMISSIONER WYLIE: I only have one more area of questioning which is on non-compliance. You had compliance difficulties that, I guess, are admitted and are definitely there in 1998-1999 and 1999-2000.
2355 We have, of course, a lot of correspondence on file about these problems which were centred around CINAR.
2356 What we are interested in now is more the follow up to this and that has put you in the limelight with regard to Canadian content certification and the mechanisms you have put in place to ensure that they are not repeated in the future.
2357 May I ask you then, if I look at the commitments you actually have made and see to what extent they are being followed now and in the short, medium and long term for closed or repetitions of these problems, or minimize them, et cetera -- I am looking at letters that you have exchanged with the Commission and what is actually happening now.
2358 I will just go over some of the main commitments you have made to see what is the situation at the moment. I will paraphrase again, and I may not phrase to your liking and you are free, of course, to correct me.
2359 You were to have your deal memos and your long-form program licence agreements containing clear and unqualified representations that would lead to a breach of contract if there was a problem.
2360 What is the situation now?
2361 MS TALSKY: I am happy to answer that.
2362 In terms of follow up and extra precautions that we have taken since the experience that we had with those CINAR programs, our agreements have always contained representations and warranties and remedies that if the programs were not Canadian it would be a clear material breach of the contract.
2363 We have since added to these representations and warranties in the contract to be 100 per cent clear that what the producer will be producing will be, in fact, Canadian.
2364 We have also added some other protections in our contracts in addition to the representations and warranties including to our payment schedule.
2365 First of all, we require our last payment is only triggered on the producer providing us with a final certification number. We have also recently added a requirement that an early payment will only be triggered on them providing us with their application that they have filed for certification.
2366 So we are clear to the producers with this new payment schedule as well as in discussions with them that they need to file early and file properly or it would result in delays in our payments to them.
2367 Not only are the protections in our agreements, we do our own due diligence in looking at the planned project and analyze whether or not we think it would be Canadian, looking at the materials that were provided by the producer. So we make our own determination and get our own comfort level that we are, in fact, commissioning 100 per cent Canadian content.
2368 So just in conclusion, we believe these measures help ensure that we are commissioning successfully Canadian content and ultimately broadcasting without any question and we don't expect we would ever have a repeat under these new protections.
2369 COMMISSIONER WYLIE: So would it be fair to say that at the moment there are more systems in place than there were in 1998?
2370 MS TALSKY: That's correct.
2371 COMMISSIONER WYLIE: You have put more resources in tracking, monitoring, in trying to get a preview of what may happen and detect potential difficulties.
2372 MS TALSKY: If I can speak for Carole's area that she is, as VP of Programming, ultimately responsible for supervising Teletoon's staff that are dedicated to doing the follow ups with producers, that we aren't just simply waiting for the certificates to come in. We want to know what is the status, what is holding it up, is there anything that we could do to assist them in making the proper filings or submitting any documents that may be missing from their application?
2373 So we definitely are much more proactive in recent years.
2374 MS BONNEAU: Definitely we are and these precautions in the deal memos and in the contracts are additional to what we had at the beginning.
2375 COMMISSIONER WYLIE: But it still occurs that some programming would be broadcast before official certification is received.
2376 MR. COCHRANE: Yes. That's just the nature of the animal and what we believe are very strong things in place. When you go back and you look at CINAR, it was a very successful company that happened to implode and we had bought everything as do with producers in good faith.
2377 COMMISSIONER WYLIE: We are not questioning that, as you see. I am questioning the future. Of course, it has become a lot more obvious in your case because you have encountered these difficulties and, therefore, have found out that maybe more mechanisms need to be in place.
2378 Have you tried to institute as well a kind of a minimum period before certification, or a maximum period where you would be prepared to air the program even if it is not certified? Try to ascertain just when certification is likely to occur and prod the producer to make the necessary applications, et cetera?
2379 MR. COCHRANE: I think with the new safeguards we have in place the producer is going to do that. But when you look at CAVCO it can take sometimes two years for CAVCO to actually certify. The producer is selling around the world and if he doesn't get his licence fee from Teletoon he is not going to be able to actually make the finances work.
2380 So that is why it's basically based on that good faith.
2381 COMMISSIONER WYLIE: Timing is obviously something that is difficult to demand.
2382 What has happened to the programs that were actually decertified? What has Teletoon done about it? I think an example I was given here is "Young Robinhood".
2383 MS BONNEAU: We removed them from the schedule.
2384 COMMISSIONER WYLIE: Also are you still awaiting certification for "The Baskervilles" and "Flight Squad"?
2385 MS BONNEAU: Yes, we are.
2386 COMMISSIONER WYLIE: You don't have certification yet.
2387 MS BONNEAU: And they are not on the schedule.
2388 COMMISSIONER WYLIE: Pardon me?
2389 MS BONNEAU: And they are not on the schedule.
2390 COMMISSIONER WYLIE: They are not?
2391 MS BONNEAU: No.
2392 COMMISSIONER WYLIE: Now, staff tell us, which is something we know, that notwithstanding all these processes, there is a very high number of error messages in logging. You are not the only one, but we have obviously been scrutinizing more because of the problems you have encountered. I am told thousands of error messages in logging.
2393 What is being done to minimize that?
2394 MS BONNEAU: There were thousands of errors. We have since then tried to -- and I must say your staff and our staff have been in contact. We also had a deficiency in our own logging system, in our own system, so we have been working with the provider of our system just to make sure that the CRTC was reading what we were inputting in the system as well. So there was a discrepancy there.
2395 COMMISSIONER WYLIE: Has it possibly improved since I was given...?
2396 MS BONNEAU: Absolutely it did. If you go back, you will see there are no errors.
2397 MR. COCHRANE: Also we have just signed a contract to do a completely new traffic system and I think the system we were working on had only a limited ability. The new one which has been test-proven, we will have that installed by the spring of next year.
2398 COMMISSIONER WYLIE: Maybe you can become a model then for all the others.
2399 Thank you very much for your cooperation, Mr. Cochrane and ladies and gentlemen.
2400 Mr. Chairman, those are my questions.
2401 THE CHAIRPERSON: Thank you.
2402 Commissioner Grauer.
2403 COMMISSIONER GRAUER: Thank you.
2404 I just want to follow up on the discussion you were having with the Chair and the Vice-Chair around expenditures and revenues.
2405 There was a lot of discussion about the soundness or the genius, as you put it I think, of the way in which decisions were made about the wholesale rate and based on the business plan.
2406 I just want to make sure that I have this right, that my numbers are correct. When you originally presented your business plan, I think you projected over the first five years of the licence term a total of $120 million in revenues.
2407 Is that correct? Do you know? Anyway, that's what I have. Then the actual, in fact, realized is $191 million which is in excess of 50 per cent of your projected revenues. Then the expenditures projected were $121 million and, in fact, realized were $115 million.
2408 So the revenues greatly exceeded what was projected and the expenses were somewhat less than projected which has lead to a variance in profit of around $75 million. I raise that only because it seems to question the ability to assess accurately going forward with a new service, in fact, what the revenues will be.
2409 So it seems to me appropriate when we are doing licence renewals to look back and say: "This is what they projected. This is what they realized. Is it not appropriate to do tweaking because it's not second guessing?". In fact, it didn't work out quite the way everybody thought it was going to at the time.
2410 So I am just wondering if you can comment on that.
2411 MR. COCHRANE: I think Trent may want to talk on the numbers. I don't have the numbers at hand.
2412 I think it just goes back to the process. The ability to have that benchmark is critical and we didn't come here today to ask for a rate increase. I think it works and I would be extremely happy to continue in that mode because it has allowed us to contribute so much more to Canadian animation.
2413 COMMISSIONER GRAUER: One other question I have. If my figures again are correct of the expenditures, program expenditures have included over the course of the licence term to date almost $10 million in CTF money.
2414 Now, when you were licensed in 1996 I don't think the CTF was anywhere near as large as it is. What I am really trying to get at in all of this is that there is the role of the public. The public has shown great confidence in the broadcasters and in the systems through us, in some respect, which is guaranteed access. You have guaranteed cashflow, and through public money, whether it's CTF or other public funds which were set up as part of benefits.
2415 What I am really trying to do is say two things: One, should we not look at whether the CTF is appropriate to be included as part of Canadian program expenditures, number one, and how would that affect your business plan going forward?
2416 Secondly, just looking at increasing the expenditure levels given how well things have turned out for the public?
2417 MR. BUREAU: I guess, Madam Grauer, when you are talking about the CTF in particular you are absolutely right in terms of what sums were established during the course of our last licence term.
2418 We were, like many other broadcasters and producers, successful enough to get some of that CTF money and that was part of the overall discussion that happened at the Commission level concerning the CTF creation. So it's not a secret. It's there. It has been discussed. There are criteria to have access to that. It's the ones that are putting the more money in terms of licence fees that have a chance to get better access to that money.
2419 So I think that overall this kind of structure of funding has worked very well for producers and for broadcasters.
2420 If your question is whether the public feels that they have not had what they could expect, I am not sure --
2421 COMMISSIONER GRAUER: That is not my question. It's to this point in the evolution and maturity of the broadcasting system and the services and the enormous demand for public money -- which, again, when I say "public money" that is the Canadian public either through their taxes, through the subscribers, through the Television Fund -- whether we should at a minimum not include CTF money as part of the Canadian program expenditures as a way to lessen the demand particularly with services that have been enormously successful and profitable, far exceeding what was originally projected.
2422 MR. BUREAU: I think that since 80 per cent of the money of the CTF is going to CBC, it may be interesting to sit down and look at the CTF plan for the future and determine what could happen then.
2423 I think that, in fact, we are not even sure that CTF will be there next year. So I don't suppose that it's an element that is -- and if it were, if by any chance the Commission felt that this is something that needs to be reviewed, I suggest that we should have the same process we had to establish it.
2424 MR. COCHRANE: Commissioner Grauer, I think if you look at the biggest benefactor of CTF, it is the production industry. If we look at the last time, we applied for seven: five English and two French. We got one English and we got one French.
2425 When we went back to the other five producers, we found a way, really toughly, to find two out of the five to make it. Three won't get made. It is just gone away.
2426 COMMISSIONER GRAUER: Mr. Cochrane, I suppose my question -- and I come at this clearly from a different place than you do.
2427 My question is: You are making an awful lot of money. I think the problem is all of the system seems to have become so dependent on these funds that you are saying they can't get made if the fund can't do it, or it's really tough. But in fact you are making a very healthy profit.
2428 My question is: Maybe it is time for those services that are making a healthy profit to grow out of the dependence on the CTF at least as it applies to their Canadian program expenditures.
2429 MR. COCHRANE: The way the CTF is structured it really encourages broadcasters to come to the table with really high licence fees. If we didn't have that opportunity to take it on the other side of the ledger, we likely wouldn't be going to CTF and the licence fees would become smaller.
2430 COMMISSIONER GRAUER: Not if you have a CPE that is realistic.
2431 MR. ZOLF: The only thing I would add to that, Commissioner Grauer, is that we think the current level is appropriate.
2432 You have to look at this question, in reply to your question, in a greater context, especially to services that are doing a lot of the heavy lifting already. They have fairly high expenditure commitments. Conventional broadcasters don't.
2433 If we are going to solve that question -- and it is a valid question -- I think you need everyone. You need all the stakeholders. You need to assess whether that weighting is appropriate now.
2434 I would think that, in response, the balance you struck now is an appropriate one and that you will need to perhaps revisit all of the licensees. That is how we would respond to that.
2435 COMMISSIONER GRAUER: Thank you.
2436 THE CHAIRPERSON: Thank you.
2437 Commissioner Pennefather.
2438 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
2439 I just wanted to clarify something. We have been discussing Teletoon this morning, and I just wanted to be sure that we were also discussing Télétoon in the sense that all the program expenditure discussions we have had apply to both English and French programming.
2440 Could you give me a sense of how that is broken down.
2441 MS BONNEAU: That is correct. Every original production on Teletoon is produced in both French and English and the same thing with our acquisitions. We acquire a French and an English version.
2442 COMMISSIONER PENNEFATHER: When you are talking about script development and development of new projects, is that fund equally available to French and English, and does it work out to 50/50 in the final analysis?
2443 MS BONNEAU: It does. We have an excellent original development team in Montreal that makes sure that it is done for both markets.
2444 If we go in development or if we go in production with a series, it will be done in both official languages.
2445 COMMISSIONER PENNEFATHER: I think my point is more the concern raised about the future of the animation industry in the French language and your role in that regard and whether in fact there is more to be expected in terms of supporting French speaking French animation producers.
2446 Do you have any comment on that?
2447 MS BONNEAU: I think we also have to understand that we are licensing these productions. We are a broadcaster. The producer in Québec, our contribution to their licensee is a contribution. They need other partners to complete their financial structure.
2448 We encourage them as much as possible to use original French voice, but often these French producers are coming into co-productions with French. So they are producing the English version and whatever the co-production agreement is.
2449 We do our best to encourage. I think you are referring to the comment that was made by --
2450 COMMISSIONER PENNEFATHER: We will get to that at that stage. Thank you for your information. Merci, Madame.
2451 THE CHAIRPERSON: Thank you.
2452 Maître Jones?
2453 MS JONES: Thank you, Mr. Chairman.
2454 I have a few questions to follow up on your conversation with Commissioner Pennefather.
2455 After 100 half-hour productions that you expect to commission per year, do you have a sense of how many you would acquire that are produced in French?
2456 MS BONNEAU: Like I said, it is 100 half hours in English; it is 100 half hours in French.
2457 MS JONES: Thank you.
2458 I understand that you are to file your definition of animated related programming. I am wondering if, for the record, you would mind reading it out loud now.
2459 MR. ZOLF: Counsel, I would be happy to read what we have been working on. It is a work in process, I might add.
2460 What we had crystallized the definition to be, following our response to the Commission's deficiency, was something to the effect of animation related programming would include -- and it would be a threefold criteria:
2461 (1) programs that were originally inspired by animated or illustrated characters, themes and stories;
2462 (2) programs that juxtapose animation and non-animation formats within a single program; and
2463 (3) programs which are relevant to the overall animation themes and animation programming offered by the service.
2464 Those would be the three primary elements of that definition.
2465 MS JONES: Thank you.
2466 MR. ZOLF: I just want to repeat for the record that that is not our final version. This is what we have been working on. By the end of the week when we file all our responses it may change slightly, but that is kind of the raw material of that.
2467 THE CHAIRPERSON: Is there any reason why the word "juxtapose" couldn't be substituted for by the word "included"?
2468 MR. ZOLF: Mr. Chairman, probably not. That concept was more to get at programs where there is a simultaneous animation format within the same program and with live action within the same program segment, I believe.
2469 So I don't see why not.
2470 MS JONES: My last question is: Should the Commission decide to impose a minimum amount of Canadian content for the 8:00 to 12:00 broadcast period, 8:00 p.m. to midnight, what would be the minimum percentage that you would be prepared to commit to?
2471 MR. ZOLF: Counsel, I know that was asked to the panel before the break. We have thought about it during the break, but we still have not come to a conclusion.
2472 I had assumed we were going to be responding to that in writing by the end of the week, if that is all right with counsel.
2473 MS JONES: That is fine. Thank you very much.
2474 Those are my questions, Mr. Chairman.
2475 THE CHAIRPERSON: Madame Wylie?
2476 COMMISSIONER WYLIE: Will you also be telling us, in light of your success and your very healthy bottom line and the fact that other services have Canadian content CPEs that are higher than 40 per cent, how much higher than 40 per cent you would be prepared to go?
2477 MR. ZOLF: Yes, we will include that in our answer, in light of all the specialty services that have Canadian programming expenditure requirements on the other side of 40.
2478 COMMISSIONER WYLIE: I only want to look at the ones that are above 40.
2479 MR. ZOLF: All right. We will consider those too.
2480 COMMISSIONER WYLIE: And the effect that this would have on the bottom line at whatever level. We will also get an explanation of the Canadian content, how you get to 185 million.
2481 The word "included" was raised by the Chairman, but I am not sure if it answers my reaction to the word "included".
2482 When you say "animated related will include", as any good lawyer -- that is not a good use of the word "include". You want to be restrictive.
2483 MR. ZOLF: Correct. I acknowledge your comment, and we will reflect that in what we file.
2484 COMMISSIONER WYLIE: Thank you.
2485 THE CHAIRPERSON: Try "juxtaposed".
2486 Commissioner Pennefather.
2487 COMMISSIONER PENNEFATHER: This may be out of order, Mr. Chairman, but I have to say that I could not let the record not hold, considering we are finishing a discussion of animation in Canada, mention of the National Film Board of Canada's contribution to animation.
2488 With your indulgence, I would like to put that on the record.
2489 THE CHAIRPERSON: I am surprised you didn't have a reference to that in your presentation.
2490 Thank you very much. This concludes the hearing phase for your application.
2491 We will resume at 2:15. Nous reprendrons à 2 h 15 with the next item.
--- Upon recessing at 1247 / Suspension à 1247
--- Upon resuming at 1415 / Reprise à 1415
2492 THE CHAIRPERSON: Order, please. Good afternoon.
2493 Mr. Secretary.
2494 MR. LEBEL: Thank you, Mr. Chairman.
2495 Item 5 on the agenda is an application by The Score Television Network Ltd. to renew the licence of the national English-language specialty television service known as The Score, expiring 31 August 2003.
2496 The licensee proposes:
2497 (1) to increase its monthly basic subscriber fee by 30 cents, from 10 cents a month to 40 cents a month;
2498 (2) to add the following categories, subject to the following limits per week: 2(a) (Analysis and Interpretation), 10 per cent; 2(b) (Long-form Documentaries), 10 per cent; and
2499 (3) to change the broadcast day to a 24-hour period beginning at 6:00 a.m. each calendar day.
2500 Mr. John Levy will introduce his panel.
2501 You have 20 minutes to make your presentation.
PRESENTATION / PRÉSENTATION
2502 MR. J. LEVY: Thank you.
2503 Mr. Chairman, Members of the Commission and staff, good afternoon.
2504 My name is John Levy, and I am the Chairman of the Score Television Network.
2505 I would like to begin by introducing our presentation team to you.
2506 On my left is David Errington, Senior Vice-President and General Manager of The Score. David has been with us since inception and is the person who really runs the network.
2507 Next to David is Anthony Cicione, Vice-President Programming of The Score, who has taken time off from his busy schedule of soccer to be with us here today.
2508 On my right is Grant Buchanan of McCarthy Tétrault, whom most of you know.
2509 In the back row, on your right, is Kaan Yigit, principal at Solutions Research Group. SRG prepared the research that we included as part of the application.
2510 Next is Monique Montgomery. Monique is our Director of Human Resources who handles employment matters, including the intern program at The Score.
2511 Beside Monique is Benjamin Levy, our Director of Corporate Development.
2512 Finally, on your left is Patrick Michaud, our Chief Financial Officer, who is participating in his first hearing with us here today.
2513 We come before you today full of enthusiasm seeking a seven-year licence renewal for The Score. To say the least, we had a very interesting first licence term, one in which we delivered on our commitments and our promises.
2514 In the competitive genre of sports television, The Score started life in 1994 as an unlicensed little alphanumeric service. It converted digital streams of sports news and information into analog format, potentially viewable by cable subscribers if carriage was negotiated and entrance into the home was granted.
2515 Though some exposure was achieved, our real breakthrough occurred in 1996 when the Commission awarded us a licence. This allowed us to be a real specialty television network capable of adding full motion sports video to our otherwise text-only presentation of sports news, information and updates.
2516 To enhance the picture, in 2000 Headline Sports, soon to be renamed The Score, was allowed to introduce a limited amount of live event programming as part of an amendment to its licence. The service was thus readied to continue its development within its defined niche.
2517 In this crowded sports television world, we are proud that our network has established itself as the Canadian leader in the provision of sports news and information. During the last three years, from 1999 to 2002, The Score's viewership has increased by 69 per cent, far more than any other specialty service in the country.
2518 We have always remained true to our mandate of being the country's only 24-hour sports news and information channel. Even as we broke new ground with the introduction and exhibition of new Canadian and international live sports programming, we continued to grow and increase our popularity with our predominantly young subscriber base.
2519 We will highlight today why the new wholesale rate which we are seeking is so critical to our ability to deliver on The Score's promise and to The Score's ability to continue to grow and to contribute to t he Canadian broadcasting system.
2520 I am going to talk about what our amazing young team at The Score has accomplished. I will highlight why our application includes the adjustments we seek, and I will overview the underlying rationale as to why we feel so strongly that we not only need but deserve the renewal which is before you today.
2521 And then, 15 minutes from now when I am sure you will have a few questions, I have my team surrounding me (or, as they would say, covering me) to clarify all the matters that I may have missed or probably forgotten.
2522 Before going further, the staff at The Score has prepared a short video for you outlining the accomplishments and our hopes for the future.
--- Video presentation / Présentation vidéo
2523 MR. ERRINGTON: After much debate, I must say that I like The Score better than apple crumble as well.
2524 That being said, I hope that gave you some idea of the attitude of the super staff that we have back at The Score. Many of them, 72 in fact of our 104 employees, are graduates of The Score's intern program and have chosen to come back and begin their professional lives with us. This is the group that created The Score and that is poised to continue to grow and develop the network.
2525 We have come a long way, and the number of programming successes are listed in our supplementary brief.
2526 A few of them are as follows:
2527 The Score produces close to 90 per cent of its own content.
2528 The Score was the first sports network in North America to air a sports ticker 24 hours a day, seven days a week, 365 days a year. Our ticker was the first to remain on the screen even during commercials. The ticker never sleeps.
2529 The Score is the first and only network in Canada that carries breaking sports news conferences on a consistent basis.
2530 The Score is the first and only network in Canada that carries consistent live post-game coverage of all Canadian NHL teams during the playoffs.
2531 The Score is the only network in Canada to create and produce a 30-minute weekly show, "Sports Axxess", that reflects the participation of Canadian women in sports.
2532 The Score is the only analog network in Canada to create and produce a daily show focusing on international sports, "Sportsworld".
2533 The Score is the only network to consistently promote live event coverage on other networks.
2534 In 2000 when we introduced live event sports programming, we didn't do it like everyone else.
2535 The Score was the first newtwork anywhere to air live sports with the constant ticker, squeeze-backs and breaks for live updates every 15 minutes.
2536 While The Score covered certain marquee sports such as MLB, NBA and NASCAR, we remained true to our commitment to provide significant coverage of underexposed Canadian sports, including OUA, CIS and, most recently, the Canadian Baseball League. Over 50 per cent of our live event sports coverage was Canadian.
2537 There were many, many more successes, but in the few minutes we have now we want to address how we intend to grow and remain Canadian's spots news and information leader in the next licence term.
2539 MR. J. LEVY: Thanks, David.
2540 We have asked for three things in this renewal. We seek the addition of two categories of programming, category 2A, which is analysis and interpretation, and category 2B, which is documentaries. These programming categories fit perfectly with our mandate of providing sports news and information.
2541 We have also asked for a 24 hour clock like many other specialty services.
2542 But the main request is for a new wholesale rate that reflects the network we have become today. In order to continue to provide the high quality, up-to-the-minute sports news and information and live event programming, The Score has a need for a rate that reflects its value to subscribers, value which is evidenced by our growing audience numbers and the solutions research group study which we have presented.
2543 A new rate will allow The Score to expand its sports news and information coverage and introduce the exciting new Canadian programming which builds upon our past commitments.
2544 Plus, with a 45 per cent CPE requirement, nearly half of the increased revenue will flow right back into Canadian programming. We have outlined in detail a number of initiatives in this regard in the supplementary brief.
2545 MR. CICIONE: First and foremost, The Score will expand its core sports news and information coverage through the following: Expanded pre-and post-game coverage of Canada's favourite teams; the introduction of Score West, a nightly, live sports news show from 9:00 p.m. to midnight Pacific Time dedicated specifically to our western Canadian viewers; the creation of bureaus in Edmonton, Montreal and Halifax, ensuring in-depth coverage of sports news and information from coast to coast and the creation of two international bureaus, one in London, England, the other in New York City, providing viewers with a clear Canadian perspective on sports news and information from beyond our borders.
2546 The Score will also introduce new signature program ming including increased episodes of "Sports Axxess", providing enhanced coverage and exposure to elite Canadian athletes; "The Score on Minor Hockey", a weekly hour long show exploring one of Canada's hottest topics; sports documentaries acquired from independent producers that profile Canadian athletes and focus on important sports issues relevant to Canadians.
2547 Finally, The Score will also expand its coverage of live events, focusing specifically on Canadian sports.
2548 "University Rush Game of the Week", The Score will provide a consistent weekly time slot, ensuring increased audience and exposure for Canadian university athletics.
2549 Amateur lacrosse, The Score will provide weekly coverage of amateur lacrosse from the Ontario Lacrosse Association and the Western Lacrosse Association, including the Mann Cup Finals, Canada's oldest championship, which does not have a home on television today.
2550 Finally, the Canadian Baseball League. The Score is proud to be the broadcast partner of the CBL which launched just last week. Moving forward, The Score plans to provide increased coverage to assist in the development of this distinctly Canadian league.
2551 The Score also plans to launch "Score International", a program that will focus on international sports of interest to Canada's diverse multicultural society, including rugby, cricket and, finally, some soccer.
2552 The total annual cost of our new initiatives is close to $13 million and is slated to generate almost 400 hours of new programming per year.
2554 MR. J. LEVY: However, all of the increased audiences, successful programming, great employees and excitement and plans for the future which you have just heard cannot conceal The Score's major problem.
2555 Its low wholesale rate does not reflect its real value. We have held our basic rate at a dime throughout the first licence term, but the prospect of trying to remain a serious contributor in the sports specialty business going out into the future is bleak without a new wholesale rate.
2556 The Score is severely stretched and it is not just in programming. We have been living on invested capital, postponing equipment purchases, eliminating market expenses and in fact even losing key personnel, our most important asset. The costs to fulfil our core mandate have risen substantially and will continue to do so.
2557 The Score is a very different network today than the one that was licensed for a dime in 1996. It is also unique in that the Commission approved a mid-course change in 2000 for which subscribers have reaped the benefit of our undervalued service.
2558 In your Notice of Public Hearing you indicated that the Commission would examine the criteria to be used in setting wholesale rates.
2559 In the question period we would welcome the opportunity to discuss such criteria with you in greater detail. It is especially opportune that this review comes on the heels of the retail rate deregulation of basic cable cross Canada. BDU's retail rates are rising and they will continue to do so.
2560 It's at the wholesale level where services like The Score require the Commission's participation and direction. It is up to services like The Score to ensure that the money gets returned to the Canadian broadcasting system through the expenditures on Canadian programming.
2561 In preparation for this application we developed a calculation called the "Subscriber revenue per average minute audience". It contrasts the subscriber revenue of each of Canada's specialty services with the amount of viewing each one gets. Since the barometer of a service's popularity is the size of its audience over a year, this statistic provides a useful measure.
2562 It tells you which services are undervalued in terms of their popularity. Appendix 1 to our reply to interventions shows the score with subscriber revenue of only $261 per average minute audience. That compares with $1,069 for TSN and $1,482 for Sportsnet. This means that The Score is significantly undervalued as a sports specialty service from a subscriber's point of view.
2563 Also, The Score did a similar calculation with respect to advertising to forestall the usual suggestion that we should just get the extra money from advertisers.
2564 The Score already is comparatively very efficient in selling ads. Moreover, only 32 per cent of The Score's total revenues, compared to approximately 64 per cent at TSN and 69 per cent at Sportsnet, is derived from subscriber revenues.
2565 The Score competes every day with the heavyweights TSN and Sportsnet that have significant strengths. The basic rate of $1.07 for TSN and 78 cents for Sportsnet as compared to just a dime for The Score is just the beginning of the advantages and we have outlined many more in the supplementary brief.
2566 We asked Solutions Research Group to conduct a nationwide survey on our behalf. For those respondents who indicated that they received all three of TSN, Sportsnet and The Score, they were asked how they would divide a notional $2 as between the three sports services.
2567 They responded that they would give TSN 88 cents, Sportsnet 60 cents and The Score 52 cents. This indicates the relative value that the public places on them and shows that The Score is the only undervalued of the sports specialty services.
2568 These results confirmed what we already knew. In Canada sports fans feel that they have three choices, three choices that are a lot closer together in terms of value than their wholesale rates would indicate.
2569 You will have noticed that we did not ask for rate parity with TSN or with Sportsnet. Rather, we just want to be us. We know that our subscribers are watching and that they value the service. In fact, if they were organizing the pricing themselves, they have already indicated a rate much higher than we are asking for.
2570 This brings us back to the rate-setting question that the Commission alluded to in the Public Notice. We have already suggested that the Commission should address viewership as a determinant in setting a new wholesale rate for The Score.
2571 In addition to being widely watched and highly valued by the audience, The Score has Canadian content commitments that are exceptional. In our first licence term, it aired over 96 per cent Canadian content and spent more than 56 per cent of its revenues on Canadian content.
2572 To maintain the level of programming and accomplishments we have currently achieved and to implement the exciting growth and programming opportunities we have just described, all of which our network and its team are poised and ready to deliver, we need the new wholesale rate.
2573 In 1999 we told you that we intended to pursue some marquee programming and drive up our viewership and we did. We said we would hold the ten cent basic rate until the end of our licence term and we did. Now we need a rate that is commensurate with the quality and the level of programming The Score is delivering to its subscribers.
2574 By any measure, we think The Score is deserving of a new rate. That rate is 40 cents.
2575 That concludes our remarks and we would be delighted to answer your questions.
2576 THE CHAIRPERSON: Thank you very much, Mr. Levy and ladies and gentlemen.
2577 Let me start with some numbers, looking at your projections with and without the rate increases. Rounding slightly, I calculate that with the rate increases you have sought you will have revenues increase approximately $205 million.
2578 MR. J. LEVY: That's correct.
2579 THE CHAIRPERSON: And expenses increasing $160 million roughly.
2580 MR. J. LEVY: That's correct.
2581 THE CHAIRPERSON: And income before interest and tax of about $40 million increase over the without scenario. That's over the seven year term. Those are about right?
2582 MR. J. LEVY: Yes.
2583 THE CHAIRPERSON: You mentioned the things that you would do if you had the increase and you listed these on pages 7, 8 and 9 of your power presentation. You said they came to about $13 million a year. Is that right? Thirteen times seven is 91, so 90 of the 160 is on these new initiatives. What's the 70 for in addition in terms of your expenses?
2584 MR. J. LEVY: Correct. The balance would be found in the rest of our expenditures in continuing to develop the network.
2585 I should just point out so that the Commission is aware that of the $13 million a year initially, approximately $8 million of that $13 million is going to commissioning the enhancement of our sports news and information, just to give you a perspective of how that money is being spent.
2586 Of the initiatives we talked about, that really goes to expand our coverage in terms of the new bureaus, what we call our sports news and information core of the service. The other $5 million really goes on an annual basis towards the introduction of enhanced new live event programming. That gives you some ratio of what we are talking about in regards to the $13 million a year or just under $100 million over the term.
2587 The balance of the expenditures would be found in our ongoing cost structure to facilitate, as you will see I guess on the following pages in the context of what our costs are to facilitate that. Appendix 5(1) I believe outlines what our additional costs are on a go forward basis.
2588 I think the significant point is, and we can look at the individual categories and how we ramped up if you want to go into that level of detail, but I think from our perspective when we looked out over the future, we saw how the network has developed today. We looked at the initiatives we want to develop for the future. Then we added in what we thought was a reasonable PBIT in terms of the profitability of the network on a go forward basis.
2589 Again, to put things in perspective, the numbers we are looking at under a full out 40 cent model which is implemented over time as our contracts come up for renewal and as we implement the new rate and as we implement the new programming, the PBITs that we are talking about go from about 10, 11 per cent in the first year to about 18 to 19 per cent year seven.
2590 It's significant in that we don't get to the end of our licence term and achieve PBITs that are even the industry average today and averages that are well exceeded by some other specialty services.
2591 I think when you are looking at what the costs are to roll this continuation of the score, that's the nature of what we are talking about.
2592 THE CHAIRPERSON: Right. Those are the numbers in broad terms.
2593 MR. J. LEVY: Yes.
2594 THE CHAIRPERSON: How did you pick the 40 cents?
2595 MR. J. LEVY: That's a good question. I mean there's really no science specifically as to how you hit the 40 cents.
2596 Basically, it's part of the process we just talked about. You know, we looked at how the network, and hopefully the video has sort of suggested and indicated to you what this network has become. It really has transformed from a sports news service that ran a few highlights after we got our licence to, you know, a sports news and information service that runs limited live event programming that basically goes full out 24 hours a day, 7 days a week, you know, building bureaus, introducing the new programming, staffing going from about 40 when we started to over a hundred. That's where we are today.
2597 Then we looked at what the natural progression was and is for out network, what are the initiatives that we want to continue? How do we keep addressing this young 18 to 34 year old market where we challenge the other networks in terms, particularly Sportsnet, in the context of our viewership numbers? How do we continue to drive the network?
2598 Then we said okay, what are the reasonable PBITs for this network on a go forward basis? What sort of return would a network such as ours, what do we need, what do we anticipate, what's fair and reasonable in the context of our position in the overall gambit?
2599 We looked at a couple of other factors. We looked at the value that we believe the network brings to subscribers. You know, we have statistics which you have seen that show our viewership since we have introduced live event programming has gone up 69 per cent.
2600 We have research that we commissioned that came back with this notional allocation. Notional, it was real after it was done, but the allocation of the $2 that clearly showed if people who watch the three networks said how they would allocate the value, what would it come in at.
2601 Another quite simple item that we looked at was the relative comparators. I mean we got TSN out there at a base rate of $1.07, we have Sportsnet out there at 78 cents and we have us at a dime. We looked at the relative contributions of the networks and what we are doing and how the network is growing.
2602 In the end we sort of put it all together and redid our business models and looked at it and 40 cents was the rate that seemed most appropriate and fairly represented what we are and what we should be and should develop through the next term of our licence.
2603 THE CHAIRPERSON: Are those the criteria that you would suggest we use for rate-making, PBIT value and comparatives?
2604 MR. J. LEVY: I'm glad you asked. We had these prepared before you asked.
2605 There are some. Actually we have a list. I think it's probably based on the conversations we have heard over the last few days. I think it's very worth while that we spend a few minutes and take you through them because, you know, I guess over the course of our discussion we are going to hear, hopefully from us, as to how we fit into these criteria and how we position them, but trying to stay sort of objective for the moment and talk about them theoretically, which is very difficult for me because every time I get into one, it relates to us specifically. I will sort of indicate what we think are the six or seven probably most significant.
2606 The first is public policy. These considerations have been around since the Commission has been around and even before the Commission has been around. Whether they be cultural or social or political, there are services and genres and broadcasting services that are deemed to be of national interest and are to be and should be and will continue to be supported by having carriage assured and by having rates assured to make sure that the service continues on. That's obviously one factor.
2607 The second factor is the genre itself. I think that's critical. You heard, I guess yesterday, in our genre, sport is very, very expensive, one of the most expensive.
2608 If a service is up here in front of you and they are showing re-runs of cooking shows or old historical events or, I don't know, any one of a number of type of shows that can be set into a server and just output, that commands lots of eyeballs.
2609 That's a different kettle of fish than a sports network which has high ongoing costs arising all the time and it's very expensive, especially for us to do, being live as much as we are.
2610 The next factor is also a very significant factor and affects us very dramatically. I call that the BDU factor: Who is in front of you, who is applying, what relationship does the service have to a distributor.
2611 There are lots of things that happen in the negotiation of contracts that fall well below sort of the benchmark of what is or what isn't an undue preference. There's lots of things that happen in the negotiations of those deals.
2612 For example, how a service is carried, what channel the service is carried on, what packages is it in, what rate does it get? I mean the rate is a basic rate, but as the Commission knows, there's negotiations that go on to discuss what that rate is in the relative package that it's carried in.
2613 What's paid to get a contract? Are there marketing incentives? Are there technology incentives because a distributor happens to use a certain technology of that, a programming service.
2614 You know, in our particular case there's vast disparity between certain services who have to pay things and certain services don't have to pay things, even to have their service get on and be aired.
2615 All this happens long before the dispute resolution process that the Commission talked about earlier, which is sort of used as a secondary back-up when you are negotiating on these points. And from our perspective, we have clearly lived in that environment and quite frankly not had the advantages of some of the other services.
2616 To complicate matters further, there is discussion about whether foreign ownership is going to be allowed in at the BDU level. I don't think there is going to be a lot of tolerance if foreign ownership comes in for these types of concerns that we are talking about. So, I think that this BDU factor is something that should be taken into account.
2617 The next is, how is the service contributing to the Canadian Broadcasting System? How are they doing? How are they performing? Have they lived up to their commitments? You know, we have already mentioned how we are doing and we could talk about that in more detail. Viewership and value, that is obviously something that is very prominent in our case, because as our network has grown and developed, we have shown tremendous growth and we want to use that as a benchmark for our future existence quite frankly.
2618 The last, and we talked about this in our context, is probably the comparators again. You know, what our people in a similar genre or people who share our genre, because in our particular case of sports it has been decided that there is a national, a regional and a sports news provider, and what rates do they get. So, there is a whole bunch of factors that we think are insignificant and, depending on who is in front of you, you would probably have to allocate what priority you assign to them. That is the criteria, quite frankly, we have used in coming forward.
2619 THE CHAIRPERSON: It is interesting, in your answer -- I'm not trying to trip you up, in your answer to my question how you got the .40 you gave me two of these plus PBIT. You didn't list PBIT in your list or maybe I missed it. You only chose two others to apply to your own rate increase.
2620 MR. LEVY: No, that is basically part of how we are performing. The BDU factor has a lot to do with our PBITs, what rates we charge, what carriage we have, how we are performing. We basically have used each of these as rationale and basis for our presentation to you.
2621 THE CHAIRPERSON: Could you help me with how, going down your list --
2622 MR. LEVY: Sure.
2623 THE CHAIRPERSON: -- I could come out with a .40 cent number at the other end?
2624 MR. LEVY: Well, for sure, for sure. Going back to the list that we just went through, specifically, and again I think some are considerations that don't have numeric identifiers and some do. When you asked me about the .40 cent rate I tried to go right to the ones that help us in the business model that specifically said why is it .40, why wasn't it .60, and why wasn't it, you know, .35 and the reason was was because we built the business model and said how does this network look today and how should it look in the future?
2625 When I answered the last question it was more a generic, why should you as a commission and what would you consider as part of the whole rate process? And some of those have specific references to what the end rate comes up with and some of it determines whether you should even consider a new rate for an applicant or not.
2626 THE CHAIRPERSON: But I think what is relevant here is the difficulties you point to with quantifying some of these criteria. We are looking at, as you say, criteria for a rate making process, not for licensing and not for other features, but for a rate making process. So clearly, the more qualitative they are the less difficult they are to apply in any meaningful sense to a rate making process.
2627 And I understand why you initially answered the question the way you did, because those are the quantifiable variables and I suppose you would have support in going down the list for why at some sensitivity level in a qualitative sense that those would work.
2628 But the more we zero in on a rate making process the more it seems that quantitative factors become relevant since we are talking at the end of the day about money and numbers. And the more you look at that the more you either find yourself -- you find yourself at a cross-roads. Do we go more into researching those numbers, what is the cost of capital, what is the cost of equity and so forth into pure rate regulation, which this commission has clearly been trying to move away from on every front for a long time or do you go with another process? And, we discussed that.
2629 I wonder whether you have any comments on -- I cited a proposal that appeared in one of the documents filed by Bell ExpressVu, I don't know if you were present in the room at the time and whether you have any comments on that. It is a bit of a diversion from our discussion, but I would give you an opportunity to comment on it if you like.
2630 Mr. J. LEVY: I would be delighted. I mean, for us it is not a diversion, for us it is quite frankly a matter of existence and that is probably something that separates us from some of the other people that are up in front of you today in the context of trying to establish a rate that is commensurate with the type of programming that they seek.
2631 At some point we will come to a discussion not only why we need the rate that we put before you, but if we don't get it what happens to us and, as I said in our presentation, it is not a pretty picture at all. I think one of the reasons, predominantly, that we look to that is because the imbalance that currently exists in the marketplace. You are looking at it in the context of, as I understood it and heard the morning was, lets let the market sort of determine some sort of rate and then if there is problems out there that there, the dispute resolution system will take care of it.
2632 THE CHAIRPERSON: No, I don't think that is accurate. I think it is more that at the time of licensing there is a -- if we are not going to do detailed rate regulation, which is examine every one of your expenses and see whether your deprecation isn't over and so on, so that we can hold out to the public that we have truly examined and scrutinized and if we are not going to do that and it is not our inclination to do that then you need some disciplining factors.
2633 At the time of licensing you have applicants coming forward and saying we will offer this such and such a service at such and such a rate, others compete against that, the Commission has an opportunity to weigh all the factors, license and entity, and set a basic wholesale rate going in. At maturity those factors are no longer there, you no longer have competitive applicants, you only have that same applicant.
2634 One disciplining factor that you would have however is the BDU, who would say I have my business to look after and my subscribers, you do yours, we are going to have a negotiation on this thing starting off with the figure that was set originally. So, it is not being created out of a whole cloth at that time and we will see where that takes us if we can resolve it through negotiations all the better.
2635 It is a market, if we can make it such, dispute resolution, ultimately the Commission. So, it is very important I think in that proposal to note that they were keying off an existing rate at a time of maturity and then moving forward from there into negotiation disputes. Now, you go in there with a .10 cent rate --
2636 MR. J. LEVY: Right, and that is the fundamental problem in our case and I think this would be a different discussion if you said to me "okay, John, you have the .40 cent rate now lets have this discussion" and I would say "okay".
2637 From that point forward, where we now have a model that we believe is representative of the service -- I think the basic difference between where we are at and we are perhaps just thinking about as the initial rate that you got at the beginning of the term, versus where you are today, we are showing that our network has transformed and matured because of the nature of what has developed with it over our first license term, that it is no longer basically the same network in the context of the relationship between the rate and the service that we output.
2638 So, I think we have the basic issue which is if we are going to discuss how you move forward we have to get that rate to a point where we could even discuss that. And the reason we have difficulties are all the other perhaps sort of other linear issues, but not the ones that are actually co-definable. I mean, the way we survive in the marketplace is a reality from day to day. I mean, our wholesale rate we don't, you know, we get treated differently in that whole process that you are talking about.
2639 If we don't have a base to come from that is reflective of the type of service that is going to, quite frankly, survive. So, we have to get to that threshold first. I guess that is our point and once we get to that threshold then we are like everybody else and we have this discussion as to whether, at the end of our next license term should it be considered or should it be part of a process that is just consideration in content.
2640 THE CHAIRPERSON: Okay, the next area I am going to explore with you is the history of this license and maybe we will have a chance to revisit that issue about --
2641 MR. J. LEVY: Okay.
2642 THE CHAIRPERSON: -- the shoulda, coulda, wouldas and other points like that. But go ahead.
2643 MR. BUCHANAN: I wanted to add a comment. The discussion that was going on about the market forces and taking over the in the second license term and so on, the idea that someone would propose to have market forces take over would only every be made by someone with the market power to drive a good deal. It would never be made by someone who expected to get beat-up in a negotiation.
2644 What you have now is a structure where six BDUs have about 90 per cent, 80 to 90 per cent, of the subs and six programming services attract about 90 per cent of the revenues and that discussion might be appropriate between those 12 players. But for all the rest of the little people, it is going to be a long road if you have to negotiate with the likes of them based strictly on market forces.
2645 THE CHAIRPERSON: Okay, I take that point that that is a negotiation. There is, under that kind of proposal, the opportunity for dispute resolution precisely for that reason and the world is such that resources are not equally divided, that is a reality we live with. But opportunity is equal to approach a dispute settlement process.
2646 MR. BUCHANAN: Well, we do have some experience with the dispute resolution process. I think you called it quick and dirty this morning. I'm not sure we totally agree.
2647 THE CHAIRPERSON: Which the dirty part or the quick?
2648 MR. BUCHANAN: I thought we would just leave it. It understandably takes a while. There is pleadings, there is the mandatory 45 day mediation, there is -- our concern with hearing that kind of proposal is that you would end up somewhere down the road with the kind of situation we ended up with telephony, where you end up saying the incumbents have sure achieved some things that perhaps we didn't want them to and perhaps we should have a real close examination of behaviour and we would rather not let it get there at the beginning.
2649 It seems to us you are going to short circuit things if you give us a rate and then we go use that rate in all our negotiations and only if those fail do we come to see you, as opposed to not having a rate at all. Remembering that dispute resolution is secret so no one is going to know what anybody else got, so we are going to have to come in. Every single BDU that we have a problem with has to come to you for dispute resolution if we can't solve it and we say it to us. And the dispute resolution, as it is set up now, can't look at packaging or marketing or channel placement.
2650 We have to have an agreed statement of facts to come into you to make a decision on before you can make a decision. I mean, it strikes us listening to it that it is fraught with problems compared to the old-fashioned way of giving us a rate and letting us go and do it. The basic rate is what everything is keyed to, even our discretionary contract --
2651 THE CHAIRPERSON: You have a rate, what you want is another rate.
2652 MR. BUCHANAN: That's right. I mean, in this particular circumstance --
2653 THE CHAIRPERSON: And as I interpret it from Mr. Levy's comments, you basically worked back from seventh year PBIT number that is roughly the current average and worked it up from that basis to get to that .40 cents, unless I'm misinterpreting you.
2654 MR. J. LEVY: It may appear -- if we had done it that way I would have gone higher at the front end -- at the back end and worked a larger -- We didn't do it that way. The reality is what we did, I tried to suggest is that we look at where we are today, we know what it costs to run this network, what it has developed into. We said where is it going? What is the extension? How do we do more live sports and information? What is the real cost of doing that? And then we said, okay now we know what the network looks like, we know what it costs, we know what it is going to grow into, what is a reasonable -- on top of that, what is a reasonable return in the future.
2655 I mean, there have been some comments and I'm sure there is some notion that we are looking back, we are not looking -- we are not. The rate that we are talking about is what we need for the network today and in the future. The investment that is made in the past has been made in the past and, quite frankly, it is coincidence that you know the number that we ended up with in the average is quite frankly substantially less than certainly some of the stuff we have heard this morning and what the industry average is coming at. So, you know, and we are fine with that. And again, that is with --
2656 THE CHAIRPERSON: The industry averages seem to be 20, 18, 19 for the past three years.
2657 MR. J. LEVY: Correct.
2658 THE CHAIRPERSON: So, you are basically --
2659 MR. J. LEVY: So, we basically get there at the end of our term. So, on average, we are not there.
2660 THE CHAIRPERSON: Because, the other factor that you gave me, the value and the comparators. I mean your value, and we will discuss your methodology, but I think there was a dispute either .52 cents somehow and you said well we will take .40 and then you looked at comparators and you said well they are a $1.07 and .78, well we will take -- .40 will look pretty good and that. In other words, there is no -- I'm not imputing motives here, I'm just saying that there is nothing -- if you asked 10 people to guess at what the number you picked coming out of those they would not be able to guess anything higher than -- other than the PBIT at the end of the day, which as an end point is roughly the industry average from the past few years. I'm just trying to find the hook or the solid rock on which to assess the actual number.
2661 MR. J. LEVY: Right, it worked. I mean, it looks to us like it works. I mean, if our PBIT -- if we come in with a rate and the PBITs were through the roof and you could say oh you guys aren't looking back, you are not looking forward. If we were coming in with programming in the future that wasn't sort of a natural extension of what we do today, if we are making these wild promises about doing shows or opening bureaus or, you know -- If we never opened a bureau and we told you we were going to open one in London you would look at me like I'm nuts. I mean, that is a great idea and to open one in New York, nobody has that and you know so it may look contrived, it was what we are and it ends up being exactly --
2662 THE CHAIRPERSON: No, I'm not suggesting it looks contrived, I'm just trying to understand it and I can understand that --
2663 MR. J. LEVY: It fits.
2664 THE CHAIRPERSON: -- it would appear not to be contrived a linkage occurring PBIT --
2665 MR. J. LEVY: Right.
2666 THE CHAIRPERSON: -- as a kind of benchmark, but that is about all the hardness one --
2667 MR. J. LEVY: Exactly. And, the bottom line is it is a gut feel for you, it is a gut check for us. I mean, we are a lot smarter or how -- although some people may not say that, but you now we have a lot more evidence going into this than we had last time.
2668 You know, we can sit here and say we know what the network looks like, we know what the introduction of live event programming does, we know what it takes to get OUA, CIS college football, we spent $30,000 - $35,000 - $40,0000 doing games. We have negotiated -- you know, there is stuff we do that -- and again, you may get more comfort once we jump into some of the what are your costs to do this, you know, we are highlights all day every day, nobody else does that.
2669 We do in-game highlights, they didn't used to cost us money because nobody knew what the heck we were doing and that was part of our problem. Now they catch on, everybody is looking for other revenue sources. They say oh, this network is running -- you are not just doing sports at 6:00 and 10:00, you are doing it from noon until midnight and you want clips -- we told the Commission when we started that, you know, we would try to have a home-run within two minutes after it happens or and that in-game highlight.
2670 That is now costing us millions of dollars to do, whereas historically there was -- So, there is underlying detail that show the cost structures that support the new us.
2671 MR. BUCHANAN: I was thinking back to your earlier comment that the BDUs would be the discipline and that in the initial round the competitive applicants would in fact I guess be surrogates for discipline. But there is a lot of services that aren't competitive when you first license them, they just come up as part of a gang and you look at their application and say geez, this makes sense to me based on everything we know.
2672 We just watched Teletoon go in this morning, they had no competitor in 1996 when you put them up and seven years later you look and you say geez did we pick the right number or not and maybe we should make him do a little bit more in the next license term or a little less based on how they have performed.
2673 Several years ago when this service got the ability to do live sports and said we are going to hold it at a dime until the end of the license term, but we will be back to talk. That's today and now you have a projection in front of you, in effect it is kind of like a new license. But they don't all have competitors at the beginning.
2674 THE CHAIRPERSON: No, they don't always have competitors in fact, but there is the opportunity for it and you are quite right that where they don't the number is -- and even when they do, it is not perfect in the sense that the numbers can be all over the place, but there is at least a disciplining process where people come in as co-applicants. Whereas at this stage, it seems that our criteria are rather qualitative or hard to pin down other than it basically feels right.
2675 If I could move onto the value part of the triad. Your exercise, I gather, was to ask people to provide $2.00 of sports payments monthly channels and they basically -- TSN, SportsNet and yourselves and .52 cents was the number that -- in for you. Was there a reason that you didn't add other sports elements and services in there like RDS and like others that do sports, even leaving aside the Diginets, OLN and the others that some people might consider to be part of a sports package as well?
2676 MR. J. LEVY: And we do, to be clear. I mean, if we get into the competition discussion that doesn't not stop and start with the two guys that are maybe sitting out there.
2677 You are right, CBC is a competitor for us. The Digies, although, as you have heard this morning and as we all know, they are not there yet, but they are coming and there is lots of them. I mean, there is NHLNet, there is Raptornet, there is pay-per-view. There are new licensees in the Toronto market who aren't sports networks and who end up doing sports products on air.
2678 But in answer to your question, we confined the analysis to what we thought were our immediate direct partners/competitors with the other two specialty services that are really predominant across the country. You are right, RDS is predominant in the Quebec market.
2679 In fact, it's not fair for us to even use that as a comparator even if we thought of it because we are not in Quebec. I mean, we are on Vidéotron. The reason our numbers, so you know, the reason we are into 5.3 million homes as compared to Sportsnet and TSN is because we don't have the Quebec market and Vidéotron didn't see us as a service that they wanted to put on.
2680 For the last year and a half we have been trying to get on but it's very hard to get people at Vidéotron to return calls these days. So we haven't had a lot of luck cracking that market. We are on digital, I should say, in that market, but that gives us very small numbers. So it wouldn't be fair for us to compare with RDS.
2681 We sat around and said: Who are our real comparators? Who are the ones that we day in, day out we compete with for ad revenue? That's really the bottom line. We are complementary. Again, when I say "competitors" the Commission recognizes, and it was established in 1996 and in 2000, that TSN is the big national and Sportsnet, Rogers Sportsnet is the regional and then we are the sports news and information guide because of the limited amount of live event programming.
2682 We each have our area. You heard that those guys are competing at certain levels. So we do compete, however, for ad revenue. We are up there with Molson and Labatt looking for the same dollars and we also compete for certain selected marquee live event product and even for some non-marquee product. You saw in the Sportsnet tape yesterday that they do some lacrosse because they can't sell it and some of it goes on our network.
2683 MR. BUCHANAN: It would also have skewed the results, I think. If someone gets RDS they might prefer it because they can understand it in their own language as opposed to your service in English, but our feeling sitting around the table is it wouldn't have mattered who you compared yourself to. The dime was going to get allocated differently from the way it is right now.
2684 THE CHAIRPERSON: And that was your point, to show that out of $2.00 dollars that is spent on the three sports services, if you like, sports entities, that viewers if they were allocating their money would not allocate it at $1.07, $0.78 and $0.10. They would allocate it the way you have distributed it with you coming out at 52.
2685 MR. BUCHANAN: We were keeping our fingers crossed that that is the result that was coming in.
2686 THE CHAIRPERSON: I won't ask you whether you would have filed it if the results had been six cents, but...
--- Laughter / Rires
2687 MR. J. LEVY: This might have been a five minute shorter presentation.
2688 THE CHAIRPERSON: I think I --
2689 MR. BUCHANAN: We were very confident.
2690 THE CHAIRPERSON: You haven't done any studies either of various price points for the service to show that -- I mean, from 10 to 40 is still a pretty -- from the subscriber's point of view it's part of the package.
2691 MR. J. LEVY: Not this round. We did in 1996 and we were actually looking at it the other night and we were debating whether to bring it forward or not. I mean, it's on the record. It's in the files. 1996 was such a mess that we didn't know who was being packaged with whom. We didn't know who was going to get on. We didn't know how things were going to settle.
2692 So the research that we did at that point was trying to give almost on a stand-alone, and quite frankly our numbers were very impressive. We had research that was showing people willing to pay us 40, 50, 60 cents even back then, but I really question how valid that information from six years ago is today. You are right, we didn't requalify it today.
2693 Again, based on our whole presentation, based on the way we have approached this, we thought the comparator was the best.
2694 THE CHAIRPERSON: I looked at that report some time ago. I didn't look at it in the last day or so, but I note that you say here on page 12 that it's interesting that the $2.00 that you asked them about is really the sum total of the wholesale rates.
2695 MR. J. LEVY: It wasn't an accident that we asked for $2.00, right.
2696 THE CHAIRPERSON: But, in effect, they presumably pay something in the neighbourhood of $4.00.
2697 MR. J. LEVY: Who knows?
2698 THE CHAIRPERSON: It might have even been to your advantage to divide $4.00. You might have gotten a better number than 0.52.
2699 MR. BUCHANAN: We could have had with RDS -- provide $3.50 among the four services and that would have come out better too.
2700 COMMISSIONER GRAUER: This is what I can recall, did the people answering know what your wholesale rate was?
2701 MR. J. LEVY: No.
2702 MR. BUCHANAN: No, it wasn't set up like that. It could just as easily have been: Of 100 per cent, what percentage would you attribute to each of the three services? It didn't matter whether it was $2.00 or $4.00.
2703 THE CHAIRPERSON: But the more you do that, the farther you go from a demand study in price points. But this isn't that either for all the reasons that we are discussing.
2704 MR. J. LEVY: Can I ask Kaan to maybe comment on it because he knows --
2705 THE CHAIRPERSON: What do you think the validity of that study really is for purposes of rate making, Kaan?
2706 MR. YIGIT: In terms of establishing relative value from a limited bundle?
2707 THE CHAIRPERSON: In terms of rate making. We have an approval that is being sought here. How does that help us?
2708 MR. YIGIT: Well, it basically says that if you have a category and if you were looking to allocate, much as we did in the study, a certain finite number of dollars within that category, one yardstick you could use or one approach might be to allocate it based on some, as you were saying, quantitative measure, and this technique that we used in the study is you couldn't open a marketing research book and go more than six or seven chapters before you hit the section on constant sum.
2709 In public policy research we asked people to allocate points: $100 budget on education, defense and health care. That will give me a sense as to your priorities, or if I asked the same question within the room, the priorities of the room. So in consumer research, when we ask it in a competitive products situation that gives us some sense of trade off, relative value, in this case across the different services.
2710 Does this suggest that rate should be exactly proportional? Probably not. But what it does is it gives you one more quantitative measure in addition to perhaps viewing which is another proxy that you should look at as a quantitative measure probably. It's not for me to say beyond --
2711 THE CHAIRPERSON: What was that? What was the quantitative measure?
2712 MR. YIGIT: Viewing probably.
2713 THE CHAIRPERSON: Viewing, okay.
2714 MR. YIGIT: That there would be a direct correlation. I mean, we found in past research too that when you ask people about rate increases and their willingness to pay, you could practically predict what the response will be based on the core audience of the service in question because people are more willing to support services that they are inclined to watch. So there is going to be some validity there. They are similar ideas.
2715 In this instance, the one thing I should mention about the study, it was done completely on a blind basis. What that means is that there is not a single question in the study that will allow you to guess who commissioned the study. So the three services measured and asked about were asked on a completely level basis.
2716 THE CHAIRPERSON: We are not involved in an -- it's an allocative process and we are not involved in an allocative process here. So your point basically is that still value is a relevant factor to be taken into account and the relative value is a lot higher than the rates, the trend rates, would suggest.
2717 Does that sum it up?
2718 MR. YIGIT: Yes. As John was talking to you earlier I was jotting down reach numbers AMA, average minute audience, the valuation exercise in all cases, after you mentioned that it was $1.07, 78, and 10 cents, and I can't arrive at a number that is solved, how should I put it, I guess differently.
2719 All of the other metrics, if you want, are closer across the three services than the actual wholesale rates.
2720 THE CHAIRPERSON: The final issue is you said "comparators", Mr. Levy, and if you want to --I think I have your point on it, but if you want to elaborate, please go ahead.
2721 MR. J. LEVY: I think it basically is that we are a bit unique in our genre in that there are three players. In our case one per genre was really three per genre and the genre is sports. We have all defined what that is.
2722 The point is that -- just getting back what Kaan was saying -- the disparity amongst the three players is too great. We are not sitting here saying that we are in any way entitled or asking for or deserving of -- I shouldn't say "deserving of", we think we are deserving of.
2723 If you look at all the factors we looked at, we shouldn't be the dime as compared to them being the 78 cents and TSN, who just got renewed, at $1.07 and who -- and you can ask me because I am an ex-cable operator and I am not under any obligation anymore so I can talk a little more freely than some of the others -- make on that $1.07 rate which takes them way up in the discretionary tiers.
2724 THE CHAIRPERSON: Let's do a bit of history. You were licensed in 1996, Decision 96-610, 10 cents. You were going to be the information and news sports broadcaster. You used the image at the time, I believe, of the Weather Network.
2725 You said that:
"Buyers anticipate that the viewing of The Score will be most closely analogous to the viewing of the Weather Network. Tuning will be for a shorter duration. With a clear frequency use will develop. Research and experience show that the service will attract the very light television viewer as well as the very heavy viewer. This balance will make the service very attractive to advertisers. The lighter but frequent viewing will make it the ideal choice to add to a base of other television sports coverage". (As read)
2726 Would you say this came to pass or not, and would you still characterize yourself in the same way?
2727 MR. J. LEVY: I think the analogy initially was correct. We had to find ourselves in a very competitive world. We were actually in that world -- a bit more history -- before the real world existed, in terms of having a licence. We were on about a million subs as an alphanumeric and we were legal because we weren't a broadcast entity.
2728 When we added the ability to do video, live highlights, then it initially did look a lot like the Weather Network and we were dead right that it was popular and people were coming to us, and they did come to us. They flocked to us, especially young kids -- a lot of males, 18 to 34 and older. They didn't stay long. We were right.
2729 Where we perhaps miscalculated in that model was we couldn't explain that to advertisers. Everybody would rave about how great we were, how they were coming to us, but we were our own worst enemy. We output the information too quickly. We had the ticker that never left. It was hard to convince advertisers initially that they weren't going to get 100 per cent of the screen, they were only going to get 70 or 75 per cent of the screen.
2730 So our big issue was: How do we raise the profile of the network? We couldn't live as a sports weather network, if you know what I mean. The advertising dollars weren't there. So that was why the philosophy came back that we had wanted to come to you and say: "Look, we need to get more eyeballs and we have to keep the eyeballs we have staying longer and we have to be able to get to these darn advertisers and show them what we are because they are not buying the story".
2731 They were buying it a little bit. We had $3-$4 million worth of advertising revenue at the time, but not enough to sustain what we were and what we wanted to grow into. Part of the problem with starting this thing is that it's a bit of a toothpaste out of the tube. Once you show people what you can do and, you can't stop it. I mean, it's like an insatiable appetite out there. Just the fact that there are three sports networks proves how there is an insatiable appetite.
2732 So at the beginning, yes, I can say it worked. It wasn't working financially, but it worked.
2733 THE CHAIRPERSON: So then you applied for a limited amount of live action, sports, and you said that this would improve your competitive position by building audience awareness and increasing the duration of viewing to the service and that that would improve your financial health.
2734 The Commission approved that in Decision 2000-85 and quoted you at paragraph 7 as saying that you weren't increasing the wholesale rate and quoted you as saying:
"At ten cents on basic, we are one of the best bargains available and we are not proposing to change that very low wholesale rate".
2735 That is public record so you don't even have to agree with it.
2736 When I look at your financial performance since then, I notice that your programming expenses triple in the next year and quadruple the year after, presumably because you are now buying rights to professional sports and your PBIT tanks, goes from minus to triple minus and so forth. The PBIT loss triples and continues on down in the past year. So now you are here with a subscriber rate increase application.
2737 Has the strategy of seeking live action been a success or a failure in your view, and what lessons do you draw from it?
2738 MR. J. LEVY: The introduction of live event programming on our network has absolutely been our salvation.
2739 THE CHAIRPERSON: It has absolutely...?
2740 MR. J. LEVY: Been our salvation. I will make two overview comments and one is it worked in that it positioned us to be able to take the network to the next level, to be able to -- we will talk about the evidence of how it worked in a moment, but it allowed us to get the legs necessary for this network to find its real home on a go-forward basis. It's the evolution of what started out -- and I am not demeaning the Weather Network, but it was the evolution of what we categorize as just some highlights thrown into a digital network as compared to a full-blown sports network. It was the catalyst that got us ahead. That's the first.
2741 The second comment is that -- and I mentioned this earlier -- what we are seeking is not something that we look back, it's something we look forward in terms of our pricing and in terms of the rates schedule.
2742 In terms of the first comment, let me just reiterate some of the statistics that prove to us it worked. A couple of things. First of all, our viewership over the time period since we introduced live event programming went up by 69 per cent over that period of time, three years. Our ad revenue went from about $4 to $5 million to about $9 to $10 million, doubled in that period of time.
2743 The value of the network in our view during that period increased dramatically. We now have some what I think is pretty solid evidence from the research that we did that consumers agree with us. They don't look at us as a ten-cent service any more. They look at us as a real solid contributor.
2744 The advertisers -- let me just come back to the advertisers for a moment, not only in the raw numbers does it matter, but -- we don't have our ad guy here, Don Moen, who used to play for the Argos, who has been with us since the inception. He will tell you that the introduction of live event made us a part of the regular buy of major sponsors all across the country. Before where they didn't know what we were doing -- now we are not just getting what they had left over at the end of their buy, we are on their annual buy. So we are a real network in their minds now.
2745 One other aspect of why we say it really worked -- and this is probably the most important reason. It really worked because lo and behold not only did it raise our sort of profile, but other professional sports components, teams, now were able to come to us and say: "Hey, you guys can do it". We would not be broadcasting any Canadian college event if we a) didn't have the amendment that you gave us, and b) could establish that we could actually do a game.
2746 We have CIS, OUA, lacrosse, and the ultimate irony is what sports league comes to us and would otherwise not be on air? The new Canadian baseball league. They saw what we could do. They had no place -- I don't want to say they had no place else to go, I didn't mean it like that, but they had a league to launch, they had marketing dollars to spend and they saw that we had capabilities and commitments that we are capable of fulfilling vis-à-vis baseball.
2747 So it positioned us to be able to take it to the next level and we invested heavily to take it there. That's the past. In the future, we are at that level and we can continue to grow on it.
2748 THE CHAIRPERSON: But you are not sustainable at that level without the rate increase.
2749 MR. J. LEVY: Correct.
2750 THE CHAIRPERSON: I am wondering how you qualify what you have done as a success. I mean, I am not trying to be critical here. I understand that you are now competing for sports properties and your viewership has gone up, but your bottom line has gotten worse and worse. So I am wondering how you characterize that strategy as successful.
2751 MR. J. LEVY: We categorize it as successful because if we get the proper allocation of what BDUs are getting, in their unregulated life, from subscribers all across the country then consumers will be paying what we think is a reasonable amount for the service that we are providing. The block is in the middle.
2752 What we need is the ability to have a benchmark, which we talked about this morning, which is representative of the type of service. We feel we are successful because we -- we are successful that we have proven the hard part. We have proven that we can do it. We have proven that people like us. We have proven that people watch us. We have proven that people value us. Now the only thing is we have to get that dam in the middle to allow the funds to flow to be able to sustain what we are doing.
2753 THE CHAIRPERSON: Have you read the Star Choice intervention? I am sure you have.
2754 MR. J. LEVY: Yes.
2755 THE CHAIRPERSON: And you will have the chance to reply to it, but I am struck by something they say and I would ask for your comments. At paragraph 7 where they say:
"The strategy of the service seems to be to acquire a licence or licences to the subject of specific conditions of operation, seek a loosening of those conditions on various grounds without claiming a need for price increases, and subsequently use the cost and the redesigned product to justify price increases that were not proposed in the original request for flexibility". (As read)
2756 Is that a fair comment or is it a bum rap?
2757 MR. JOHN LEVY: I have two comments about that and the author of that.
2758 If we were sitting here today and didn't have the evidence that we have in front of you, then I would agree. The fact that we chose to invest to get us, to put us in this position, was our decision. We are not talking about what happened. We are talking about the future. The decision we have to make now is whether what we have created -- not me; these guys -- whether what our network has created is something that is worthy of moving forward.
2759 Did we do anything terribly wrong in continuing to develop within our niche? Did we jump outside the bounds of what we were doing on an unauthorized fashion? No.
2760 We came here. We got the amendments that we thought were necessary, and we spent the money. And it worked.
2761 We are now in a position to say from here forward we can continue to do it, and we can continue to grow. That is a decision that I think we collectively, hopefully we present and you make and hopefully make in a favourable fashion.
2762 It is not about some preconceived notion about getting your foot in the door, changing your licence, running up costs, asking somebody to pay for what you have done in the past and then whoopee, everything is fine.
2763 That is what is being portrayed here, and that is absolutely not what this was all about.
2764 I think it is a little ironic that the person making that comment is the person who I can't figure out how many subscribers I have with. You raised it, and I have to respond. I am not casting aspersions all over the board, but when we talk about the imbalance and inequality that exists, it is one thing to talk about how much you are going to be paid; it is another thing to talk about how many subscribers do I have.
2765 I have a vice-president of mine who is now chairing an audit committee because we can't even figure out in certain situations how many subscribers we have.
2766 Anyway, I wasn't going to raise that.
2767 THE CHAIRPERSON: I will move on to some of the other questions that I think you would rather I asked you than this.
2768 MR. J. LEVY: Sure.
2769 THE CHAIRPERSON: I do have to also quote from the CCSA, the Small Cable Operators' brief, and again ask you to comment. You will get another chance later on as well.
2770 Their comment is that:
"These licensees have now positioned themselves as competitors in a market which may very well not support three major competing live event sports programming services, particularly with the entry into the market of new digital niche services. These licensees entered a high risk, high reward environment with their eyes fixed firmly on the rewards. Now they seek protection from any risk by passing their costs on to the Canadian consumer. The CCSA submits that these programmers courted the risks when they sought the rewards of participation in the competitive sports programming environment. The escalation of costs per programming rights is not of itself sufficient justification for a claim of economic need." (As read)
2771 Do you have comments on that?
2772 MR. J. LEVY: My response is basically the same as my previous response. We did go in with our eyes wide open, and we invested. We are not here looking backwards; we are looking at the future. It is for us to decide now whether we collectively did the right thing.
2773 THE CHAIRPERSON: All right.
2774 Mr. Buchanan?
2775 MR. BUCHANAN: There is one additional point, because it is the second time this issue of agreeing now to ask for a rate increase has come up, once in the passage you read in the decision and once in the Star Choice thing.
2776 If you read the transcript, the transcript is clear from that proceeding that they said they would hold the price until the end of the licence term and then we would talk.
2777 THE CHAIRPERSON: I agree with you, Mr. Buchanan. I have read your reply to that effect and the interchange with Commissioner McKendry at that hearing. So I am aware of that as well. Thank you.
2778 I take it then that the strategy of live sports is one you are going to stick with. You are not going to go back to the original model that you were licensed for in 1996.
2779 MR. J. LEVY: Correct. I think it is not this and this. It is really integrated as all part of what we do. There is no sort of stopping and turning back. You can't do that. We just can't sever that part.
2780 THE CHAIRPERSON: What if the Commission denies you your rate increase at that stage? What would be the impact on live sports?
2781 MR. J. LEVY: The impact on the network as a whole would be devastating. Live sports would just be a part of that. All the initiatives that we are proposing would obviously be gone. Other live sporting events, to the extent that we were producing them, would be gone.
2782 A lot of those events will not air elsewhere. This is not something that if this network is not doing it, it shows up elsewhere. It is not like that. The other guys have very busy schedules.
2783 One of the reasons that we have had success with a lot of the product is because we have shelf space and we are flexible.
2784 More important than that is our core mandate falls apart. We can't turn it backwards. We can't do that because we are then closing bureaus. We are not adding new bureaus; we are closing bureaus. We are not live from noon until midnight, and we are not adding three more hours to do a west feed. We are now cutting that back.
2785 Yes, live event would be impacted, but that would only be a small part of the overall impact.
2786 Just so you will know, because obviously we are really sensitive and attuned to this, somewhere between 30 to 40 per cent of our entire workforce would be gone if we don't have a rate that is commensurate to what we are doing.
2787 So we have bigger problems than not being able to do a couple of live games.
2788 THE CHAIRPERSON: A number of intervenors have raised -- and I think in your presentation today you talked about NFL sports.
2789 Do you carry any currently?
2790 MR. J. LEVY: We used to carry "Monday Night Football". That was all we carried. It was just a one-off deal which we had with Global actually, who had the rights. They decided that they wanted to show something else on "Monday Night Football". They called us and said, "Do you have that available as a time slot?" And we walked away for two minutes and said "yes". We figured out a deal with them and had "Monday Night Football".
2791 That was a one-year deal. I am not sure where they are going this year. I don't know if it is official yet. We were looking at it, and we may or may not get it.
2792 Quite frankly, that is the type of introduction of live event, whether it is U.S. or Canadian, that we can do and makes sense for us.
2793 THE CHAIRPERSON: That was a good deal for you when it ran?
2794 MR. J. LEVY: Absolutely.
2795 THE CHAIRPERSON: In terms of profit line.
2796 MR. J. LEVY: Correct.
2797 THE CHAIRPERSON: It is not constant. You don't know whether you will get it back. The rights-holder is Global for that.
2798 MR. J. LEVY: Global's rights for that I think ended -- David, do you want to talk about that?
2799 MR. ERRINGTON: The rights for "Monday Night Football" are up for renewal this year. We spoke to them about renewing the deal at its current terms that we had in the previous year, and they decided to take the rights elsewhere.
2800 It is my understanding that Toronto is launching "Monday Night Football", the Craig system this year.
2801 THE CHAIRPERSON: The Craig system?
2802 MR. ERRINGTON: Yes.
2803 THE CHAIRPERSON: You were asked as a deficiency question -- before I ask you that, I don't know whether you have these costs. These are the new initiatives which you have detailed today and the bureaus in Edmonton, Halifax, Montreal and so on, expanded pre and post game, news conferences.
2804 Have you costed those items out? Do they have various costs associated with them that you could file with us?
2805 MR. CICIONE: Yes. Each of the initiatives have been costed out.
2806 THE CHAIRPERSON: Rather than have you go through a list, perhaps you could file those with the secretary.
2807 MR. CICIONE: Yes.
2808 THE CHAIRPERSON: You were asked in a deficiency what you would do with a lower rate increase, to 25 cents rather than 40, and I think you gave us answer to that as well.
2809 You included increased "Sports Axxess" episodes.
2810 MR. CICIONE: That is correct.
2811 THE CHAIRPERSON: Thanks to your video, I now get that the "XX" is a chromosome.
2812 MR. CICIONE: That's good, because a lot of people don't.
2813 THE CHAIRPERSON: Increased pre and post game coverage, Edmonton, Halifax, and Montreal bureaus, "Lacrosse", "Score West" and "Score for Life".
2814 Those are, if you like, the priorities within that list.
2815 MR. CICIONE: "Score for Life" is not part of that process.
2816 THE CHAIRPERSON: I'm sorry?
2817 MR. CICIONE: "Score for Life" should be off that list.
2818 THE CHAIRPERSON: It is on your list in your response to deficiencies, so you may want to have a look at that.
2819 MR. J. LEVY: In that regard, that was one of the programs that would have been in the categories that we originally applied for and that, through the intervention process, we decided not to go forward on two categories.
2820 THE CHAIRPERSON: I see. So that fell away --
2821 MR. J. LEVY: That fell away, and what you will find is that the dollars allocated for that particular show will be reinvested in more sports, news and information, whether it be enhancing our bureaus or doing some other programming. So we will outline that.
2822 THE CHAIRPERSON: We should take that one off the 25-cent list. That has been reallocated generally.
2823 MR. CICIONE: That has been reallocated amongst the other categories.
2824 THE CHAIRPERSON: I had some questions on the one per genre approach, but from our previous discussion I am gathering that you want to adhere to your existing description of service and nature of service with the additions of 2(a) and 2(b).
2825 MR. J. LEVY: Correct.
2826 THE CHAIRPERSON: You are not suggesting that you want to be anything else other than the sports news and information network, with the ticker all the time and the breakaways.
2827 MR. J. LEVY: Correct.
2828 THE CHAIRPERSON: The change in the definition of the broadcast day that you are applying for, what would be the impact of that change that you see on your live programming plans and on the scheduling of your Canadian programming?
2829 MR. ERRINGTON: The move from an 18-hour world to a 24-hour day would allow us greater flexibility, because we have certain quotas that we must attain to the overall broadcast day. It allows more flexibility and more hours that we can program (a) live events and (b) some foreign content and some of our Canadian live events as well.
2830 It is in line with what the other two broadcasters have as well. I believe TSN and Sportsnet play a 24-hour wheel as well.
2831 THE CHAIRPERSON: You would air Cancon after midnight, I assume.
2832 MR. ERRINGTON: Yes. On our plans we have "Score West", which is a live sports show from midnight to 3:00 a.m., which is 100 per cent Cancon.
2833 THE CHAIRPERSON: The distribution of Cancon across the broadcast day, would that suffer at all under that approach?
2834 MR. ERRINGTON: No. Our licence dictates that it is 80/20. We are actually in our first term at 90/10.
2835 THE CHAIRPERSON: Thank you.
2836 Let's discuss closed captioning. What are you prepared to commit to in the event -- I think if your increase is granted, you are prepared to commit, I guess by condition of licence, to 90 per cent by the end of the licence term.
2837 Is that fair?
2838 MR. ERRINGTON: No. We actually said we would commit within 120 days.
2839 THE CHAIRPERSON: A hundred and twenty days with the increase.
2840 If your rate increase is not granted, what would be your commitment?
2841 MR. ERRINGTON: We are currently doing -- we estimate overall on an 18-hour wheel we are doing about 50 per cent closed captioning; 50 per cent right now on an 18-hour wheel.
2842 Depending if we move to a 24-hour wheel, that obviously will decline. We take closed captioning very seriously at The Score. You have to remember the nature of the service is that, on average, there are seven minutes of scoreboard per hour on the network. There are three tickers on the network at all times.
2843 In our 1996 condition of 90 per cent closed captioning, it applied to services that had over $10 million in revenues. We didn't get to that point until we added live event to our mandate.
2844 Since that time we have worked hard at rolling our closed captioning commitments up. The 50 per cent and the cost of doing closed captioning over and above what we currently are is staggering.
2845 Again, you have to notice that the method of our network and how we take in programming, we create 90 per cent of our own programming and the shelf life of that programming is for evening and maybe repeated the next day. So all the closed captioning that we would have to do from this point onward with our network, the bulk of that consists of live captioning. It is very expensive.
2846 At a 10-cent rate -- you have seen our numbers -- it would be very difficult for us to continue to do that.
2847 THE CHAIRPERSON: You expected by the end of this broadcast year --
2848 MR. ERRINGTON: The current term.
2849 THE CHAIRPERSON: -- to be at 31 per cent?
2850 MR. ERRINGTON: No. We have actually updated those numbers.
2851 The thing you need to know is that since the beginning of this year, we have actually been closed captioning 100 per cent between 6:00 p.m. and midnight.
2852 THE CHAIRPERSON: I see.
2853 MR. ERRINGTON: You also need to know that 56 per cent of our viewing occurs in that time period.
2854 THE CHAIRPERSON: You are at 100 per cent now between 6:00 p.m. and midnight.
2855 MR. ERRINGTON: Correct.
2856 THE CHAIRPERSON: How much over the entire 18-hour day?
2857 MR. ERRINGTON: That averages to about six hours a day, 6:00 p.m. to 12 midnight.
2858 There is some incidental closed captioning over and above that. It is a program that we may get outside of that time frame, a live event on the weekend, or strip programming.
2859 But 98 per cent of our closed captioning --
2860 THE CHAIRPERSON: I think that is how we get to 31, isn't it? Six hours between 6:00 p.m. and midnight --
2861 MR. ERRINGTON: There are two other factors that we took into consideration with our 50 per cent. We took into consideration that there is, on average, seven minutes of boards per hour on our network. You can't track that in log-in reports because it is not the full hour. It is only seven minutes of the hour.
2862 The second consideration we took note of was that during the day when we have a desk host and he reads off the teleprompter and throws to a live highlight, what he reads off the teleprompter actually is closed captioned. That is, on average, five minutes per hour.
2863 Again, we can't measure that within our log-in reports because it doesn't consist of the whole hour. It is either the whole hour or not.
2864 THE CHAIRPERSON: So the 120-day commitment is complete total round-the-clock.
2865 MR. ERRINGTON: It would be 90 per cent.
2866 THE CHAIRPERSON: Ninety per cent of that.
2867 MR. ERRINGTON: Right.
2868 THE CHAIRPERSON: Of the 24-hour day.
2869 MR. ERRINGTON: Correct.
2870 THE CHAIRPERSON: And without the approval what is your commitment?
2871 MR. ERRINGTON: Without the rate increase or the approval of the 24-hour day?
2872 THE CHAIRPERSON: No. Good question.
2873 MR. ERRINGTON: We must be clear.
2874 Sorry, sir.
2875 THE CHAIRPERSON: The rate increase.
2876 MR. ERRINGTON: It would be difficult. If we do not get a rate increase, we have to look at everything on our network and make some hard decisions.
2877 John stated without our rate increase there are dire consequences. Bureaus will be closed, programs will be cut, staff will be let go, and closed captioning is something we would have to look at.
2878 With the nature of our service, the bulk of the captioning on the service is live captioning and that is expensive. It would be difficult for us to pin a number on that without a rate increase.
2879 THE CHAIRPERSON: World Wrestling Entertainment. Discuss.
2880 MR. ERRINGTON: I would be happy to discuss that with you.
2881 We currently have two programs that we air for WWE, World Wrestling Entertainment. One of them is "Smack Down" which airs on Thursday nights on the network, and the other is "The Bottom Line", which airs on Saturdays and repeats on Sundays.
2882 I assume your question is what we are doing to make aware of the violence factor within the wrestling. Is that where we are heading?
2883 THE CHAIRPERSON: Yes, and ensuring the children are not exposed to it.
2884 MR. ERRINGTON: Right. We actually take extreme measures to make sure that the programming that we get from WWE is in line with the commitments that have been made on the CAB. I will walk you through on a weekly basis with our WWE programming.
2885 Every week WWE faxes us a script of what the show is going to be for that night. We have a weekly conference call with them where we review that script.
2886 THE CHAIRPERSON: Script? You mean it isn't real?
2887 MR. ERRINGTON: Unfortunately, I hate to bring it up to you, sir; but no, it is not. Don't tell anyone. It's a big secret.
2888 THE CHAIRPERSON: Are you allowed to do drama?
2889 MR. ERRINGTON: Not yet. What we do is we take the script and we actually have a conference call with WWE on a weekly basis where we review the script.
2890 If there is something in that script that we think is inappropriate and we are not comfortable with airing, we ask them to edit it. And they comply.
2891 Then they send us an edited copy of the show. We take that edited copy and we review it on our own. If there is something in that show that we still do not think is appropriate, we will edit that prior to going to air.
2892 Once the show is edited and we feel comfortable with what is being aired, we have warnings at the top of the show and warnings in and out at every single break.
2893 So we actually have a process in place. We have gone to the extreme to make sure that it has been taken care of. We are quite comfortable with the programming that we have on air.
2894 There have been no complaints thus far.
2895 THE CHAIRPERSON: I guess you don't time shift.
2896 MR. ERRINGTON: Right.
2897 THE CHAIRPERSON: "Smack Down" at 4:00 p.m., Pacific time I gather.
2898 Have you had complaints about that?
2899 MR. ERRINGTON: No, sir. We have been very diligent in ensuring that the program that goes to air we are quite comfortable with. The process we have in place works.
2900 THE CHAIRPERSON: Thank you.
2901 MR. J. LEVY: Could I just add before we go off that. And it is not on our network alone. Obviously WWE shows on all networks.
2902 I don't know if it was said this morning or previously -- and this isn't an ad for WWE. But if we are looking at viewership numbers and we look at popularity, it is an extremely popular show. It does big numbers on all the networks, and our network is no exception.
2903 That is no reason not to do what we are doing. We are proud of the edits and process that we have in place to make sure we don't get any calls.
2904 There is another side to this whole thing, which is that there is a bunch of rabid fans out there who still think it's live.
2905 THE CHAIRPERSON: Turning to cultural diversity, I wonder whether you could tell us your specific initiatives to improve the presence and portrayal of people from racial and cultural minorities and aboriginal peoples?
2906 MR. ERRINGTON: Sure. Given the size and scope of our network, we thought it would be prudent to wait to hear the results of the CAB research, which is happening right now. I know the report is due this fall. Once that report is filed, we would be more than happy to take the recommendations that are within that report and apply them to our network.
2907 I would like to pass it to Monique to highlight what we have done on our own accord what we have done with respect to employment and equity.
2909 MS MONTGOMERY: Thanks, David.
2910 As a federally regulated company, we filed a voluntary employment equity report with Human Resources Development Canada. Within that report was a workforce survey which we conducted with our staff to find out the composition of our staff as it relates to the four designated groups that have been historically under-represented in the workplace.
2911 We have taken serious steps to make sure that our employment opportunities are made available to a wider range of candidates. As a result of these steps, two of our recent on-air hires have been people from these designated groups.
2912 Are you interested in finding out specifically what we have done?
2913 THE CHAIRPERSON: Yes.
2914 MS MONTGOMERY: All of our employment opportunities are made available right now to Canadian women in communications, Canadian women in film and television, to the Canadian Paraplegic Association and also to Miziwe Biik, which is an aboriginal training and employment centre in the Greater Toronto Area.
2915 We have also put an ad in the Canadian First Nations Business Director which makes our station more widely available to aboriginals throughout Canada. Any time we have an on-air position available we advertise in Share, Canada's biggest ethnic newspaper. It's self described as a newspaper that caters to black and Caribbean communities in the Greater Toronto Area.
2916 THE CHAIRPERSON: I have as your on-air employee count five women representing 21 per cent and one aboriginal person 5 per cent and no persons with disabilities or visible minority. Is that correct?
2917 MS MONTGOMERY: At the moment we do have Heather Lynn who heads up our "Sports Axxess" show. Yes.
2918 I would also like add that of our 13 on-camera employees, five of them are women. Two of these women head up our bureaus in both Ottawa and in Calgary. They not only appear on air, they actually run the place and I think I would attribute the rise in applications from qualified female intern candidates to the fact that we have these strong young women on television representing us so well.
2919 THE CHAIRPERSON: I notice that women make up 18 per cent of your full time workforce. Is that correct?
2920 MS MONTGOMERY: That's correct.
2921 THE CHAIRPERSON: And 12.5 per cent of your CRTC hearing panel.
2922 The industry community task force on cultural diversity, are you participating in that?
2923 MR. ERRINGTON: I am a member of the CAB Canadian Television Board, so I am not on that task force. I am on the audit committee task force which John alluded to, but I do comment on that at our industry meetings.
2924 THE CHAIRPERSON: I see. So that's the extent of your solicitation.
2925 We have discussed closed capitioning. Services to the visually impaired. Where does that stand? I note that in your application you mention that as a small and unprofitable service, but this was not something you had done. Do you have plans going forward?
2926 MR. ERRINGTON: I would like to reflect the statements that were made by a couple of intervenors. Mr. Eden has one on the MBRS which stated that services provided over 80 per cent of programming and news information or sports do not need to be described.
2927 I think our network falls very well into that category. Again, it's sports news and information service, so over and above that.
2928 Going forward as well, it's not that easy for us to implement the capital required to do described video. This second audio channel is a big barrier for us to overcome.
2929 As I mentioned to you earlier, we produce over 90 per cent of our own content. The nature of our service is every night we have five edit suites. The five edit suites are taking games and running them from five feeds.
2930 Again, they come in and they get captured on a beta deck, a beta machine. We edit them online and we fire them into a server and they go out there.
2931 The infrastructure that we have in place now on our five edit suites, each suite I think has four beta decks. Those betas do not have the capability of taking a second audio feed, so we would have to invest over a million dollars in new capital equipment just in order to get that feed in.
2932 Over and above that, the nature of our service being live a lot of the time and not canned programming or archived programming, we would have to do live describe video captioning on an ongoing basis and the cost of that is estimated to be about $2,500 an hour, so it's a huge obstacle for us to overcome to even get to the point where we could provide it and then when we are providing it, the operational costs are staggering.
2933 THE CHAIRPERSON: So I take it that even with the rate increase you are not trying to do it.
2934 MR. ERRINGTON: Not at this point, sir.
2935 THE CHAIRPERSON: Well, those are my questions. We will have further questions in reply presumably, but at this stage Vice-Chair Wylie.
2936 COMMISSIONER WYLIE: I'm puzzled by your financial projections. I have here your results to 2002. What is year one in your projections? You filed them both with and without the rate increase. Is it 2003?
2937 MR. K. LEVY: Year one is fiscal 2004.
2938 THE CHAIRPERSON: 2004. What happened in 2003? Does it look like 2002?
2939 MR. MICHAUD: No. We are actually experiencing a significant upturn of cost structure.
2940 COMMISSIONER WYLIE: Upturn in revenues?
2941 MR. MICHAUD: Our revenue is projected this year to increase from $17.4 million last year to about -- almost $18 million for the remainder of this year. Our costs are significantly down. We are projecting a PBIT loss of $2.4 million compared to $17.7 million last year. We are tracking that as we are going now.
2942 COMMISSIONER WYLIE: Okay. So $18.9 for your total revenues. What about your total expenses?
2943 MR. MICHAUD: $17.9 or $18 million.
2944 THE CHAIRPERSON: Pardon me?
2945 MR. MICHAUD: The total revenue --
2946 THE CHAIRPERSON: At the end of 2003.
2947 MR. MICHAUD: Yes. It would be about $18 million even.
2948 THE CHAIRPERSON: $18 million, not .9. Okay. And the expenses, total expenses?
2949 MR. MICHAUD: Total operating expenses?
2950 THE CHAIRPERSON: Total operating expenses, yes.
2951 MR. MICHAUD: $19.5.
2952 THE CHAIRPERSON: $19.5 instead of $34.1.
2953 MR. MICHAUD: That's correct.
2954 THE CHAIRPERSON: Yes, and that's where my curiosity is. You go in 2002 from 34 to 19 and the numbers I see is a great decrease I would expect in programming expenses. It's certainly true on the status quo between 2002 and 2004, your year one. There's a great decrease in operating expenses. Correct?
2955 MR. MICHAUD: Yes, that's correct.
2956 THE CHAIRPERSON: It actually goes from 34 in '02 to 16 million in '04 and you say it's 19 in between, so there's a very large decrease. Yet your revenues are not decreasing, even though you are not spending as much. What's happening?
2957 MR. MICHAUD: The primary reason for that is the decrease in our rights fees that we were paying for some live event programming that occurred in 2002 and we project that in 2004 some of the rights fees will decrease while some of our highlights fees will increase. There is sort of a transition period.
2958 THE CHAIRPERSON: What again is your PBIT?
2959 MR. MICHAUD: In which year, Madam Commissioner?
2960 THE CHAIRPERSON: In 2003.
2961 MR. MICHAUD: Our PBIT is a negative $2.4 million.
2962 THE CHAIRPERSON: So there's a dramatic increase.
2963 MR. MICHAUD: Yes.
2964 THE CHAIRPERSON: Especially since there's an increase in your revenues which seems constant in your projections on the status quo and a very large decrease from $34.1 million to $19.5 million, decrease in expenses, with nevertheless a normal healthy increase in revenues.
2965 Presumably you are spending less and you are expecting to keep the same audience and the same advertising. Is that correct?
2966 MR. K. LEVY: In fiscal 2004 under the status quo model we are projecting a 10 per cent fall-off in audience as a result of continued programming cuts that we would have to implement, moving into 2004, and that would result -- in the advertising revenue you will see that that primarily declined from 2003 to 2004 and then only gradually marginally increases over the rest of the licence term under a status quo model.
2967 THE CHAIRPERSON: The decline between '02 and '03 though, there's an increase between '02 and '03 and in the scheme of things, continuing the numbers we are looking at, only a slight decrease in revenues from $18 million to $17.7 million between '03 and '04.
2968 MR. MICHAUD: Yes, Madam Vice-Chair.
2969 THE CHAIRPERSON: I'm looking at the status quo.
2970 MR. MICHAUD: Yes. Some other factors that become involved are in 2002 and 2003 you will see some other revenue which we earned as a result of sub-licensing some properties, so if you look --
2971 THE CHAIRPERSON: Is this in '03 or '04?
2972 MR. MICHAUD: In '02 and in '03 you will see that whereas you don't see that --
2973 THE CHAIRPERSON: Under "Other revenue".
2974 MR. MICHAUD: Yes. You won't see that in '04.
2975 THE CHAIRPERSON: In '02 there's a million. How much in other revenues in '03?
2976 MR. MICHAUD: About $500,000.
2977 THE CHAIRPERSON: So half a million. Why are they disappearing under the status quo in '04?
2978 MR. MICHAUD: We no longer have the rights to the property that we --
2979 THE CHAIRPERSON: These are a relatively small amount in the scheme of things, so there is a dramatic improvement in '03, even under the status quo.
2980 MR. J. LEVY: Can I just add from a top line why that happened? That was our transition year out of rights agreements that we had, the major big baseball agreement which was --
2981 THE CHAIRPERSON: Yes, but it raises the question that the Chairman raised as to whether these enormous increases after 1999 were maybe not the best business decision. What it suggests to me is without this type of expenses you can project to basically maintain and increase your revenues while there is an enormous decrease in your expenses.
2982 You are shaking your head. I don't understand why -- if you look at your expenses, between 1999 and 2000 there's a big increase from 9.5 to 15.6 and then we go from 15.6 in '01 to 20 -- 29 is it?
2983 MR. J. LEVY: Yes.
2984 THE CHAIRPERSON: And then to $34 million.
2985 MR. J. LEVY: The answer is this.
2986 THE CHAIRPERSON: And down to 16 under the status quo in '04.
2987 MR. J. LEVY: Right. The drop -- I think we have explained the drop relates to one particular product that we no longer carried on air.
2988 THE CHAIRPERSON: Yes.
2989 MR. J. LEVY: In the context of just a thought process being well, if you didn't do that, then I think the suggestion of some of the intervenors and maybe what you are picking up on is "If you hadn't done that you would have been in pretty good shape and perhaps your ad revenue would have escalated anyway".
2990 I think what we were trying to present earlier this morning was the overall effect of introducing not just that but all live event programming took our network to a different level that allowed us to increase advertising revenues dramatically.
2991 If we didn't do that, I mean if we could just sort of click that three or four years and say "Okay, you are not going to do that", or let's say you hadn't awarded us live event programming in the first place, we might not have that amendment when we did.
2992 If we hadn't done that, I think the suggestion is what would the network have looked like? The picture we tried to portray is although it's anybody's guess, our view is you can't just isolate certain costs and then say the network would have carried on growing in revenues or could have held its revenues at the time and the networks would have just been merrily on its way.
2993 Some of the intervenors even went so far as to suggest, you know "You have lost so much money and that relates to what you spend on a certain product, one as against the other, therefore if you didn't do it you would have been breaking even". I mean that was a comment that came in from one of them.
2994 Well, that's ludicrous in my view because that's not looking at the overall picture. What did that do? If we didn't introduce live event, what other costs could we have saved? What other initiatives would we have had to undertake? What would have happened to our eyeballs?
2995 Were we still just the great little network that everybody -- the scooter that everybody was in and out and the advertisers still weren't talking to us.
2996 I hear what you are saying in the context of looking back at certain costs, but I think you have to look at it in the context of everything we have done.
2997 COMMISSIONER WYLIE: That's interesting. You are not projecting to lose those eyeballs, even though you are going to decrease your expenses.
2998 MR. J. LEVY: No.
2999 THE CHAIRPERSON: In '04 it's $17.7 million that you are projecting for revenues and if I add your operating expenses, plus depreciation, what do I get? About $17.01 million? It's not so bad, is it?
3000 MR. J. LEVY: Well, our ad revenue dropped from projected 2003 of just under $11 million. It dropped a couple of hundred thousand dollars. In year two it's the same. In year three it's flat.
3001 What we are saying is, you know, we are going to work very hard --
3002 THE CHAIRPERSON: Your advertising revenue?
3003 MR. J. LEVY: Yes.
3004 THE CHAIRPERSON: It keeps increasing.
3005 MR. J. LEVY: Very marginally. I mean 10.7.
3006 THE CHAIRPERSON: I suppose that's linear.
3007 MR. J. LEVY: 10.7, 10.8, 10.9. We are talking pennies here compared to what national sports advertising companies are doing.
3008 All I'm saying is that this network in this model we would be very lucky to maintain that level of advertising revenue. The sub revenue speaks for itself. Right? It's the status quo.
3009 In terms of the ad revenue, what we are saying is we have ramped it up, we are going to be lucky to keep the same eyeballs, we are going to work like crazy to sell the advertising the best we can and we think there's potentially much other fall-off from here.
3010 THE CHAIRPERSON: Yes. Well, we have been discussing one per genre and how to set wholesale rates, et cetera. We have another applicant not applying for a rate increase but with a PBIT that, considering what you are telling me about what's happening in '03 and '04 it's worse than yours.
3011 Should we also give them a rate increase or do you think if they apply after we give you yours they should get one too? What criteria at that time would we look for when we gave one to someone to save them from some programming decisions? We will save you too.
3012 MR. J. LEVY: Well, first of all, we are not here asking for a rate to save our program, in our view, for some programming decisions of the past. I think what we tried to say is we are looking for a rate which represents the network that we have created today and we are confident to create in the future.
3013 If somebody comes before you and takes out these criteria that we talked about earlier this morning or earlier this afternoon --
3014 THE CHAIRPERSON: They have a good pattern to follow after the good job you have done.
3015 MR. J. LEVY: I appreciate that, but in all seriousness, what genre are they in, what's the competition, who are they? Are they getting extraneous support? Just go down -- have they proved viewership numbers like we have? Have they proved value? What are their comparators? Public policy considerations.
3016 THE CHAIRPERSON: At the end of the day for the subscribers, which we often forget --
3017 MR. J. LEVY: Right.
3018 THE CHAIRPERSON: Is there a need to have access, have an increased rate to get this type of programming or is there some already? I'm sure you know as well as I do what services that were licensed at the same time as you are not doing so well.
3019 MR. J. LEVY: Yes.
3020 THE CHAIRPERSON: The question then should there be -- we talk about criteria. Should one criterion be well, the subscriber is getting a lot of that already so we shouldn't have another 50 cents added to the bill to get more. Is that a criterion that we should retain?
3021 MR. J. LEVY: We have mentioned earlier that that is definitely a consideration that should be taken into account. In our view, when you look in the unregulated world of today and the relative positioning of certain parties, absolutely that's something you have to take into account.
3022 THE CHAIRPERSON: 2004. Have you filed 2002, 2003? Have you filed it with historical and projections anywhere in this application?
3023 MR. BUCHANAN: You can get there --
3024 THE CHAIRPERSON: The last year. What we have here is ending in 2002. Do we have 2003?
3025 MR. J. LEVY: We were getting the eyeballs, we are gaining in popularity, people like that, but we had to get it to the next level. We had to get people staying longer and we had to get credible as a real sports network, that is the bottom line and the way you do that in the advertiser's mind and in the public mind is to have some games on your network.
3026 COMMISSIONER GRAUER: I have the projected and actual three first years and in your application you projected revenues of $3.5 million, I think you realized $6.5 million in year one. In year two you projected $5 million and you have realized $8.5 million. It was in year two that you applied for the amendment and I'm just really wondering if you ever gave -- you were exceeding your projections in terms of revenues and I'm wondering if it wasn't awfully early just into your second year to have made the assessment that it wasn't going to work?
3027 MR. J. LEVY: Well, I think it was a realization that, you know, we were on the right track, there was no question. I mean, we knew we were on the right track before we came the first time, that was the good news. But we could see down the road that what we were doing for a living in terms of highlights, in terms of the competitive environment, in terms of -- because we had the rate that we said and we got carriage. And, in terms of some of our advertising revenue, we were getting some early response but it wasn't sustainable, it wasn't the type of growth that was going to get us to be able to do the type of programming that we wanted to do. So, we actually think quite the contrary. We think if we hadn't done it then we wouldn't have had the opportunity to really turn this network into what it was developing into and it -- listen, it is a process, there is no question, you don't know until you get in, you don't know until you have 40 or 50 kids working with you driving this thing, driving this engine that was nothing before into something that really looked like it was gaining momentum.
3028 COMMISSIONER GRAUER: Well I guess, without belabouring it, the question that's left in my mind is you talk about it not being the service you wanted it to be, but it was certainly exceeding the projections that were filed for the license -- granted for the service you were licensed. Do you know what I'm saying? You were exceeding the projections on revenues for the services licensed, but you decided it wasn't what you wanted it to be. Is that...?
3029 MR. J. LEVY: Well, again, when I say "me" it was the feedback we were getting from our consumers as to keep driving, keep going, give us more, you are giving me five feet, give me eight feet. I want all the games on, I don't want seven games on. We want you to have coverage from not 8 o'clock at night until midnight, we want to start at 6 o'clock, can you give me some pre-game stuff? How come I can't see a live face on your network or I can't see them there more often? What about us out in Vancouver? What about us out in Calgary? Why are you Toronto centric like some other people are?
3030 MR. BUCHANAN: Commissioner, you raise an interesting question. I don't imagine you will find any service that wasn't exceeding the revenue expectations from 1996 because they all thought they were going up in digital and they all ended up in analog. So, I think that's a constant. I think what you will find is the costs also are greatly in excess of what they were. Certainly the losses were in excess of what was predicted and the very point you raised was raised 2000 by interveners who thought it was premature to come forward and to do that. In fact, the Commission raised the question, but at the hearing and in the end the Commission decided it was appropriate to go ahead in the same day that TSN was transferred and SportsNet was divested was the same day that this service was given that ability, so to contextualize the answer.
3031 COMMISSIONER GRAUER: I just have one other quick question. Did I hear you mention a western feed? You are not planning a second feed are you?
3032 MR. CICIONE: No, we are one national service. We were talking about the program ScoreWest.
3033 COMMISSIONER GRAUER: And if I look at Smackdown!, I believe it is on at 9:00 in the east, you wait until the watershed hour for Smackdown! in the east, is that correct?
3034 MR. CICIONE: No, we are at 7:00 p.m. in the east.
3035 COMMISSIONER GRAUER: Oh, so I have a different schedule. Thank you.
3036 THE CHAIRPERSON: Now that you know the time it is on in B.C. you can can it.
3037 COMMISSIONER GRAUER: I will make sure to tune in at the office.
3038 THE CHAIRPERSON: Thank you, counsel.
3039 MR. WILSON: Thank you, Mr. Chairman. First, I just wanted to confirm with you the document that you propose to file with the Commission costing out the new initiatives, if you could file that by the end of the week?
3040 THE CHAIRPERSON: No problem.
3041 MR. WILSON: I don't believe I have any further questions, Mr. Chairman.
3042 THE CHAIRPERSON: Thank you very much. Thank you very much gentlemen and madam, and we will resume in 15 minutes after our break with the next item.
--- Upon recessing at 1617 / Suspension a 1617
--- Upon resuming at 1636 / Reprise a 1636
3043 THE CHAIRPERSON: Call the next item please.
3044 MR. LEBEL: Thank you, Mr. Chairman. Item 6 on the agenda is an application by The Comedy Network Incorporated to renew the license of the National English Language Specialty Television Service known as The Comedy Network, expiring 31 August, 2003. Licensee proposes to add program category 7(g) other drama, to increase its Canadian content from 58 to 60 per cent during the broadcast day and to decrease its Canadian content from 72 per cent to 60 per cent during the evening broadcast period. Mr. Rick Brace will introduce his colleagues. You have 20 minutes to make your presentation.
PRESENTATION / PRÉSENTATION
3045 MR. BRACE: Thank you. Mr. Chairman, Members of the Commission, my name is Rick Brace and I'm the President of CTV. Before we begin our oral presentation of The Comedy Network's license renewal, I would like to take this opportunity to introduce the members of our panel here today. To my left is Ed Robinson, President and General Manager of The Comedy Network and to my right, Kim McKenney, Director of Finance, Specialty Channels. Beside Kim is Elizabeth Duffy-MacLean, Group Vice-President, Regulatory Affairs and behind me is Monique McAlister, Legal Counsel from Goodmans.
3046 Seven years ago we appeared before you with a passion and determination to create a comedy service worthy of the great comedic talent in this country. We wanted to provide a place for talent to pitch their television ideas and to get their first break, a place to grow and develop, a place that made comics feel welcome. We are proud of our accomplishments in our first licensed term as demonstrated by our 134 letters of support. We delivered on our promises to the comedy community and we have delivered to the Canadian broadcasting system and now we need to do more. We need to support quality Canadian projects that provide comedy creators with the ability to take their programs to the next level. We are here today to ask for your support in making that happen.
3047 Television is a challenging business and the environment in which we operate is ever evolving. However, one constant remains, our commitment to build a world class comedy service. Over its first licensed term, The Comedy Network has provided a winning blend of comedic programming, original Canadian commissions, acquired Canadian programming and the best of foreign programming. In just six years The Comedy Network has been nominated for 30 Gemini Awards and received five. We have established a reputation among our viewers as dependably cheeky, irreverent and even a bit subversive. And we have established a reputation with Canadian comics as a brave supporter of new talent and a provider of exciting opportunities.
3048 Our dedicated viewers have discovered that time well spent with us is, as our tag line goes, time well wasted. Much of the inspired mayhem at The Comedy Network can be blamed on my fellow here, Ed Robinson, and he is here to tell you more.
3049 MR. ROBINSON: Thanks Rick. The past six years have been fast, fun, exhilarating and rewarding. One of the great privileges of this license has been the opportunity to work with Canadian comedic talent both in front of and behind the camera. We have had the chance to explore, develop and commission projects from performers, writers, producers and directors across the country. We have given a voice to established comedic talent not previously seen on television and also given exposure to up and coming talent. We have made a difference in Canadian comedy and we have a plan before you that we believe will allow us to do even better work and enhance our contribution to the Canadian broadcasting system. And, just to prove that we have actually been making television all this time, we have brought some tape. So, here is a look at some of what we have accomplished so far.
--- Video presentation / Presentation video
3050 MR. BRACE: Comedy can be a powerful vehicle to break stereotypes, address social issues and challenge the status quo. Comics are unafraid to provoke, to criticize and satirize the world around them. Through comedy, society is able to examine our prejudices and to laugh at ourselves and in doing so comedy has broken down countless social barriers in stereotypes. The Comedy Network has featured a diverse spectrum of Canadian talent including Kenny Robinson and his Nubian Disciples of Pryor All-Black Comedy Review; Nicaraguan-born Martha Chaves, Shaun Majumder and Russell Peters, each of whom are Canadian born comics of East Indian heritage; and Ronnie Edwards, who brings his British-born, Jamaican-bred sensibility to the Canadian scene.
3051 In addition to the diversity initiatives developed by The Comedy Network, CTV has filed a cultural diversity plan with the Commission to which The Comedy Network adheres. CTV aspires to be the national meeting place for Canadian popular culture. As such, our goals include the creating of an equitable and diverse workplace enhancing our on-air reflection and portrayal raising workplace and public awareness about issues involving diversity and leading initiatives that foster a creative climate of tolerance and inclusiveness. We pledge to continue these initiatives through the next licensed term of The Comedy Network.
3052 MR. ROBINSON: We are greatful to the many comics, producers, writers, directors and viewers who have written letters of enthusiastic support for our renewal. And though it would give us great pleasure to wax on about the great things that we have accomplished, what we are really here to talk about is "and now what". We had ambitious goals when we started this little adventure and we have more ambition now. We are simply not satisfied to do more of the same. We want and need to push ourselves to the next level and still create a little mischief along the way.
3053 So, here is what we propose, concentrate on higher production values for original Canadian programs with independent producers; provide higher license fees in support of those higher production value shows; adjust our overall Canadian content from 58 to 60 per cent and our prime time Canadian content from 72 to 60 per cent. This will increase our overall Canadian content by just over two and a half hours per week or 131 hours per year. Support more original episodes of Canadian series; reduce the repeat factor for a number of acquired Canadian series; continue to invest 41 per cent of the previous year's revenues in Canadian programming; continue to develop new comedy talent both in front of and behind the camera and provide the next step for the talent we have worked with to date and hopefully to continue to make the country laugh.
3054 In the beginning our set-up strategy was to build unique service that was easily acceptable for Canadian comedic talent to hone their skills and a place to wet the appetite of our viewers for Canadian comedy programming. As stated by Andrew Cochrane, an independent producer from Halifax in his letter of support, The Comedy Network has proven itself time and again to be a safe haven for Canadian talent, a place that nurtures ideas and performers and, importantly, a place that welcomes creative risk. We have built a fun and fearless channel with a strong and loyal audience by investing in Canadian independent production. Along with inexpensive original Canadian programs we rounded out our schedule by acquiring an inventory of comedy classics that Canadian audiences had not seen for many years.
3055 As our audiences grew, we acquired more high profile programming to drive our schedules and generate revenue, which in turn allowed us to invest in more original Canadian programming. There has been a shift in the past three years, we have started to increase our license fees to independent producers in order to support higher production values, but it has not been enough to make us really competitive in effectively accessing funding from a licensee program and the equity investment program funds of Telefilm. As the Commission knows, competition for funding is now more fierce than a bare knuckle street brawl, even more so with the recent cuts to the CTF.
3056 If comedy is good for the soul, then it appears to be good for other specialty channels too. Thirteen other specialty channels now feature comedy programming, both old and new. As a result, new sources of high volume series are just not available to us, a situation that was not anticipated in 1996. For example, Showcase acquired the rights to This Hour Has 22 Minutes, PrimeTV has acquired the rights to Bob and Margaret and NTV has acquired the rights to Big Sound and Black Fly. This is a good thing for Canadian comedy programming in general, but presents a real challenge in acquiring new Canadian material. Further more, existing inventory has had numerous airings. Kids in the Hall, to name but one series, is now repeating for the 24th time. To repeat and repeat yet again the same episodes does not do justice to our comics, our viewers or indeed Canadian content. The where factor has resulted in diminishing audiences, particularly in prime time. Our average audience for Kids in the Hall has declined by approximately 10,000 viewers each year from a high of 80,000 six years ago to less than 20,000 this year.
3057 Unfortunately, due to increased demand for comedy product across many broadcasters, there simply is not the supply to provide additional programming to our schedule and so we have no alternative but to repeat existing programs yet again. When The Comedy Network began, the vast majority of Canadian comics had not received any significant television exposure. In the field of stand-up comics alone, we have supported to date approximately 100 stand-up comedy specials, primarily through our independently produced series Comedy Now. These specials have provided the national showcase for these comics and each comic walks away with a world class audition tape, naturally looking for the next step.
3058 Many of the Comedy Now specials have been seen by talent scouts, agents, managers and television executives in both the U.S. and the U.K. Some comics have been signed U.S. television deals, some have been cast in U.S. shows, such as John Majumder and the Fox Network's Cedric the Entertainer Presents and Gaving Crawford in the WB Network's Hype. And just two weeks ago, Tracy MacDonald a comedian from Dartmouth, Nova Scotia, who was first featured on The Comedy Network, claimed the best comedian title on the popular Star Search series, taking home the grand prize of $100,000 U.S. and a CBS development deal.
3059 We recognize that the allure of Hollywood will always exist. However, we are witness to a change in thinking by some Canadian comedic talent. And with the right circumstances, we have the opportunity to keep our talent here. We need to grow with these comedians and offer them the quality of projects that will allow them their creative talents to flourish here, or risk losing them to the U.S.
3060 MR. BRACE: Our objective for higher program quality reflects a number of key factors. If we can create Canadian series with more episodes of higher quality, we have a better chance of drawing Canadian viewers away from U.S. programs. If we can build up to the international trade standard of 22 or even 26 episodes per season for specific projects, independent producers of those projects would have broader distribution opportunities and a much better chance of accessing incremental funding through international sales - with a positive bonus of promoting Canadian talent abroad. If we can meet our audience's demand for new original programming, we are going to keep them coming back for more. And as a result of our ongoing commitment to spend not less than 41 per cent of the previous year's gross revenues on Canadian programs, increased audiences means increased advertising revenue which translates to increased spending, resulting in more dollars for Canadian programming and we believe this is our growth opportunity.
3061 The Comedy Network is currently subject to a condition of license requiring 58 per cent Canadian content during the broadcast day and 72 per cent during the evening broadcast period. This is the highest Canadian content requirement in the evening of all of the specialty services licensed in 1996, outside of news and information services. We are seeking the Commission's approval to increase our Canadian content over the broadcast day from 58 to 60 per cent and decrease our Canadian content during the evening broadcast period from 72 to 60 per cent. To put this into context, our proposed changes would see an increase in Canadian content in the overall schedule of our broadcast day by just over two point five hours per week or 131 hours per year.
3062 In addition, we will see an increase in our Canadian programming expenditures, from $49 million over this licence term, to $90 million over the next licence term.
3063 MR. ROBINSON: We are very pleased with the broad support that we have received from the comedy community on the proposed change to our Canadian content levels. Of our 134 supporting intervenors, 121 support our proposed amendment, including 27 out of 29 independent producers.
3064 One example of this support is from Ron Murphy, a producer/director based in Toronto. He writes:
"The Comedy Network has firmly established itself as the mothership of Canadian Comic Talent, nurturing and developing a whole new generation of Comedy Superstars. The tradition of great comedy in this country makes it imperative that we continue to grow this network into an internationally respected source of world-class comedy and comedians. And I believe that an effective way to do that is to reduce the Canadian content regulations for Prime Time".
3065 Our proposal to amend our Canadian content requirement in prime time would allow us to focus on developing Canadian comedy series with more original episodes and of higher quality -- with the aim of creating a drop-dead hilarious "top ten" series.
3066 This amendment would result in the broadcast of more new episodes of Canadian series and less runs of older acquired series. Moreover, at 60 per cent, our prime time Canadian content level would still be among the highest of the specialty services licensed in 1996 and, indeed, of all the analog specialty services, excluding news and information services.
3067 We are still, and always will be, the biggest advocate for Canadian comedy.
3068 As taken from the intervention letter of Kellie Benz, a writer/producer from Vancouver:
"I believe The Comedy Network has proven itself as a keen observer and supportive developer of new talent in this country and they should be given every opportunity to continue to do so".
3069 There is an old rule in comedy that anything is funny if you do it three times. We have discovered a new rule: Things that were funny the first three times aren't so funny the 30th time around. And that is why we need your support in adjusting our Canadian content levels -- so that we are able to redirect our resources to take The Comedy Network to a new level. We are asking you to let us emphasize quality.
3070 Canadian audiences want, and deserve, popular and original programs with great production values. We believe our strategy is good for our viewers, good for the Canadian comedy community, and good for Canadian television.
3071 MR. BRACE: As we look back at the past six years, we are proud to report that it has indeed been "time well wasted". The Comedy Network has made an indelible mark on the Canadian comedy industry and has made significant contributions to the Canadian broadcasting system.
3072 With the Commission's support, we look forward to taking The Comedy Network to the next level.
3073 We thank you for your attention and would be pleased to answer your questions.
3074 THE CHAIRPERSON: Thank you very much.
3075 Commissioner Grauer.
3076 COMMISSIONER GRAUER: Thank you.
3077 I would like to start with the area of the challenges that you are facing in terms of your evening Cancon.
3078 I wonder if you could tell me a little bit about it, and one area that I have noticed when you have identified the programs that aren't available to you, it looks at first blush, without having done any drilling down, that there are not very many distributors in Canada and some of them are vertically integrated with broadcasters.
3079 I know that Knowledge Network has said in the past that they have had a terrible time getting a second and third window on some programming.
3080 So I am just wondering if you could tell us a bit about whether that is an issue, whether that is part of it, and what the other factors are that have affected your program supply on a second and third window.
3081 MR. BRACE: Commissioner Grauer, it certainly is an issue, and Ed can certainly describe some of the difficulties that he has had in acquiring programming, but the other thing that we need to realize is that there are currently 13 specialty channels that are licensed that are also carrying comedy programming. This is a substantial increase from when we started, so that programs like "Bob and Margaret" and "This Hour", and so on, have been more and more of an issue to Ed to acquire as part of the programming schedule.
3082 When you start looking at that number, that amount of programming, there is a quite a quantity of it out there and that, of course, makes it more difficult for us to put those products into our schedule when they are clearly not available.
3083 Ed, maybe you want to elaborate on just some of the discussions you have had and what we have kind of chased and lost.
3084 MR. ROBINSON: Sure. The change of ownership has had some impact on the volume that we thought we thought would be available to us. The most ready example for me is "This Hour Has 22 Minutes". Salter Street was the producer. Salter Street was taken over by Alliance Atlantis and "This Hour Has 22 Minutes" is now appearing on Showcase. Fine, but that is one series where the volume of episodes would have been substantial for us to add to the schedule, and indeed in the early years of becoming a network we had talked to Salter Street about acquiring it when it became available for a second window.
3085 There are not that many -- or not I don't think any -- series of volume left that have Canadian content that we haven't explored and tried to acquire. "Kids in the Hall" which has 110 episodes available to us is one example that, again, in the oral we mentioned was repeated 24 times now, and it just wears really thin. Trying to find that volume of Canadian content to replace it just doesn't exist.
3086 Part of it is the competition, that people have found that comedy works and put it into their schedule. Part of it is just that the history of the country to date has not built up the volume to be able to acquire that kind of substantial inventory.
3087 COMMISSIONER GRAUER: Is it a competitive process for a second and third window with these programs? I mean, can you -- what I really am getting at here is: If we want to try and pump more money into the system through a competitive process for programming that is of some attraction to services that are making money, it shouldn't be a bad thing to have that kind of money going to producers. So is it a competitive process or is it just that it's not available to you, for instance "22 Minutes"?
3088 MR. ROBINSON: "22 Minutes", as an example, is not available to us. It became a Showcase property and that's the way that that went.
3089 In looking at other distributors of Canadian content in the country, there are not that many libraries available. The competitive part of it is we have been competing on some level with other specialties on our tier, or specialties on second tier even though we are on the first tier. That's just marketplace values.
3090 I don't think that we have actually not been able to get the many series that were on the marketplace that we were bidding against other specialty services. We don't compete with conventional prices, obviously, and we see it as a second window and, therefore, that's the field that we play in.
3091 But the issue has really been trying to find volume in order to fulfil the prime time, particularly Cancon requirement. The guy that worries about filling in each half-hour every week, it becomes frustrating to have to just turn to the shelf and say: We will repeat "SCTV" again even though it's getting single-digit audiences. It's not helpful to the viewer, to the economy of our schedule.
3092 MR. BRACE: And when we look at the services that are carrying comedy, it's an interesting list. It's on page 19 of the supplementary brief. There is a fairly exhaustive list there. It includes the programs -- and I certainly won't go through all of them, but networks like the History Channel carrying comedy programming; Bravo!; MenTV; PrideVision; certainly Prime with shows like "Who's the Boss" -- these are some foreign acquisitions -- and Showcase which Ed mentioned, and Teletoon.
3093 So what we are seeing is that a lot of the programming that we would be acquiring, especially in the Canadian genre, is getting eaten up. It's finding a home on other networks.
3094 MR. ROBINSON: One other thing I might add, just to flesh out the conversation, is a series like "Air Farce" that we had the second window for we get the window after it finishes its play on CBC. That would be roughly 22 episodes per year that are new episodes to us, and the older of "Air Farce" becomes unavailable to us. So the way that our contract with them works is the new season comes in and the old season goes out, if you know what I mean.
3095 So we get 22 new episodes that we get to play on The Comedy Network schedule in any broadcast season for about three years, and there is a supply that comes in that way of new episodes which is helpful in terms of building up more Cancon, but there are very few of those existing series where we have the ability to get the new episodes from the previous season off the first licensee, be it CBC or whomever, that allows us to build up volume.
3096 I just wanted to clarify that for you.
3097 COMMISSIONER GRAUER: Is that a distribution rights issue? I mean, I am really trying to -- what I really want to understand, and I think you have given me a good understanding of it, is to know what is available to you. I mean, if it's a vertically integrated broadcaster distributor that isn't going to make the inventory available because they want to use it for themselves, then different services are in different positions with respect to second and third window.
3098 Is that fair or perhaps not so fair a characterization?
3099 MR. ROBINSON: I think it's a factor. I don't think it's the predominant factor. Again, trying to look at the volume of Canadian series that are being produced in the country, either currently or have been, we have explored pretty much all the options of what has existed on the shelf somewhere that perhaps hasn't been seen for a while, like "Kids in the Hall", like "SCTV", but once you have acquired those, that's all you are going to get.
3100 We have a situation with "Air Farce" and even "Just for Laughs", a stand-up series that again plays first window on CBC, where the new episodes for any season have completed their run on the first window broadcaster become available to us. So there is that arrangement.
3101 Then the next place to go to is original. To speak to part of the audience interest and my view is always what is going on there so that we are making sure our viewers are engaged and come back for more.
3102 The original that we provide in the schedule is something that gets a really good reaction from our audience and they like to hear what is new. Our latest sort of series that we are proud of, in a twisted way, is "Puppets Who Kill", which are little clips in the tape. Just last week it won the runner-up prize at the Golden Rose of Montreux against a BBC series, but it beat out U.S. shows, it beat out other Canadian series. But we are able to support 13 episodes a year. Thirteen episodes doesn't go a long way in terms of satisfying the content we are filling.
3103 Again, original series what we try to do is we debut in a certain time spot in prime time the 13 episodes, for instance, that we will repeat at least three times. Thirteen episodes equal basically a quarter the year. So repeating it three times takes you through the year. We also checkerboard it, which is we take it a couple of weeks later and put it in another time slot in the schedule -- a different day, obviously, a different time -- in the hopes of capturing another kind of audience.
3104 We will do the same thing with that. We will play it out three or four times. But there is a point when the audiences say: When are you getting new episodes of "Puppets Who Kill"? Right now we are at the point where we have both complaints about where is more of the original and please stop playing that show for the 24th time because now I am able to recite back to the screen as it is being played.
3105 COMMISSIONER GRAUER: So I guess that brings me to my next question. What you are proposing is that if you can reduce your evening Cancon and acquire more U.S. programming that generate some revenues that you will reinvest in Canadian series.
3106 Now, I know you have referenced that in paying higher licence fees you make them eligible for CTF and EIP funding. I am beginning to wonder if that's really a good thing, given what is happening what the CTF and EIP, that the problem there is a demand problem, and the more the demand increases, the more pressure there is on the Fund and there is an expectation now that everything should be funded.
3107 And so I just wonder -- I mean, there is more to that discussion, but maybe you could just comment on that.
3108 MR. ROBINSON: It's a really good point because it's a concern. I mean, we are trying to position independent producers to find ways to finance their projects. To date -- I am just using average -- if we were to invest $50,000 as a licence fee, that can leverage financing to a budget of about $130,000 to $150,000. So we put $50,000 in they may get $150. So we can put in a third and they can find two-thirds between CTF, EIP, tax credits and producer deferrals, if necessary.
3109 But that is really not going to position projects now to really be successful. So it is a concern that we need to put more dollars into a project that may not be successful at the Fund, but at the same time the alternative is we need to put more dollars in a project so it doesn't have to go to the Fund.
3110 So in either scenario -- and everyone takes the chance going to the Fund, there is no guarantee -- we need to find ways in which increase our support of independent production so that we can generate more original.
3111 MR. BRACE: And in order to support that, Commissioner Grauer, that is why we are proposing in the licence term that we will spend a total of $90 million up from $49 million on Canadian programming, and of that $70 million is towards independent production. So it's a significant investment just to get where Ed believes he needs to be.
3112 COMMISSIONER GRAUER: The question I asked this morning -- I notice in the last years you have not been including any, or certainly last year, any CTF funding in your expenditures.
3113 How would you respond if the Commission were to decide not to allow CTF expenditures, the CTF contributions to be part of your CPE?
3114 MR. BRACE: We have, in fact, in the next licence term accounted for some CTF funding. I believe over the term of the licence $5 million, Kim?
3115 MR. McKENNEY: That's correct.
3116 MR. BRACE: So we are counting on that to top up. I think that if we were not to have access to that Fund -- and Ed can explain what that would do to his plans -- obviously it would have a significant impact on what we are able to develop, especially from a quality standpoint.
3117 COMMISSIONER GRAUER: Now, my question is not access to the Fund. My question is allowing the inclusion of public money, which in a profitable service basically goes right to your bottom line. I mean, one could argue that.
3118 How would that affect your plans? Not lack of access, but inclusion as part of your expenditures?
3119 MR. ROBINSON: It would obviously have an impact in that we would have to, again, spend more money to get likely lesser product.
3120 So we would increase our spending for a few hours back, if you sort of do the equation. But the other thing I would just comment on, if this was a decision by the Commission, I would hope that there is some transitional period in which we can apply whatever credits maybe exist and actually figure out a way to make that transition with independent production that will be more helpful, I guess, to all of us.
3121 COMMISSIONER GRAUER: What I don't understand is that you have a CPE right now and so we are not talking about changing the CPE. When you were licensed in 1996, there wasn't the same amount of money available in the Fund. That has increased quite dramatically since then.
3122 So you have been profitable. You have exceeded your projections in terms of profitability and expenditures. So I don't know why -- and you didn't declare any CTF money last year -- that would cause you such a problem in transition if we didn't change your CPE.
3123 MR. ROBINSON: We currently have CTF money that we have not yet claimed, that we would hope to be able to claim. So that, again, whatever transitional period may be established, we could take advantage of that transition.
3124 COMMISSIONER GRAUER: So they are in your books right now, the CTF. The other issue with that is you talked about the 13 episodes vis-à-vis the 26 and there seems to be a practically unanimous view that until we go to 22 or 26 episodes in a year, we are never going to be able to get an audience for series. Given the way the CTF is presently structured where they don't fund very often that many episodes, wouldn't it give you more flexibility to not be dependent on that kind of money, those funds?
3125 MR. ROBINSON: I am not sure I understand because if the CTF is not providing part of the financing, then there is a gap in financing. So where is that going to be found? The first place the producers usually look to it he broadcaster and that's fair enough, but our experience to date has been trying to spread the money across as many projects as we can in order to support as many independent productions as we can.
3126 In the last couple of years we have actually changed our philosophy and have spent more money on fewer projects in the hope that it will leverage different sources of financing for independent producers, but we are only just starting to get traction on that. There is a ways to go to find the financing formula to get tasked 13 episodes. It's complex right now.
3127 COMMISSIONER GRAUER: No, I appreciate that it's complex, and I guess what I am trying to do is when I looked at your projected revenues and expenditures when you came in here in 1996, and your projected PBITs, you have done extremely well, much better than projected, and you are looking or a lower Cancon in the evening and you have articulated why this would be good in terms of aboriginal programming.
3128 So I am saying it looks like the money is there and you want some flexibility. So I would think that if your argument is that you can build bigger audiences to generate more revenues with more episodes, that that might be something you would do even without CTF or EIP funding.
3129 MR. BRACE: I think in practical terms we would like to do that. I think it's t he issue that we have, once again the practical issues, that there is $5 million built into the finances going forward. So that becomes a realistic problem for us.
3130 COMMISSIONER GRAUER: So that's $5 million over the licence term.
3131 MR. BRACE: Over the licence term, that's right.
3132 COMMISSIONER GRAUER: You would need to find a way to --
3133 MR. BRACE: That's right, to offset that. That's what it really comes down to, Commissioner Grauer.
3134 COMMISSIONER GRAUER: Well, maybe we can talk about that when we talk about the possibility of increasing your CPE in return for a lowering of your Cancon --
3135 MR. BRACE: We expected that that might be the line of questioning.
3136 COMMISSIONER GRAUER: What I would like to do is talk a little bit about how your programming differs prime time from day part, given your wheel. I think you maybe explained at least part of it by saying you program your first run in the evening and then just rerun it again. So it is basically the same.
3137 MR. ROBINSON: When I was referring to original series like Puppets earlier, we actually would program in prime time twice. Original series we tend to checkerboard them again in our prime time schedule. It may eventually, after a season or two, go to daytime.
3138 Largely the way we program the network is we have a six-hour wheel that is a morning wheel, 6:00 a.m. to noon, which we repeat noon to 6:00 p.m.
3139 Our second wheel starts at 6:00 p.m. and goes to midnight, and within that wheel the 9:00 p.m. to midnight block tends to be a little more adult. Then that wheel more or less gets repeated from midnight to 6:00 a.m., although we move stuff around knowing that there is some sensitivity between 4:00 a.m. and 6:00 a.m. in the morning, depending on where you are in the country.
3140 As I refer to it, we fracture the mirror after midnight so that it allows itself to be appropriately played.
3141 COMMISSIONER GRAUER: How does your daytime wheel differ from your nighttime wheel?
3142 MR. ROBINSON: The daytime wheel is, I would say, more general audience oriented whereas the prime time wheel is more adult oriented.
3143 COMMISSIONER GRAUER: Can you tell me what you dropped from your schedule and what would replace those Canadian programs if we granted your request?
3144 MR. ROBINSON: In the schedules that we filed with the Commission we would drop "Kids in the Hall", "SCTV", shows that are in their many repeated occasion, and replace them with foreign acquired. I don't know what that would be, but the philosophy of the plan going forward is that that foreign acquired would generate increased advertising revenue, which we believe is our opportunity to grow revenue-wise.
3145 From there, then 41 per cent of that increased revenue would be spent the next year on Canadian.
3146 COMMISSIONER GRAUER: How would it differ from what is in the market already in American programming?
3147 MR. ROBINSON: It may not be American programming. It might be from the U.K. We have had some success with that. The only limitation with the U.K. is they tend to do their series per season in episodes of six or seven. So to get a large library from the U.K. is tough, although we have Monty Python in our schedule right now, which is, I forget, 39 or 40 episodes, which tends to play well for us.
3148 I wouldn't prejudge it, but the likely supply is going to be from the U.S. because that is where the volume is.
3149 Again, the competition for U.S. comedy strips is quite intense, for a whole bunch of reasons. So the competitive marketplace for U.S. programming, that evening strip in prime time, is becoming again more difficult to secure.
3150 COMMISSIONER GRAUER: With the U.K. series which are six episodes, is it that they have an acquired taste in the U.K. and it works and is it something that you think by doing more of it you could be successful with that here?
3151 Maybe you could tell me a bit more about the problem you see with it.
3152 MR. ROBINSON: The U.K. system tends to be creator driven so that -- I will take an example like "Absolutely Fabulous", which is created by one woman in particular. Her feeling -- and it is similar in other series -- is that what she can best produce is a volume of six to seven episodes per season. That is what her writing will demand; that she feels the quality will exist.
3153 So they focus on the quality of their season as opposed to the volume of their season. Over the course of ten years you may end up with 60 episodes that would be available. That tends to be the philosophy in the U.K.
3154 COMMISSIONER GRAUER: And it works for them.
3155 MR. ROBINSON: Yes, it does work for them.
3156 We have commissioned some series of six episodes as originals, again more as a by-product of the financing constraints on the project. That again has a limited run for us, because you can only repeat six episodes so many times before people are going: "Can you please take that off the air now."
3157 It will take some time to build up the kind of volume of original Canadian series that we can then strip. That is part of our objective, but it is going to be several years before that happens.
3158 COMMISSIONER GRAUER: Would you be willing to commit to a minimum level of original Canadian production during the evening if we were to grant your request for a lower Cancon?
3159 MR. BRACE: Commissioner Grauer, we can look at that, and we would be prepared to come back and discuss it.
3160 What we have kind of outlined in our plan is the dollar spend, which we think is significant.
3161 What it is going to depend upon, in terms of number of original hours -- because that is when we start to get into the issue -- is quite frankly what is it going to cost us to acquire the programming?
3162 Right now a half hour of original Canadian programming is around $50,000. That is our investment. If we look at a foreign acquired program, it is as low as $5,000 a half hour and Canadian acquired is about $8,000 a half hour. So it really becomes the balance that we can draw.
3163 What we are trying to do here is create a balance of foreign programming, whether it is U.S. or whether it is U.K., and Canadian original programming that we can then put into the schedule and be refreshed as often as possible.
3164 Our foreign spend, because we can get more hours for far less cost, allows to do that more regularly. So that is important to us.
3165 Then the Canadian original hours, which will be of much higher quality, will have far less a repeat factor. We think that that is our success.
3166 So the route that we would prefer to go is the route that we have tried to describe in our brief and in our plan, that being the commitment of dollars and the spend on the independent production, which in this case over the next licence term is $70 million.
3167 COMMISSIONER GRAUER: What about original production?
3168 MR. BRACE: The $70 million that we would spend would be original production. The number of hours is what I think you were wondering about and inquiring about, and that is more of an issue. How many quality hours, how many series can we build for that kind of money?
3169 That is going to be our challenge, and I think it may be a little difficult to anticipate that.
3170 We really believe that it is not a balance of hours. It is a balance of: When is the programming refreshed? How often can you renew it? It is the repeat factor that is really kind of doing us some harm.
3171 We have had incredible success. We really have. We have really enjoyed it. That is undeniable. We are proud of that. We are proud of what we have delivered and proud of what we have developed.
3172 What we are starting to see now for the very first time is a decline. It is starting to come around and it is starting to affect us. We are starting to see the audience peak and the audience decline.
3173 In fact, for the first time ever just this past year we are starting to see audience erosion. We believe that our success, our road to success, is building audience and living off the advertising revenue that we can derive. We are certainly not here asking for a rate increase. Actually, The Comedy Channel doesn't have a rate so it is not relevant.
3174 We are not certainly counting on the distribution side of the business to really drive the train here, because that has become very difficult. You have heard from numerous applicants and people renewing their licences, and those difficulties are real.
3175 Our sub-revenue is really kind of in the neighbourhood of less than 1 per cent over the licence term year-over-year. It is really very modest. So it really has to be advertising and audiences that drive the train for us.
3176 COMMISSIONER GRAUER: When you talk about your plans for your evening programming period, you are talking about more original hours of Canadian programming as the magic you need, combined with lower Cancon and more foreign programming.
3177 I don't understand the reluctance. We are talking $70 million over the licence term. That is $10 million a year.
3178 MR. BRACE: Commissioner Grauer, it is not really a reluctance. It is just an uncertainty as to what we are going to be able to achieve with that $10 million a year, understanding that quality is the way we have to go.
3179 Ed used a great analogy when we were preparing for the hearing where we talked about how comedians develop. In the early stages what we really saw success with was doing stand-up routines, doing the comedy programs which really were modest in cost and really kind of did deliver some audience out of the gate.
3180 The problem we have had is that each and every one of those comedians can only do that stand-up routine for so long. It has to be renewed.
3181 Jerry Seinfeld, for example, in finishing that series, decided he was going to go back to stand-up and took fully three years to prepare his stand-up routine, a routine that is only going to last one tour and then he has to renew it.
3182 So these comedians look to move to the next level. They say I have established myself as a stand-up comedian. Now what I need to do is move into a sitcom, move into another format where I can kind of expand what I am doing and find my way through the system.
3183 If you think about it, that is how all of the comedians that we have seen over the years have developed. They have evolved from stand-up into other areas. That is costly.
3184 We want to help them along that road, and that is really the determination.
3185 Ed, I don't know if you have any more comments on that. That is really the strategy.
3186 MR. ROBINSON: I would like to add another example. I was very pleased to hear in the opening day Chairman Dolfen mentioning about listening to what the service's experience has been and how it has worked. We are really proud of the success of The Comedy Network, and with it comes great expectations, which is also good and a little bit burdensome. But that is okay.
3187 One example of a number of stories like this that I would like to make reference to is a producer from Ottawa named Greg Lawrence, who I first met at the CFTPA Convention in February of 1997 before we launched. Greg did some stand-up early in his career, and then he became an industrial-commercial producer locally. I met with him and he pitched me, I don't know, 10 to 12 ideas. He was clearly a great writer and with that sort of twisted sense of humour. We decided in our first year to engage his company to create a number of comedy shorts for us. We didn't know him. He had not done production for television. So let's try it out and see. It's low risk.
3188 He created a number of shorts for us that worked really well, and out of them came a series, a full half-hour series called "Kevin Spencer". We are now into our sixth season of "Kevin Spencer" with Greg.
3189 We have also done two other series, live action series with him, one called "Butch Patterson: Private Dick" and one called "The Endless Grind". In each of those experiences with Greg he has learned from what went on before, what didn't work primarily, what he should not do again, and what it will take to make the quality of what he is doing better.
3190 He has experimented with HDTV in one of the series, which is also great for the industry.
3191 When he began, he hired non-ACTRA actors because that is what he could afford. For the next series he hired ACTRA members. He hired DGC. He hired WGC. He was able to make that step up.
3192 Again, every learning along the way, his desire to do better and our desire to support that has grown. He wants to continue to do his work here. He could make a great living in the States writing. In fact, he has had offers to do that. But he wants to stay here. That is the kind of experience we want to support.
3193 There are many examples like that. The success of the channel is really the success of the independent producers.
3194 MR. BRACE: One of our 29 independent producers who supported us by way of an intervention, Lindsay Leese -- she is an actor/producer -- said:
"Now that The Comedy Network has laid the groundwork, the timing is right to refine the work they have begun. In order to continue to develop its audience loyalty with original programming Canadians respond to, I believe the focus should now be on quality over quantity."
3195 I think that outlines the kind of thing that we want to achieve.
3196 COMMISSIONER GRAUER: You have then a great range of budgets for different kinds of programs. That is really what you are saying; that you can't look at this as being the same as like a sitcom or a series the way we would in other drama genres.
3197 Maybe you could explain to me some of the differences in terms of what a half hour might cost of the different kinds of programming.
3198 MR. ROBINSON: The least expensive would probably be comedy shorts, which has been a great on-air development tool to engage first-time producers/writers for the most part, and acquire Canadian material produced by independents or the NFB or other organizations that have not had exposure in television to try it on a national showcase, called Canadian Comedy Shorts.
3199 Those can range from $1,000 to maybe $5,000 for a group of them. They are very inexpensive budgets.
3200 Going to half hour, probably our lowest currently would be maybe $30,000. Those would be shows that are largely unscripted, going into location, going into the field. Tom Green, as an example, is the kind of show where he just goes out and does whatever he does and they capture it on tape and edit it and make a show out of it. It is really not scripted. It is sort of idea-driven. Let's do this. Let's go to the mall and create havoc.
3201 To a show like "Puppets Who Kill", which is more the traditional structure of a drama series. It has ongoing characters. It has story lines. It has full crew, full set-up as a drama would. We are at the high end of that show with an investment of getting close to $70,000 an episode.
3202 That is probably the highest we have gone to date, but it is really not enough. That show is expensive because of what it is, and the producer is still deferring his fees. He is not yet being paid. He wants the experience of producing it and getting the exposure.
3203 Last week he had international exposure, which is great.
3204 We have supported a second season of Puppets. They get funding by LFP and EIP, so this is all good.
3205 It is only one example. We want to do more of that and less of the sort of Guerilla style shooting. Once you have done it a few times, it is wearing thin.
3206 COMMISSIONER GRAUER: Is that then clearly part of your audience-generating strategy; that you think this kind of programming will deliver more audience to you?
3207 MR. BRACE: Most absolutely. It is going to be that mix again where we can deliver the various types but particularly the higher quality. That is really the goal for us. It is not to reduce spending; it is not to reduce any kind of commitments we have made. It is really to improve the quality and reduce the repeats. If we are going to say that we are going to reduce anything, it is the repeats.
3208 COMMISSIONER GRAUER: Thank you. Can you quantify the extent to which your audience will grow with these changes and what the effect of this wear factor has been?
3209 MR. ROBINSON: I am going to pass to Kim McKenney to talk about audience growth, and maybe it is appropriate as well to talk a little bit about advertising growth that we are going to expect as a result of this because it goes hand in hand. That is really the strategy.
3210 Kim, I will pass it to you.
3211 MR. McKENNEY: Our year-over-year increase in advertising revenue is approximately 6 per cent. We are actually going to maintain the audiences that we have had in the past.
3212 Where we see the increases are coming from are increased rates and increased sell-outs over the term of the new licence.
3213 MR. BRACE: Right now we are at approximately 65 to 70 per cent sell-out rate on The Comedy Network. We have projected that that is going to move to 80 per cent by the end of the licence term. So that is where we really see the growth.
3214 Like some of our other services we try to sell -- and we do actually; we don't try. We also achieve selling The Comedy Network as kind of a premium service. It does well in terms of its cost per thousand. We are pleased to be able to do that.
3215 So it is really driving that once again as a result of the quality and also the fact that we have kind of two audiences. We are obviously attractive for the people who are 18 to 49, a key demo, adults 18 to 49; but also a younger demo, adults 18 to 34. That is attractive for advertisers as well.
3216 So we have a benefit by virtue of the genre that we fill.
3217 COMMISSIONER GRAUER: To what extent have the high levels of Cancon in the evening period hurt your audience level?
3218 MR. ROBINSON: I think the example of "Kids in the Hall" is probably the best example I can give. It is just the wear factor. It did very well for us in the first couple of years of the service, but it has decreased by an average of 10,000 a year. Now it is down to a level that is not satisfactory to us in order to attract advertisers in order to generate that cycle of finances that we are looking for.
3219 COMMISSIONER GRAUER: I wonder if you could go over with me the methodology you have employed to derive your advertising projections. They look quite conservative over the course of the licence term, so I wonder if you could talk to me a bit about that, especially if we were to reduce your Cancon.
3220 MR. BRACE: Once again I will ask Kim to comment on that on the advertising.
3221 What we have looked at here, although it may potentially look conservative, is roughly a 6 per cent increase year over year. What we have seen is the average -- and we went through all the licences just to see what the average forecast was. It was like 4.5 per cent. So we are above that.
3222 Perhaps Kim could fill us in on the methodology.
3223 MR. McKENNEY: Sure. Our base is obviously the industry forecast that we have used of about 3 to 4 per cent growth over the rest of the year. So we have increased our overall growth to 6 per cent.
3224 Over the last year, as Rick mentioned, we have seen audiences reduce by about 12 per cent. So overall we see that as a reasonable increase, at 6 per cent over the term.
3225 Anything else to add, Rick?
3226 COMMISSIONER GRAUER: I was noticing to the extent that it's applicable here in the Wall Street Journal on Friday that they had experienced sort of quite stunning sells in the U.S. Thirteen per cent I think conventional revenues were up for the fall sale. I just wondered to what extent you think that might have a spill-over effect here.
3227 MR. BRACE: You know what? We traditionally see that on an annual basis. In going back and looking at it, especially conventional, which I did a little work on, traditionally they estimate almost double what we estimate on an annual basis.
3228 What we really have to look at is kind of year over year actuals. We generally track a little bit behind them, so I'm not sure that it flows over into this market, especially into the specialty market.
3229 I can talk about a lot of specialty services because I kind of been with some of the bigger ones. We are really seeing the days of double digit increases as something that's behind us. Once again, I know you heard that earlier from other presentations, it really is true.
3230 The fragmentation we are seeing with kind of 48 services in the marketplace with the digitals, although I'm not here to try to pretend that the digitals are kind of eating our lunch, that's for sure. That's still a challenge as we move down the road.
3231 At some point they hopefully will become a factor. We are all counting on that, but the days of double digit increases certainly are behind us, so we have really got to focus on kind of driving that just to the best of our ability.
3232 COMMISSIONER GRAUER: I find it kind of interesting and you are I'm sure all by nature very conservative businessmen in what you are paid is to understate rather than overstate where you are going.
3233 I say that because having looked through 1996, some of the decisions, the projections it was doom and gloom, my God. The golden days were over and, lo and behold, it's very good news.
3234 Of course we went through the licence renewals of CTV and Global two years ago and they said "Oh, the next few years are bad" and they haven't really turned out quite as bad.
3235 When I mentioned the number in the Wall Street Journal it was because they didn't expect this kind of a sellout. They thought, my God, the advertisers are back.
3236 I just say it in the context not to --
3237 MR. BRACE: I will come clean with you here, Commissioner Grauer --
3238 COMMISSIONER GRAUER: Please.
3239 MR. BRACE: -- because I know you appreciate that.
3240 We believe we are being realistic. One example. We were really preaching doom and gloom when 9/11 hit. What we found is to a certain extent that -- well, not to a certain extent, it did hit conventional. It hit specialty less.
3241 Specialty seemed to be a safe haven for advertisers and so we were able to track along the way fairly favourably. We were impacted, but not to the extent the conventional was.
3242 More recently with the SARS situation, once again we thought we would feel more impact than we did and the Iraq war even more specifically.
3243 Specialty seems to be a little bit insulated from the greater ebbs and flows, so what you see is more modest either increments or declines, but having said that, we are actually now performing with our digital services, you know, some of our big ones at much more modest rates than we have in the past. We see that fragmentation really hitting us.
3244 COMMISSIONER GRAUER: Well, out in the real world everything ebbs and flows and everything goes in cycles. I think that shouldn't be surprising to anybody. I think what has been very stable and continuing to grow is the television business, particularly specialty. It gets a guaranteed cash flow.
3245 I think it's the context in which as a regulator we give the services guaranteed access, guaranteed cash flow. We find ways to protect it and the quid pro quo is pushing you a bit to do a little bit more. Conservative projections are alive from the perspective of making returns to your shareholders, but I am here acting for the landlord.
3246 MR. BRACE: We appreciate that. That's why we have a CPE. If we do better on our revenue streams, Canadian production is going to benefit from that.
3247 Our plan is if we can keep advertising increasing by virtue of a better schedule and you may consider our forecast to be conservative, so for argument's sake let's suggest they are -- not that we are agreeing with that, but let's suggest they are -- what does it mean?
3248 If we can continue to drive audiences and we do better, obviously there's going to be more money going into Canadian production and that's good news.
3249 What we are concerned about and the real issue that we face is that we are seeing now a flattening out and a potential decline. If we start to do worse, then an adjustment to CPE isn't really the answer, especially if it's not going to help us turn that around.
3250 The drive for us, especially in a world where distribution revenues are simply not increasing, they are just not material any more and they really aren't, the drive for us and the direction for us has to be to force advertising revenue up and that means driving audiences.
3251 Quality really has to be I believe the direction that we need to go.
3252 COMMISSIONER GRAUER: Can you give me the impact on your revenue projections were we to not approve your proposed changes?
3253 MR. BRACE: I will just pass to Kim McKenney once again.
3254 MR. McKENNEY: Sure. We estimate that the growth rate would be reduced from the 6 per cent to the 3 per cent, so it would be the industry average more or less.
3255 COMMISSIONER GRAUER: And what would be the impact do you think on other television undertakings if we were to approve this, the changes?
3256 MR. BRACE: I'm not quite sure I understand the question.
3257 COMMISSIONER GRAUER: Would there be any impact on other specialty services, conventional programming, if we were to approve your changes and decrease your evening Cancon?
3258 MR. BRACE: In terms of impact on them?
3259 COMMISSIONER GRAUER: Revenue, audience.
3260 MR. BRACE: I really don't --
3261 COMMISSIONER GRAUER: Well, you are going to grow your audience from somewhere if you are planning to grow the audience and the revenues.
3262 MR. BRACE: I suppose there would be a lot of feedback, but, you know --
3263 COMMISSIONER GRAUER: It's not something you can --
3264 MR. BRACE: It's not for me to calculate it, no.
3265 COMMISSIONER GRAUER: Okay.
3266 MR. BRACE: Kim would like to add something to that.
3267 MR. McKENNEY: I mean the net increase in revenue is only about $2.3 million over the term. It doesn't pull a lot of revenue out of the system.
3268 COMMISSIONER GRAUER: New money?
3269 MR. McKENNEY: New money. Like I don't --
3270 COMMISSIONER GRAUER: Not new revenues. Coming from someone else.
3271 MR. BRACE: I'm not sure that we could say that it was new money, no. I'm sure it's going to be -- maybe a portion of it would be and hopefully it would be, but I --
3272 MR. McKENNEY: Some of it would obviously be inflationary as well.
3273 COMMISSIONER GRAUER: Do you have two feeds? I wonder if you could tell me why you have only two feeds and what impact it has on your broadcast day.
3274 MR. ROBINSON: We decided early on in starting up the channel that we should have two feeds, primarily because of the nature of the material after nine o'clock, so our feeds are basically eastern time and Pacific time. They are exactly the same schedule. It's just the two different feeds.
3275 COMMISSIONER GRAUER: So the programming you air after 9:00 p.m., which is post "Watershed" programming, and what I'm trying to do is look at the different services and say if that was your primary determinant in getting a second feed and others have not been troubled by the fact that the programming may be for adult audiences, but it is being programmed earlier, do you just feel that this relieves you or it is the volume of that programming you do -- not adult --
3276 MR. ROBINSON: When we were starting up, our philosophy was to create a schedule that was different than comedy you could find on other channels, so it was intentionally more irreverent, intentionally more perhaps saucy. We felt the responsibility to make sure that, you know, "The Watershed Hour" was respected across the country, so that was the primary motivation for going to the second feed.
3277 COMMISSIONER GRAUER: What I would like to explore with you is how the misinterpretation of your broadcast day arose and what measures you have in place to ensure Cancon compliance is respected.
3278 MR. BRACE: We do acknowledge that there were some issues there, Commissioner Grauer, and Elizabeth is going to take you through the areas where we put structure in place to take care of that issue. MS DUFFY MacLEAN: Thanks, Rick. Thanks, Commissioner Grauer.
3279 That was as a result of a staff error. We had a staff person who had come from a service that was calculated on a 24 hour basis and that staff person was calculating the day on that basis. That came to our attention in the Commission correspondence.
3280 We did verify internally that going forward that was not the case in the subsequent broadcast years and that all the staff are aware of the calculation on the 18 hour.
3281 COMMISSIONER GRAUER: You are wanting to increase your daytime Cancon from 58 to 60 per cent. One thing that has occurred to me is that when you program on a wheel, you have high Cancon between midnight and 6:00 a.m. which maybe on an 18 hour broadcast you wouldn't.
3282 When you have two feeds, it doesn't have the same impact on the west, but if you have one feed and you are on an 18 hour day, you could arguably not program any Canadian content after midnight, you know, nine to midnight in the Pacific time zone.
3283 I'm wondering in terms of moving from 58 to 60 during the day what the impact will be on your programming, existing programming.
3284 MR. ROBINSON: There would be -- I wouldn't say any impact on the nature of the programming in daytime. It would still be targeted more to a general access audience, to use a phrase.
3285 I'm only sort of smiling here because I also thought well, we have a 24 hour service so that's the way we alculate our overall day. You are quite correct. If you have in our case 72 per cent in prime time and you repeat it overnight that the overall day is, you know, the daytime can be quite lower because of that high volume in prime time in overnight.
3286 That's the reason why we did not achieve in the first whatever our deficiency was. We all didn't understand that we were submitting on an 18 hour day. It makes a difference in your calculation for sure.
3287 COMMISSIONER GRAUER: It worked out to 58 per cent if we calculate it on a 24 hour day. Is that right?
3288 MR. ROBINSON: Well, the 24 hour day, yes, it worked out to 58 per cent. I would point out that we did manage to understand that prime time was 72 per cent and we did hit that.
3289 You are right, the 58 per cent was obtained in our heads because we were calculating on a 24 hour basis.
3290 COMMISSIONER GRAUER: Now, we get into categories. If we look at your online program schedule for the week of the 30th of March 2003, you aired on at least one occasion "The Simpsons", "House Park" and "Odd Job Jack" between 7:00 and 11:00 p.m.
3291 These three programs are all logged as 7(e). Your COL allows you a maximum of one hour for 7(e) during that time period. I would just like you to perhaps comment to me on your scheduling practice in light of that 7 program category.
3292 MR. ROBINSON: Well, I am aware it is one hour between seven and 11. I wasn't aware that we had scheduled an hour and a half on this occasion, so this is a new item for me.
3293 COMMISSIONER GRAUER: Maybe what I will do is go through some of these things and then we can -- now, "BattleBots" and "Win Ben Stein's Money" apparently logged at 7(b) and then "Beat the Geeks" which apparently is described as a game show, we don't know how it's being logged I gather.
3294 Could you just tell me about these programs, the nature of them and the category.
3295 MR. ROBINSON: Our view is clearly that they are comedy series. "Win Ben Stein's Money" and "Beat the Geeks" are similar in that there is a question and answer format. It is kind of a parody of a game show in a way, but within it, the program categories, the answers, they are all about finding the humour in all of that.
3296 Whatever notional prize there might be, it's just totally notional. It is about the fun of getting through the exercise.
3297 "BattleBots" is quite different. "BattleBots" is a contest between home builders of machines that try and beat each other up in an arena as commentated by two comedians.
3298 COMMISSIONER GRAUER: So that would be the violent capture 9:00 p.m. part?
3299 MR. ROBINSON: It's only metals, you know. It's lawnmowers put together with hammers, whatever.
3300 MR. BRACE: It's a washing machine beating up a microwave oven.
3301 COMMISSIONER GRAUER: Missed that one.
3302 Now, "Comedy Now", we saw some clips of it. How do you log that? What we are really trying to do is understand some of these logging issues a bit better. How do you log "Comedy Now"? If you could describe the program for me.
3303 MR. ROBINSON: Well, "Comedy Now" is a series of standup specials. They vary from 30 minutes to 50 minutes, depending on material the comic has. It is part of a series.
3304 I am looking at Elizabeth. It's 7(f) Elizabeth?
3305 MS DUFFY MacLEAN: Yes, and I think in the past the Commission has certified certain of those "Comedy Now" as 7(f) and certain of them as 7(g) and then recertified some of them as 7(f). What we found is a number of those could fall into either one.
3306 COMMISSIONER GRAUER: Oh, the wonders of logging. Can you tell me the type of programs and how much you anticipate airing under 7(g)?
3307 MR. ROBINSON: We don't commission on just attention for 7(g). Part of the difficulty here has been as Elizabeth described as when it has been certified it has come back with a category that we didn't expect it to. There has just been a bit of a churn in trying to figure out the easiest way to facilitate 7(g).
3308 Part of the definition of 7(g) certainly applies to the comedy programming in our schedule, but we don't go out and say "Let's commission category 7(g)". That's not in our thinking. We thought it might facilitate the odd occasion on which unbeknownst to us an episode of a series being categorized as 7(g) .
3309 MR. BRACE: And I think Elizabeth has something to add.
3310 MS DUFFY MacLEAN: Just to reiterate that we didn't actually calculate any particular percentage, answering your question directly, Commissioner Grauer. It really was a function of ensuring that comedy is in compliance if some of our programs end up being certified or recertified as 7(g).
3311 COMMISSIONER GRAUER: Tell me something. This whole area of logging which I have had people talk to me about not in the context of a hearing and not in the context of any proceeding, it seems to be quite complicated and quite cumbersome. In your case it appears to be more so than perhaps some of the others. This is really just a question on my part.
3312 Is there a way that can be made more easy, more streamlined? Is there ways that we can work together to do that? What are the big challenges for you in dealing with these logging issues?
3313 MR. BRACE: Well, Elizabeth will comment on that. I can tell you that we used to have kind of a traffic department perform the logging for the services. We now have a department that handles it because you are right, it is involved and it does cause concern from time to time as you have outlined.
3314 Elizabeth, if you can just talk about the procedure and maybe some recommendations if you have some.
3315 MS DUFFY MacLEAN: Thanks, Rick.
3316 Over the years I have dealt quite a bit with the staff on the issue of logging. Everybody has been very open to talking about those kinds of issues: What are the issues that we face in logging and some things we might do.
3317 One of the issues that we faced in this particular situation a number of years ago was that the Commission began to define how programs were certified. Often that certification will come in after the program has come to air. That has been an issue for us in terms of some of the situations that Ed has found himself in.
3318 I think the fundamental issue is the subjectivity of how we define these. I think that's a good example if we use "Comedy Now" or the not to be repeated special in that someone might define it as 7(g), "Other Comedy", and someone else might define it as 7(f).
3319 A radical thought. It may be that programs might be able to fall under one or two different categories because what happens is if a certain category comes up on your log, the Commission sends back a log error report.
3320 I remember we met with staff several years ago and said the really, really important thing about that was don't call it an error in the log. If the certification comes back differently from what we might definite it, if it counts as an error, then it gets pulled out of your Canadian content if it's a Canadian show.
3321 The subjectivity has an absolute fundamental impact on whether your show would be considered Canadian content and your ability to be in compliance.
3322 As it stands right now it's a warning, but what happens is if it subjectively comes back as 7(g) and it's outside your condition of licence, you end up where we were which is conceivably out of compliance. However, that particular show was then recertified as 7(f) and we were back in compliance.
3323 I guess my point is, you know, a radical thought. It might be useful based on the subjective elements here to allow certain programs to fall under two different categories in this case.
3324 I think the second issue is to make sure that they continue to be warnings and not errors on the log.
3325 We have also worked very closely with the people in the certification office to discuss some of these issues.
3326 MR. ROBINSON: The only thing I would add in sort of the nature of trying to move forward and solve some of these issues is that the timing of this is really out of whack in a lot of ways.
3327 What has happened often times is we will have Commissions, the independent production will receive it. It's often times gone to error. The independent producer has perhaps not been as diligent as they should have been in getting their certification back from the Commission and by the time it comes back, we have logged in the category that we believed it was going to be and in fact it's categorized as something else, then there's a reconciliation that goes back and forth.
3328 We have in the last years got a little more diligent ourselves in asking the independent producers to be quicker off the mark to get their forms in for certification and a classification of the program. That sort of timeliness of that whole process could be fine tuned and perhaps quicker all the way around.
3329 MS DUFFY-MACLEAN: And if I could just add to that. Ed brings up a very good point because it is important to have that relationship with the independent producer, because in essence that process happens outside of the broadcaster, so the certification is done by the independent producer and, in the end, you are responsible for the logs as the broadcaster. So there is a bit of an important element of somehow keeping track of all of those producers and all of their independent production.
3330 COMMISSIONER GRAUER: Then for us, of course, to ensure that the nature of service is still -- the integrity of the licensing process is intact. Maybe you could do a little skit or stand-up on CRTC logging procedures. I think probably the reason the independent producers are slow is they are probably chasing their money to finish their financing.
3331 I have a question on -- we have talked a bit about independent production and the other thing I would like to ask you about is regional production, which is another subject near and dear to my heart. To what extent...? You know, I think CTV -- I don't know if you are the only broadcaster, but certainly to have full development offices in Vancouver and Halifax and to what extent does comedy work with those development offices to identify producers, help projects come along, what relationship exists?
3332 MR. ROBINSON: We work really closely with both, well all of, the Halifax, Vancouver and now Winnipeg and Montreal development offices. There are regular meetings that we have as a group. But more importantly, one of the mandates for the staff of The Comedy Network is to get out and scout clubs and see what is happening and that is facilitated often times through the development office people. So that when we are travelling to Vancouver for whatever reason, there is an opportunity to go to a club or go to an act that they have heard about and scope it out. Particularly, Halifax and Vancouver, because they have existed longer than the other two offices, have been really really terrific in helping us find new talent when we are creating an original production in either of those areas, that we will often turn to them and ask for their assistance and recommendations for actors, directors, writers. So, I'm a big fan of the quality of work that they do in those offices.
3333 COMMISSIONER GRAUER: One of the things I know that there is so much going on in the Canadian independent production area with the crisis in funding and what not. I just got the most recent B.C. film Indigenous Domestic Production figures, which I don't know if you are aware, they are way down. I mean, they have fallen off the cliff basically and I am trying to understand why and I'm wondering if you who are out there can tell me how much are you doing out there and do you have a good understanding for why this domestic production would have fallen off so much out in British Columbia. Because I don't think the production numbers have fallen off in other parts of the country to the same degree.
3334 MR. ROBINSON: Is the report domestic only or is it -- really? Off the top of my head, Commissioner Grauer, I can't think of why that would be. I mean, what I know is, you know, CTV has put into Cold Squad, it continues, DaVinchi's continues on CBC.
3335 COMMISSIONER GRAUER: Yes.
3336 MR. ROBINSON: I'm sorry, I can't think of what --
3337 COMMISSIONER GRAUER: What about comedy, are you doing any more or any less in British Columbia?
3338 MR. ROBINSON: This year we are probably doing less than we have the last couple of years, but that is because a couple of series finished but were in development on the CTV side, not The Comedy Network side. We have a major show that has come from a comic based in Vancouver who is original from Saskatchewan, it is a big series that we are doing in Regina, actually, a 13 episode series called Corner Gas, which is about a small town in Saskatchewan where the owners of a local gas station live their lives and humorous things happen. So, I'm just not aware of why there would be a dramatic reduction in Vancouver in particular.
3339 COMMISSIONER GRAUER: Well, the only reason I ask because it is actually from 2000, the domestic production values that were spent was $419 million and this year, so three years it is down to 163, which is quite dramatic. The one thing I wondered about was in the TV policy of 1999 and Vancouver was included for the first time and this is a major production centre for the CRTC. Now, that doesn't apply to specialties I know and it doesn't also apply to CTF or EIP in terms of the regional envelopes. But I'm just wondering if you think it might be driving -- if broadcasters are going to do more production in the regions, if that kind of a policy shift might have driven them to more the smaller centres and away maybe from --
3340 MR. ROBINSON: I can't think of why that would be. I mean, I am aware that U.S. production in Vancouver is down considerably, that is why I was asking, is it mixing the two. But if it is domestic, I really can't think of a significant factor as to why that would happen.
3341 COMMISSIONER GRAUER: Interestingly, the foreign production is not down as much, even in real dollars, as the domestic production.
3342 MR. ROBINSON: That astonishes me actually.
3343 COMMISSIONER GRAUER: Could we talk a bit about -- we have been asking people about described video and I want to describe programming. I wonder if you could help us in terms of where you are going with that.
3344 MR. BRACE: Absolutely, Madam Commissioner. We believe we are taking a leading role in this area and I think that it is CTV wide, it is not just CTV and it is not just the specialty services. We have actually developed a plan and in fact we are going to be rolling out two hours in years one and two on CTV, starting with Cold Squad so, I mean, that is going to be described. But beyond that, what I'm really pleased to say is that we had a look at -- you know, when did we start driving this train. You have heard the arguments and you have heard the stories time and time again that well you know if we make the capital commitment to kind of outfit our services that will enable us to do this that is fine but it can't really get through the distributor grid to the end consumer and so what have we all done. And we believe that on the specialty side with our services that it has to start somewhere. So, we are determined that in year one we are going to make the commitment to and spend the capital, which is roughly $30,000 a service to outfit them for described video. We are working, and Elizabeth can describe what we are doing with the CAB in terms of trying to move it along though the next hurdle, which of course is the distribution factor, you know to kind of get it to the end of the road. Our plan, and it is hopeful but you know it is going to take some work across the board, is if we make the commitment that we will commit to actually delivering an equal amount of described video on our speciality services and we are guessing that they will be by kind of year two or three of this plan, so we will be up around three hours on CTV at that point, that we will be able to deliver that as well on our speciality services.
3345 So that is kind of the direction we are going. But once again we do face this hurdle and it is real. But, Elizabeth, if you just wanted to make a comment because you have been kind of handling that -- on this.
3346 MS DUFFY-MACLEAN: Thanks Rick, and to confirm we are, right now, on conventional already describing a number of shows. And on the specialty side I think you have heard a little bit already about the challenges and just succinctly, each specialty service has to upgrade in order to be able to access the SAP channel which, as Rick has said, we are committed to doing. Cable distributors have to replace every single IRD in order for that signal to be passed through. So, the first step is for us to be able to upgrade to allow ourselves to provide that signal. And then, secondly, we can't make the decision for the next step, which is for the distributors to ensure that that signal can actually pass through to the consumer. So, we have had discussions within the industry and with the commission about moving that forward and the issues that are faced there. And, as Rick says, the important thing is once the distributors get to the point where they are doing that, are able to pass through, that we are going to be already able to provide that. The second issue is that you can't, as we understand it, actually do DBS on a live service and if you have seen that you can understand why, because you have to find the time in between the audio to be able to describe the programming. So, those are kind of the challenges that we have been discussing as an industry.
3347 MR. BRACE: And just to kind of clarify one point that Elizabeth made, we are not talking about waiting until all of the distributors are ready, what we are suggesting is that the major system that is ready to go will be there as well, that is what we are prepared to do.
3348 MS DUFFY-MACLEAN: And I think just as a final point, we noted that the NBRS in their intervention pointed out that in their view news and information services were not services that they are really focused on in terms of providing DVS based on the actual audio description that currently exists on those types of services. Thank you.
3349 COMMISSIONER GRAUER: And I know you are encompassed by CTV's corporate cultural diversity plan and I just wonder if you could give me an update on how comedy is doing with respect to the cultural diversity?
3350 MR. BRACE: Once again, if I can beg your attention here for a moment just to talk about CTV a little bit because I think that it is important. We came to the Commission I guess it was six weeks ago or so and made a presentation on our cultural diversity plan, which really set out objectives for us. We started at CTV really in the news operation where we have someone who runs the diversity desk, Carline Nation, you had a chance to meet her, those of you who were able to attend. We have indeed brought in many groups from the community to gain their insight, many diverse groups in the community, gained their insight on how we are doing, give us a report card and tell us what we can do more of. And we try to extend that to all of our services and we don't do it just as something that we kind of make a suggestion on, we actually establish objectives, discretionary objectives that are measured on a quarterly basis with each of the people responsible for those services. So, Ed is responsible for delivering on cultural diversity initiatives and he will tell you what some of them might be.
3351 MR. ROBINSON: Nice passover. With respect to staff at The Comedy Network we have a very small staff and our on-air talent who is all engaged through independent producers. So, when we are commissioning original shows we are certainly encouraging independent producers to be aware of cultural diversity. I think probably the one show that I could refer to that provides the broadest base for that is "Open MiKe with Mike Bullard". There have been over 2,500 guests to date and the format of the show is basically a performer being an actor or a comic or someone as the first guest, a sort of novelty act in the middle and concluding with a musical act. That is the normal formula for the guest pattern. And in all of those categories we welcome talent from across the country from all broadcasters, Canadians who are in television film, who have written books, who are in the music industry and the urban flavour of the musical guest has been very strong and a lot of initial exposure in television to the "Open Mike" show. It is probably the biggest contributor to diversity on The Comedy Network. But we also, in other shows like Comedy Now where we have had different ethnic backgrounds represented, it also contributes to that. And we had done the first all black television series in the country, which was the After Hours with Kenny Robinson Show, which was an in-house show that we supported. Almost all the cast were black, the writers were all from that community and it was a different voice for us and we were quite proud that it was one of the shows we supported.
3352 COMMISSIONER GRAUER: You know, it is sort of self-evident that if the television broadcasting system doesn't reflect the country as it is in all of its complexity and rainbow and regional diversity, it is not going to be very successful.
3353 MR. BRACE: Madam Commissioner, that is just good business. I mean, beyond anything that may be considered altruistic, it is just good business as we see it. You know, whether it is our news operation or whether it is the programming that we put on the air, we think it is important to reflect the community because, after all, that is our audience and if we want them to relate to us we have to relate to them. So, we have to be the mirror and I think that we really do strive to do that.
3354 MS DUFFY-MACLEAN: And if I could just add to that, all 11 of Ed's staff members fall into the designated groups. Seven of them are women and four are of visible minorities and, as well, we are going to be rolling out our diversity training to our specialty services as well.
3355 COMMISSIONER GRAUER: So you proportionately reflect the population of Toronto do you?
3356 MR. ROBINSON: We try.
3357 COMMISSIONER GRAUER: I think that finishes my questions. Just one last thing, how did we leave this, Mr. Brace, that in return for a reduction in your evening Cancon you would be doing what in terms of Canadian program expenditures or hours of original Canadian programming or are you going to get back to us on that?
3358 MR. BRACE: We are prepared to get back if that is what you would prefer us to do. As I said, the preferred route for us was to make the dollar commitment. We thought that was more important because if we start going down the road, as we said of original hours, we start to get into that issue of, you know, we are going to have to invest potentially, not potentially, probably less in each program and therefore be into a situation where we are not achieving the quality that we think is important. Perhaps if we could caucus a little bit and get back and perhaps provide an envelope or range, would that be acceptable?
3359 COMMISSIONER GRAUER: Or add some percentages points on your CPE that you might be willing to move up if you really want. You would be spending more money to improve the quality of your same programming.
3360 MR. BRACE: We will commit to respond to the Commission after we have had a chance to discuss it amongst ourselves.
3361 COMMISSIONER GRAUER: Thank you very much.
3362 MR. BRACE: Thank you.
3363 THE CHAIRPERSON: Thank you. Interesting, are you the only specialty service without a COL wholesale basic rate?
3364 MR. BRACE: I think we are the only one now, yes.
3365 THE CHAIRPERSON: Did you hear the discussions earlier in the day?
3366 MR. BRACE: We have heard them all and it is interesting and I know that it has been a line of questioning, Chairman, that you have led. In terms of The Comedy channel, and I don't -- I think Ed might have been there when it launched but certainly not when it was proposed and other than that I think it is all new faces here at the table. But what we can say about The Comedy channel is that -- Well, let me first of all say that I believe a basic rate is important, I will start there so that is not lost. But certainly in the case of The Comedy channel, when it launched it was able to got to market, it always kind of designated itself as something that would be on a tier, not really a basic proposition, and did got to the market and by virtue of having spent the last seven years working at it, has kind of set its own benchmark over time. But I'm not sure that in retrospect -- it worked, I'm not sure in retrospect it might have been the direction that we would have taken. I think that a basic rate is an important element and I think the word benchmark has been used many many times just over the last couple of days and we would support that as well.
3367 THE CHAIRPERSON: It was left off as a joke maybe?
3368 MR. BRACE: We didn't find it very funny.
3369 THE CHAIRPERSON: You seem to be able to conduct your negotiations without that benchmark.
3370 MR. BRACE: Well we do, we do but I think that we are conducting them now based on historical data, you know, what we have been able to achieve and that I guess has worked. But I have to tell you that -- and we are renewing a lot of services, so we have a chance to see across the board what's happening here and, as I said, have been directly involved in a lot of that, as has Kim, and it is a tough world out there, it really is. With deregulation rampant with kind of the fragmentation that we have seen, what I see is that the specialty world is more of a commodity now than something that is really looked upon as special or individual or recognized as value for the individual service and I think that that has become the key concern. And the basic rate, therefore, is something that we come, as others have said, once every seven years and we kind of have the discussion to kind of demonstrate a number of issues. I have written down some criteria here, I don't know if you want me to go through them, but maybe that was the next question.
3371 THE CHAIRPERSON: It really wasn't, because you were proposing a change -- either a basic rate or a change to a basic rate.
3372 MR. BRACE: No, but if you would like to hear this --
3373 THE CHAIRPERSON: Please go ahead if you want, but it seems to be ongoing to me.
3374 MR. BRACE: -- and maybe --
3375 THE CHAIRPERSON: Sure.
3376 MR. BRACE: -- I can save it until tomorrow if you like, but. I just think that there are criteria, that we come to you every seven years and we say how do we judge what a service should receive as a basic rate and I think that some of them have been mentioned. I think John Cassaday was very eloquent in what he had to say today. But certainly audience appeal, looking at the wholesale rate that currently exists, how does it reflect across the board as compared to other rates? The contributions to the system, I think news would be a good example of that, that you know is it contributing to the broadcast system, is it contributing to the Broadcast Act and, if so, how? It is potential to grow advertising. Do we have some issues here where services are stymied and do they have to depend a little more? But we still feel the niche and vital, but they really do need the support of a basic rate or at least a benchmark they can establish a rate from in order to continue to grow and achieve success.
3377 I think diversity is important and I mean diversity not so much in the context that Commissioner Grauer has described here, but more does it create a diverse broadcast system? Do we have differentiation between services and does it really add to the mix. And, I think that the overall thing and the last thing I would mention is that -- and what I have seen the Commission do in the last two days is scrutinize the business plans. I mean, is it really relevant? Does it make sense? Have people done their homework? Are they delivering on what they say they are delivering? And, do their numbers kind of hold under the scrutiny of kind of the inspection that I think they require and I think that that would kind of round out for me where I think we need to go in determining the rate. Because my fear, and once again and we have been through this, is that if we get into the dispute resolution I think that the administrative nightmare it could cause, the backup and I think it was described in other presentations eloquently, I think would really kind of bog down the system. We really would be at your door I believe of this -- because of this commodity situation, this commoditization, I believe we would be at your door with virtually every agreement that we are looking at. So, it is of real concern for me. But, you ask The Comedy channel to probably finish off an argument in the worst way possible, has existed without it.
3378 THE CHAIRPERSON: Mr. Brace, your -- I don't know whether it is fair to call Bell Canada your sister company or not, but for purposes of this discussion we can do that. Have you ever asked them --
3379 MR. BRACE: Could we at least go distant cousin?
3380 THE CHAIRPERSON: Fair enough.
3381 MR. BRACE: Thank you.
3382 THE CHAIRPERSON: But if you think that the kind of scrutiny that we have been able to engage in is thorough, I mean you ought to -- have you ever attended a telecom rate hearing?
3383 MR. BRACE: No and I know, Mr. Chairman, that that is your background and I know that -- but I believe that the business plan is important. You know, we have had discussions today on your advertising assumptions, we have had discussions on your audience growth.
3384 I think you have raised good points. There have been concerns raised that you have asked us to address, and I think that that is fair, and I think that it does have to face that kind of scrutiny. I think it's important.
3385 THE CHAIRPERSON: My comment was not that we don't scrutinize it, but that the kind of scrutiny that one would have to engage in in order to really be satisfied that one had rate regulated would be considerably greater than what we are able to do under the current approach that we take to regulation.
3386 MR. BRACE: I understand.
3387 THE CHAIRPERSON: Thank you for those comments.
3388 Commissioner Wylie.
3389 COMMISSIONER WYLIE: Mr. Brace, if we decided that you have to join the pack and have a rate, with all those good arguments you were giving, would the rate that you are getting be the rate that you would propose as a sensible one?
3390 MR. BRACE: Yes, it would be. We have no intention to -- well, first of all, we don't believe it's possible to go out and improve to any great degree where we are, so that we have built all of our plans around the established numbers and the assumptions that we have made.
3391 COMMISSIONER WYLIE: But isn't it an interesting incident or index of the ability in some cases to establish the value without the whole --
3392 MR. BRACE: It's interesting if you look from service to service the balance between advertising revenue and sub-revenue, just see what percentage really a network operates on. I think that the average in the marketplace -- I don't think; we have done the calculation -- is roughly 65 kind of 35, with 65 being the sub-revenue. I think that is kind of the general industry levels.
3393 You know, Comedy has been able to better that where we are now like over 49 per cent advertising support and I think that that is a good story. What that says is that the consumer at the end of the day is getting the service for a fair price, and even the advertising market is recognizing that value. If you can get to that kind of a level, I think you have really achieved something so that we have done a good job with The Comedy Channel. We are satisfied at that level.
3394 COMMISSIONER WYLIE: I see that Mr. Lynde isn't here anymore, but do you actually, considering that it's so unusual not to have one, you actually go in pretending you do and nobody notices?
--- Laughter / Rires
3395 MR. BRACE: I think that the big issue is number one we aren't carried on basic.
3396 COMMISSIONER WYLIE: Because you have the --
3397 MR. BRACE: So we are --
3398 COMMISSIONER WYLIE: But still, considering everybody else has told us it was very much the benchmark --
3399 MR. BRACE: I believe we would have preferred to have had that benchmark. I think it would have been beneficial.
3400 COMMISSIONER WYLIE: I don't see any cable operator here so you could try that.
3401 MR. BRACE: But this is on the record, is it not, Madam?
3402 COMMISSIONER WYLIE: Oh, yes, assuming they read it.
--- Laughter / Rires
3403 MR. BRACE: So we have to still choose our words carefully.
3404 COMMISSIONER WYLIE: And with regard to this business of one program being 7(g) and the 7(f) and back -- that's just a bad joke.
--- Laughter / Rires
3405 MR. BRACE: Yes, we certainly haven't found it funny.
3406 THE CHAIRPERSON: Commissioner Pennefather.
3407 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
3408 I wanted to go back to the discussion on cultural diversity. You mentioned visible minorities, you mentioned women, and addressed that to some extent in your video presentation as well.
3409 I wanted to ask you for some specifics on how you are approaching on-air portrayal, on-air presence of Canadians with disabilities.
3410 MR. BRACE: Sorry, Commissioner Pennefather. Is this specifically The Comedy Channel?
3411 COMMISSIONER PENNEFATHER: Yes.
3412 MR. BRACE: Okay. Elizabeth, can I pass this to you?
3413 MS DUFFY-MacLEAN: I think in terms of disabled I don't know that specifically at Comedy that there is anyone that I am aware of. I know that, as I said, four of our 11 employees are within a visible minority.
3414 I think if we look at on-air, I don't know, Ed, if you have any examples of comedians who are disabled, but certainly within CTV itself we have accommodated a number of disabled people in terms of both their work environment and assistance with any kinds of reconstruction within the building that we have.
3415 Ed, I don't know if we have any specific on-air examples.
3416 MR. ROBINSON: The only on-air example that I can think of is there is a stand-up comic who is blind and who makes a good living doing stand-up comedy across the country. He has been on "Open Mike", he has been in "Just for Laughs" that we have broadcast. But in terms of other physical disabilities, I can't think of other examples at the moment.
3417 COMMISSIONER PENNEFATHER: But it does form part of your overall approach because very often in our discussion, and rightly so, we focus on ethnic minorities. We focus on increasingly majorities to properly reflect our society, but this area that Canadians with disabilities, when we talk about the describe video it certainly is part of it, and closed captioning, but in terms of on-air presence, is it part of the thinking, part of the planning, part of the discussion and training?
3418 MR. BRACE: It's part of the thinking to be totally inclusive, and I think Ed described whether it's on a regional basis or even in the home town, that when we go to comedy clubs we look for the talent and there are certainly no barriers to that. In fact, I would think that there is an encouragement.
3419 I think Elizabeth has an example that we can put on the record.
3420 MS DUFFY-MacLEAN: You will see, Commissioner Pennefather, when we outline within our diversity plan -- and again I am back at CTV wide -- that we talked about how we develop, how we go outside to our regions and in terms of dealing with our independent producers, how we look at the development and creation of programming.
3421 We work specifically with the independent producers in that regard. We do have a show on air right now, "Sue Thomas FB.Eye" in which the main character describes herself as deaf and she is in that role within the show, prime time programming.
3422 COMMISSIONER PENNEFATHER: Thank you very much.
3423 I think it's very interesting to have your comments because over and above talking about the game plan for CTV itself, or for other major players, when you come to the work you do, which is putting material on television, you are working with a very powerful tool in this regard and every time there is an opportunity to change an image, often our comedians are way ahead of us in that particular area. So I thought you were a player who should be taking a particular look at that.
3424 MR. BRACE: And we respect that position. Thank you, Commissioner.
3425 THE CHAIRPERSON: Commissioner Grauer.
3426 COMMISSIONER GRAUER: I just have one more addition to your deliberations. Most of you are new since the hearing that licensed Comedy as MI, but I had forgotten to mention -- and you might want to factor this in -- that it was a competitive process and the commitment made by Comedy was no wholesale rate and 72 per cent even in Cancon.
3427 So in terms of looking at what you might be doing if we were to grant the --
3428 MR. BRACE: We did have a look at that and certainly even the proposed Cancon level is higher than the services that presented at that competitive process.
3429 COMMISSIONER GRAUER: I just said you might want to keep it in mind when you go back and do your deliberations.
3430 MR. BRACE: We appreciate that.
3431 THE CHAIRPERSON: Thank you.
3433 MR. WILSON: Thank you, Mr. Chairman.
3434 I just want to clarify one point. If we assume that -- and this is with respect to described programming -- if we assume that the technical issues with respect to the BDUs that you have identified have been resolved, what kind of commitment would Comedy be prepared to make in terms of numbers of hours per week of described programming?
3435 MR. BRACE: We would match CTV, so out of the gate. For example, if it started in the first year of this licence, we would do two hours. We anticipate it's going to take a little bit longer than that and so what we are saying is that rather than have something that is kind of different and separate from what CTV is doing we will match that plan. So if it's in year -- I have the schedule somewhere. I think in year two or three it's three years and we would mirror that.
3436 It would be in years one and two, two hours per week. In years three and four, three hours. In years five to seven, four hours per week. Once again that is contingent upon it being passed through on cable, but with the emphasis being that all we are looking for is one major system.
3437 MR. WILSON: Thank you.
3438 I have no further questions, Mr. Chair.
3439 THE CHAIRPERSON: Thank you.
3440 Well, thank you very much. This brings this phase of your application process to a close.
3441 We will resume tomorrow morning at 9:30 with the next item.
3442 Nous reprendrons demain matin à 9 h 30.
--- Whereupon the hearing adjourned at 1828, to resume
on Wednesday, May 28, 2003 at 0930 / L'audience
est ajournée à 1828 pour reprendre le mercredi
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