ARCHIVED -  Transcript / Transcription - Gatineau, Quebec - 2003-05-30

TRANSCRIPT OF PROCEEDINGS

FOR THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

TRANSCRIPTION DES AUDIENCES DU

CONSEIL DE LA RADIODIFFUSION

ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUBJECT / SUJET:

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 30, 2003 Le 30 mai 2003

Volume 5

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

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

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

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

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

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 / Conseiller

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 30, 2003 Le 30 mai 2003

Volume 5

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

PHASE I

APPLICATION BY ROGERS BROADCASTING LIMITED / 1179 / 8606

APPLICATION PAR ROGERS BROADCASTING LIMITED

Application No. / N^o de demande 2002-0641-8

APPLICATION BY CROSSROADS TELEVISION SYSTEM / 1247 / 9049

APPLICATION PAR CROSSROADS TELEVISION SYSTEM

Application No. / N^o de demande 2002-0350-6

APPLICATION BY BEA-VER COMMUNI-CATIONS INC. / 1304 / 9386

APPLICATION PAR BEA-VER COMMUNI-CATIONS INC.

Application No. / N^o de demande 2002-0366-2

PHASE II

INTERVENTION BY CANADIAN ASSOCIATION OF 1333 / 9552

BROADCASTERS /

INTERVENTION PAR CANADIAN ASSOCIATION of

BROADCASTERS

INTERVENTION BY CANADIAN FILM AND TELEVISION 1394 / 9782

PRODUCTION ASSOCIATION /

INTERVENTION PAR CANADIAN FILM AND TELEVISION

PRODUCTION ASSOCIATION

INTERVENTION PAR TQS / INTERVENTION BY TQS 1422 / 9918

Gatineau, Québec / Gatineau (Québec)

--- Upon resuming on Friday, May 30, 2003

at 0940 / L'audience reprend le vendredi

30 mai 2003 à 0940

8603 THE CHAIRPERSON: Good morning, everyone.

8604 We were questioning the panel of OMNI.2.

8605 Commissioner Pennefather.

8606 COMMISSIONER PENNEFATHER: Thank you very much, Mr. Chairman, and good morning, everyone.

8607 I don't have too many questions, but we will start with some questions regarding the OMNI.2 presence in Ottawa and some questions coming from your presentation of yesterday. Then we will get to the more technical discussion of channel placement frequencies.

8608 Basically the framework of my questions comes from the distant signals policy for over-the-air distribution. So you can well expect the background to the questions that I have.

8609 In your application under deficiencies, you discussed the Advisory Board, and in the case of OMNI.1 with the addition of the transmitter in Ottawa, a representative from Ottawa was appointed to the Advisory Board of OMNI.1 with great success, as I understand.

8610 Have you considered a similar initiative in London? First of all, I imagine the Advisory Board will be for both OMNI.1 and OMNI.2.

8611 MS ZINIAK: Yes, that is correct, and if I may answer those questions we presently do have, and we have had, I think, since 1993 two advisors in London. We have been able to work with them.

8612 We also have had advisors and do have advisors presently in Ottawa. Originally also we appointed an advisor in 1993, Mr. Charles Dojak, who then moved to Vancouver. Consequently we have appointed another advisor, Anna Chiappa who is the Executive Director of the Canadian Ethnocultural Council.

8613 So we do have advisors. Not only do we have advisors that integrate with the rest of the Advisory Board, we have set up a system of research support advisor. So one may say that the advisors indeed have direct contact with our producers and executives, but also we have found it necessary to have supplementary research support groups who can actually answer either ethno-specific situations in even sometimes communities that we are not broadcasting to, but do have direct implication perhaps with some of our cross-cultural programming.

8614 COMMISSIONER PENNEFATHER: So as I understand there is one Advisory Board and there is a representative from Ottawa, a representative from London, at least one in this case.

8615 MS ZINIAK: Yes.

8616 COMMISSIONER PENNEFATHER: The reason I am asking, obviously, is you say there is an influence then on the local events and what advice you can be giving as to what will be particularly important to the London and Ottawa communities as well as obviously to the Toronto and Hamilton communities.

8617 MS ZINIAK: Absolutely. As far as direction and guidance and what is happening in both Ottawa and London, I would maybe quickly ask Renato who is our Vice-President of News and perhaps David Battistelli as our Ottawa Bureau Chief to expand on that, but to say that presently, for example, our Ottawa advisor number one, we have just covered last month a particular event that honoured women from the ethnocultural community that she herself was on the board of, and she developed and we covered that.

8618 But also she earmarks important events and issues that are happening, of course, in Ottawa. I am also happy to say that our advisor just came back from Italy where she is completing a documentary and she has actually accessed her documentary fund and this is looking at a wonderful story that perhaps Renato will continue.

8619 So, as you see, our advisor is very much involved in not only advising, but has also gotten excited about the actual production as well.

8620 COMMISSIONER PENNEFATHER: I think that describes it very well, thank you.

8621 I don't know why anybody would come back from Italy at this time of year.

8622 MS ZINIAK: We need the footage.

--- Laughter / Rires

8623 COMMISSIONER PENNEFATHER: In fact, I will turn to the Ottawa news bureau so we can perhaps segue into a little bit more detail there.

8624 The Ottawa news bureau conducts interviews and produces news segments, as I understand it, and OMNI.2 will have access to the existing OMNI.1 bureau.

8625 What about London? How does it work? On page 15 of the application I see a reference to the news bureau in London, as I understand it, but I wasn't quite clear on how that works. I think you describe your Ottawa news bureau at length and then here you say:

8626 So have you considered that in light of OMNI.2 and the rebroadcasting transmitters application?

8627 MS ZINIAK: We often shoot in London, and there are very many foreign communities that, of course, are part of OMNI.2 and OMNI.1. We don't have a physical bureau there, but I would like Renato to talk about the way we are able to incorporate shooting in London and how we do this from a television programming point of view.

8628 MR. ZANE: Thank you, Madeline.

8629 Essentially, because we are active in so many different communities, we are trying to stay on top of what the viewer's needs are and what they would like to see covered. Because in our newsroom there is editorial autonomy in each of the language groups, what is happening at the moment is that the information goes directly to the producer for each linguistic group.

8630 Some of these groups, like the Portuguese community, have a stringer out there. So in reference to a specific bureau, it's under advisement. We are studying that issue. We are trying to figure out what the best way would be to proceed.

8631 I am also taking an account of the number of stories that come out of London as compared to Ottawa. At the moment we don't have as many stories in the communities in London as we see in the National Capital Region.

8632 MR. BATTISTELLI: Thank you, Commissioner.

8633 I would also just like to add that the Ottawa bureau is also very sensitive to the fact that we do have viewers in London and what we will be doing is perhaps making sure that we get a comment from a London-based Member of Parliament.

8634 I will give you a recent example. A young London girl who just received a scholarship -- I believe she was from the Muslim community. It was an event on Parliament Hill. We identified that she was from London and we made sure that was part of our newscast.

8635 So we are sensitive to the areas that we are covering also from Parliament Hill.

8636 COMMISSIONER PENNEFATHER: Thank you.

8637 Let's continue on the Ottawa news bureau then. I need a clarification on the number of staff in the Ottawa news bureau.

8638 Page 12 of the application indicates the bureau staff is a full-time reporter and a full-time cameraperson and technical supervisor. On page 14 you propose to expand the news service, hire an extra cameraperson and the use of different freelance journalists and you reference that in your presentation.

8639 Could you clarify for us going forward the composition of the news bureau?

8640 MS ZINIAK: I will ask Renato to answer that.

8641 MR. ZANE: Thank you.

8642 At the moment we have a full-time bureau chief, who is here on my right. We have a full-time camera operator/editor and a freelance camera operator. We are in the process right now of enhancing and expanding the bureau.

8643 So I will let David talk about the current composition, but I would like to just add that we are in the process of hiring another full-time member who will be working here in the National Capital Region, and we are investing $200,000 in technical upgrades of the bureau to install another editing suite and more technical facilities to serve the growing needs that we see for stories coming out of the bureau.

8644 But David, perhaps you could talk about the number of people working right now.

8645 MR. BATTISTELLI: Commissioner, thank you.

8646 I think it's important to note that we have three language freelancers which means reporters, one Cantonese speaking, Mandarin speaking, and a Portuguese-speaking reporter who, in all fairness, has been working prior to the OMNI.2 launch. She wasn't brought on because of the OMNI launch, she has been working for many years.

8647 Besides the three language freelancers, we also call upon three additional technical camera freelancers to work with either crews coming from Toronto, whether they be from the Greek community or Baltic community. So we do have, I would say, three to four freelancers who work with our language producers as well as Toronto's language reporters as well.

8648 MS ZINIAK: Just to expand on that, we have to develop stringers in specific languages, and as we know we are broadcasting altogether in 44 languages. It's very important, for example, for our weekly programs. For example Polish programming, we actually identified reporters here and we are developing them, but they contribute -- we are talking about the news bureau, of course, but we also have weekly public affairs shows for various languages. So to date we have developed a Polish reporter, for example, Lithuanian reporters, and certainly Somalian reporters and others that are significant to the Ottawa area.

8649 So indeed it is the process of developing and identifying individuals who are available and can contribute and want to work with us for their language programming.

8650 COMMISSIONER PENNEFATHER: Just so I am clear, with the full understanding of the need to engage freelance stringers and journalists. The core group again is the permanent staff of...?

8651 MR. ZANE: It will be four by the end of June.

8652 COMMISSIONER PENNEFATHER: Four, okay.

8653 On programming, I have only one question because it's quite clear. I have your presentation and on page 8 you list the initiatives, the financial initiatives, and the paragraph below indicates a minimum earmarked of 10 per cent of... and then the list. But if I read it that leaves out the cross-cultural dramatic programming series of $7 million. I was just curious why that wasn't part of the 10 per cent earmarked list.

8654 MS ZINIAK: I think I will ask

Leslie to respond.

8655 MR. SOLE: Commissioner, the $7 million drama is a single project. It's the first cross-cultural or multicultural dramatic series produced in Canada of its nature. It is a single project. It will run on both OMNI.1 and OMNI.2 and it is not necessarily a function of London or Ottawa or Toronto. It's a national project.

8656 MS ZINIAK: But it is also, if I may add, part of a $32.5 million, of course, for documentaries and dramas. We are entertaining presently drama projects from the ethnocultural communities which are also part of that.

8657 We are getting, for example, one-hour dramas, for example, in Singhalese and other languages that we are producing them in. So certainly producers are welcome to that as well, but this is the larger cross-cultural dramas that I think is important to identify which is somewhat different that --

8658 MR. SOLE: It's an individual benefit. It's one single thing, and to Madeline's point, we are quite prepared to entertain dramatic or any form of linguistic or multicultural programming from London or Ottawa, just that that $7 million was a particular promise.

8659 COMMISSIONER PENNEFATHER: And so, as I take it then, particular the $35 million for the Ontario independent producers initiative, Ottawa and London area producers will have access -- you are setting aside a minimum of 10 per cent to this effect.

8660 MS ZINIAK: Absolutely. In fact, we already have in production, I must say, as I mentioned earlier, our advisor from Ottawa producing a documentary and we have tried to announce it on our air. We have had a campaign. We have ads. Our group is going I think forward to Banff shortly, and we have tried to communicate this and we indeed want stories from Ottawa and London because, of course, we know that ethnoculturalism is very relevant to the communities and also important things are happening in Ottawa and London. So we very much want them to access that.

8661 COMMISSIONER PENNEFATHER: And how will this be managed? You have a programming committee or...?

8662 MS ZINIAK: Yes, we have a programming procedure. We have an executive committee that is set up specifically to entertain all projects and we actually meet every two weeks because of the volume that we have been receiving, and there are no doubt some excellent projects. We are not short of ideas or producers. We are mentoring a lot of producers and maybe I will ask Malcolm to expand on the unit that has been created specifically for the development and take a look at some of the procedures that we are involved with.

8663 MR. DUNLOP: Thanks, Madeline.

8664 We have probably received to date about 250 to 300 different proposals. We have approximately 30 projects to 40 projects in production right now. We are developing another five to ten projets. So we feel we are utilizing the fund very effectively.

8665 As Madeline said, we are going to Banff next week. We have hired a director to help with the fund and we are planning to meet with a number of producers out there. They seem very excited about the fund.

8666 COMMISSIONER PENNEFATHER: Yes, I think they would be. I don't know producers who wouldn't be excited about funding for their projects, but the other side of it is the difficult choices that have to be made at some point.

8667 I will move on to one of the criteria under the distant signal policy for over-the-air distribution is the impact on the revenue base of local broadcasters and the ability to meet programming commitments.

8668 On page 4 of your November 8th deficiency letter, in response to a question, I believe you indicate that the extended distribution in Ottawa and London will not generate considerable additional revenue until such time as the station has become established in the markets in terms of audience performance.

8669 Can you give me a sense of what that roll-out time would be. When you say the station has become established in the market in terms of audience performance, what do you mean exactly?

8670 MS ZINIAK: I will ask Leslie to respond.

8671 MR. SOLE: This is one of those occasions where we have experience. OMNI.1 was a Toronto station and became a regional station with Ottawa and London. The reward is not immediate. The saleability is not immediate. Most of all, the audience is not immediate. There are so many channels on the dial at any time that it takes time to establish your address, it takes time to establish your schedule, and so on.

8672 What we are referring to is that our impact on the local broadcasters in Ottawa certainly will be negligible in the first few years. It is not as much consequence over the whole term, because the impact we would have would be the 30 per cent conventional American programming. It is all in non prime time period. A lot of it is in the market for American signals.

8673 Generally, we were trying to characterize that this is a diversity broad service request. I would have to tell you there will be a financial benefit for the English programming by being available in Ottawa and London. It is just not of a major impact in this first licence period.

8674 COMMISSIONER PENNEFATHER: Can you quantify for us exactly what that impact is for you?

8675 MR. SOLE: It's a forecast. I would say that in the seven-year period there would be in the neighbourhood of 10 million new revenue dollars. The cost of that $10 million, against that you have $3 million for transmission. There are monthly fibre costs to feed those transmitters from Toronto. There are some programming costs.

8676 So an estimated EBITDA, taking this as a non-accountant, would be between $2 million and $3 million between now and the end of the licence term.

8677 COMMISSIONER PENNEFATHER: Between now and the end of the licence term.

8678 Turning it around another way, you say that the distribution in Ottawa and London will increase your overall Ontario regional television revenues by 10 per cent.

8679 Could you elaborate on that.

8680 MR. SOLE: I will ask Jim to give you the details.

8681 It is an impact study that comes from what happened last time. Jim can give you some detail on what we mean by that.

8682 MR. NELLES: Thank you, Leslie. Good morning, Commissioner Pennefather.

8683 If I could elaborate on that, the 10 per cent figure really comes partly from our historic experience with CFMT OMNI.1. If we were to say, as I think we did on page 2 of that deficiency, that a share in Ottawa would be from 2 to 3 per cent -- so assuming we opened up and we had grown as far as we could -- that would give us perhaps 10 per cent incremental viewership out of the Ottawa extended market with respect to our overall coverage.

8684 That would mean that it might be some $600,000 in the first year if we had that coverage. But as Leslie has alluded to, it takes a while to grow. So I am just painting a picture of the outside of the envelope.

8685 Over the course of the seven years, that would reach the figures that Leslie talked about.

8686 I think it is important to note, too, that really it is a regional buy, certainly in English. The Ottawa local market I think could be characterized something in the neighbourhood of $20 million. We have no effect on that whatsoever.

8687 It is really only in the area of roughly $80 million that would be characterized as a national spot that we would have any impact. That impact of course is outside of the core prime areas.

8688 With respect to language, if you would like me to comment on that, the language revenue could best be described with the additional coverage as being sustained and maintained at the levels that we currently have. The language market has in some ways, not unlike the English language market, been redescribed as a regional buying market as well, with other competitive language services.

8689 MR. SOLE: I think it is important that we reiterate, as Jim said, we are not going to solicit local advertising in London or Ottawa-Gatineau. It is not our intention, and that is a commitment we have made with OMNI.1.

8690 I would be remiss if I were not to put on the record that regardless of the impact that Ottawa and London have on OMNI.2, this business will not be cash flow positive in its entire licence term, with our without these rebroads.

8691 COMMISSIONER PENNEFATHER: Let me see if I understand for both Ottawa and London, but taking them as separate markets and taking into consideration your point about regional buy -- you have made that clear now and in deficiencies -- there still will be an impact in terms of revenues that you will get out of the Ottawa market, the local Ottawa market, as a result of the regional buy, to the tune of about $2 million, you said?

8692 MR. SOLE: That was an estimated EBITDA. We are thinking in terms of $10 million or an average of 1.5 to $2 million a year over the remainder of the period. That, I would caution to say, is a forecast.

8693 COMMISSIONER PENNEFATHER: Yes, we are dealing with forecasts. Again, the point is to look at where that revenue is coming from, you yourself did say it is coming only from the non-ethnic English American programming.

8694 Is that not the case?

8695 MR. SOLE: No. We think, as Jim said on sustainability, currently advertisers are confused and asking questions about the reduced distribution of the nightly Chinese news, of the Chinese movie. Other ethnic advertisers for the new South Asian hours are used to asking the question about distribution.

8696 So our new nightly South Asian newscast, again five hours live, and the large investment in movies on the weekend, is still limited to the GTA, with the exception of the 54 per cent that get OMNI.2 on Channel 79. For us, it is not a very compelling argument to give to the advertisers.

8697 That is what we mean about sustainability.

8698 The ethnic advertisers, both regional and national ethnic advertisers, want as much distribution as possible.

8699 COMMISSIONER PENNEFATHER: I was referring to your deficiency response where your analysis of 10 per cent referred to revenues only applicable to the English non-ethnic programming portion of the schedule.

8700 MS ZINIAK: I will ask Jim to respond to that specifically.

8701 COMMISSIONER PENNEFATHER: Is that not the case?

8702 MR. NELLES: Yes, it is. It is only the English non-ethnic.

8703 COMMISSIONER PENNEFATHER: I wasn't clear if I was hearing a different version of that.

8704 MR.  NELLES: Commissioner Pennefather, if I may add and if it helps to illustrate our potential for growth further, our growth can largely be funded out of the growth in the national spot market out of Ottawa itself, which is growing at a fairly good rate currently, in the magnitude of 6 to 8 per cent.

8705 So if we get 16 to 20 per cent of that growth, we are in pretty good shape to meet our estimates.

8706 COMMISSIONER PENNEFATHER: You are comparing your audience figures for OMNI.2 London and Ottawa and over the air to that of Toronto, your projections for Toronto for OMNI.2, at 2 per cent.

8707 Am I correct?

8708 MR. NELLES: That is correct.

8709 COMMISSIONER PENNEFATHER: Why have you assumed the same share for Ottawa and London as for Toronto? What is the basis for that?

8710 MR. NELLES: Again, using the background of CFMT OMNI.1, remarkably that is the experience we have. It is about 2 to 3 per cent of hours on a 6:00 a.m. to -- 6A to 6A, as they say. In most of the markets where we are well established, the major markets, our share of hours is 2 to 3 per cent.

8711 So we feel it is reasonable to anticipate that that will be the share of hours for OMNI.2.

8712 COMMISSIONER PENNEFATHER: Can you tell me what the share is currently for OMNI.2 in London and Ottawa?

8713 MR. NELLES: Currently, we don't show up on the radar, Commissioner.

8714 COMMISSIONER PENNEFATHER: Minus one, as I saw myself? I was just wondering if you had any update on that.

8715 MR. NELLES: That is correct. The most recent data I have available is BBM's fairly extensive Reach Report from the fall of 2002. In that report, much as I would like to say we are there, we are not with respect to English.

8716 COMMISSIONER PENNEFATHER: You said yourself it takes some time to ramp up. It has been about a year since you have been up on Channel 79?

8717 MR. SOLE: It will be a year this fall.

8718 COMMISSIONER PENNEFATHER: Normally, it would take a few years at that position to ramp up to the 2 per cent; two, three, four years?

8719 MR. SOLE: Our ramp-up discussion would be based on priority carriage. It would not be based on distant signal.

8720 COMMISSIONER PENNEFATHER: All right.

8721 MR. SOLE: There is an aversion for advertisers to use distant signal because of the confusion about where the channel is and where it isn't.

8722 COMMISSIONER PENNEFATHER: I would like to come back to that obviously when we discuss this key question of channel placement. I also had a point from that.

8723 Something you said as well: Correct me if I am wrong, but you said that OMNI.2 would be a money-losing enterprise for several years going forward.

8724 Did I hear you correctly?

8725 MR. SOLE: Yes.

8726 COMMISSIONER PENNEFATHER: Yet you are modelling your approach on OMNI.1, and I don't see the OMNI.1 numbers as being negative.

8727 MR. SOLE: OMNI.1 numbers are not negative. Our commitment to the Commission and to the system, in applying for OMNI.2, was very different than the evolution of CFMT OMNI.1.

8728 This is the first start-up since 1979. There is a $50 million enhancement or benefit plan attached to this station. It has 25 per cent less English inventory.

8729 If you look at the original proposal in Hamilton, we suggested that if you gave us the opportunity to establish a broader service requirement, it was our intention to make major investments in OMNI.2 through the entire first period of ownership.

8730 Having said that, all I was trying to refer to is any economic advantages or things that happen as a result of getting priority carriage in London and Ottawa will not change the financial picture of CJMT OMNI.2. It will still be cash flow negative, studying it by itself, for this licence period.

8731 COMMISSIONER PENNEFATHER: Let's go on to the discussion of channel placement. I think that is a key point you have raised in our discussion of financial plans.

8732 Again I refer you to the distant signal policy and looking at the degree of the impact of this signal on a number of aspects of the revenue base of local broadcasters, and so on.

8733 With due regard to the regulations, I want to discuss with you the impact of channel placement on your business plans and to clarify for us, in your mind, what the value is of channel placement.

8734 I have here in front of me the various channels considered to be part of the basic services, running from 2 to 28 and I think in Ottawa from 61 to 88 we take it up again with the discretionary tiers in between.

8735 Currently OMNI.2 is at 79.

8736 Can you elaborate for us or comment further for us on the value of channel placement, how important it is to your business plan.

8737 At the same time I am curious, despite the fact that it is early in the life of OMNI.2 and considering the points you have made about its business plan, it is currently at 79. What would be the impact on your audience of a change in that positioning?

8738 Part of the channel placement discussion is obviously related to the business position, but part of that discussion is also related to audience loyalty and funding.

8739 I would like you to elaborate for us your position on channel placement and why you feel it is important in this day and age, in terms of your business plan.

8740 MS ZINIAK: Thank you. Like any other over-the-air broadcaster, OMNI.2 of course relies on the carriage priority rules to ensure access to our ethnocultural and diverse viewers specifically and also to support ad revenues.

8741 Frankly, it would not seem fair for audiences, for example, for the Pan-Asian and African communities who are not able to access the programming that we are specifically investing in and developing for them, and also, for example, OMNI.1, which is targeting the Euro-Latino-Caribbean communities, is accessible to that.

8742 Quite frankly, before I throw this to Leslie and then Alain, I would like to state that many of these communities have lobbied very hard and very long. For example, the Mandarin community lobbied, and it finally got a nightly newscast at 5:00 p.m. Half of the people in this area cannot access the programming that we have developed, which would include, of course, the Chinese community and the South Asian community for the kind of programming that we are producing for them nightly.

8743 I think it's very important to take a look at the impact on our audiences. It really is a question of access. We are submitting excellent Canadian programming for the ethnocultural community for Canadians. I think it's very important to be able to have access and really to be fair in accessing essential product, essential news that we are giving to these individuals.

8744 COMMISSIONER PENNEFATHER: I don't have an argument with the value of that service itself. It's really a question of whether -- and interestingly enough in this case we have some experience of your already being in the market as a distant signal on channel 79 -- forgive me, London is 64. I do tend to refer to Ottawa as home.

8745 It would appear to me that your audience has found you on 79. That question then is --

8746 MR. SOLE: I'm going to ask Mr. Strati to take you through why we believe that isn't true and why we think that the primary solution for a diversity channel, the imperative -- using the system to its highest advantage for being an over-the-air broadcaster.

8747 We are not a specialty service. We are a broad service as the broad service required station is described by the ethnic policy. We don't want to live with the specialty service. We think it sends the wrong neighbourhood environment to the advertisers.

8748 We have made significant investments and we will continue to, but OMNI.2, if I may use Ottawa, OMNI.2 is we think entitled to the same treatment as a rebroadcaster and not a distant signal as City TV, as CHTV and, in fact, as OMNI.1.

8749 Madeline's concern, and I think it's well founded as the message we will send to the diverse community, to the advertisers and certainly to our viewers, so this is an important issue for us and I would ask Mr. Strati to take you through the difference between being on channel 79 as a distant signal today and what we are proposing as a rebroad full local service.

8750 Alain.

8751 MR. STRATI: Thanks, Leslie.

8752 I think one of the important issues to remember is that this is -- in terms of the priority carriage rules, the development of carriage rules, there is an importance for an over-the-air broadcaster to be amongst other over-the-air broadcasters because of the ad revenue dependence of all broadcasters.

8753 That's really where the priority carriage rules come from. It is about service. It is about local service, but it's also a recognition of ad revenue dependence.

8754 I think it's also pride of placement. I think it's important that viewers access over-the-air broadcasters together. I think as a television viewer, although there are EPGs, there are new program guide options available on television, I think viewers still channel surf to a very significant extent.

8755 If we add ad revenue dependence, if we take on that also, just viewer tendencies and the way they sort of act in watching television, as they channel surf through the dial, they do channel surf through general interest over-the-air broadcast television services.

8756 That's why it's important for us and it's important as a priority carriage service to be amongst that and to be able to, much like other over-the-air broadcasters, work with and generate our ad revenues and compete with those services.

8757 I think, just in terms of how we state it in the application and also as we have demonstrated with other -- in our launch in Hamilton and Toronto with other cable operators, we have been prepared and we have demonstrated our flexibility.

8758 Although priority carriage rules do entitle a new television service to carriage between 2 and 13 on the cable basic band, we have been very flexible in working with COGECO, with Rogers, with Mountain Cable, with South Mount Cable in terms of trying to get a channel placement position.

8759 Of course, we have worked with them to the 13. Channel 14 we understand in Hamilton is a co-op community channel. Certainly they made it very clear that 14 was out, but we did find room elsewhere.

8760 We did insist on carriage below the first cable tier because it is imperative for us to be where other local broadcasters are.

8761 MR. SOLE: I would add one more thing, Commissioner Pennefather. I am going to ask Alain to come back again and characterize the difference between OMNI.2 on channel 79 on the Rogers Cable System and the 54 per cent that we have referenced on this day in the National Capital Region. Only 54 per cent of the people can receive OMNI.2.

8762 COMMISSIONER PENNEFATHER: Is this a reference to your comments in your presentation? In Ottawa-Gatineau, 46 per cent of the population do not have access. Is that the reverse of that?

8763 MR. SOLE: That's correct. The distancing of policy is driven by the BDUs.

8764 COMMISSIONER PENNEFATHER: Yes.

8765 MR. SOLE: We have no right to any of this. We are at the whim of their application and desires. That's just not the case with OMNI.1.

8766 If Alain could take you through just what the differences are between being on channel 79 on Rogers and what we are proposing if we were successful in this rebroadcast.

8767 COMMISSIONER PENNEFATHER: Yes, I understand the framework. That's why I'm asking the questions too. I mentioned at the very beginning that the distant signal policy is the framework for the discussion and the balancing act that we are looking at here with a clear understanding of the points you are making, it is still the case that one of the criteria in that distant signal policy is for us to look at not only current stations, but the potential licensees who may be coming forward for local stations to fulil local needs inclusive of, for example, in this area of Ottawa-Gatineau the need for the French language population. The Commission has made that point in previous decisions.

8768 I know you understand the context also in which we have to deal, which I take your points. Looking at the list of channels which are below the first tier, one looks at the rational with due respect to the regulations, of course, in this day and age, for assuming that the positioning above channel 28, or below channel 28 -- excuse me, I count the wrong way sometimes -- is a benefit and why it's a benefit as opposed to above.

8769 Just quickly before you go on, Mr. Strati, as the 36 per cent of the population, are you talking about the whole population or of your ethnic viewing audience?

8770 MR. STRATI: You mentioned the 46 per cent?

8771 COMMISSIONER PENNEFATHER: You have in your presentation on page 10 "Ottawa-Gatineau, 46 per cent of the population do not have access on cable".

8772 MR. STRATI: That's correct.

8773 COMMISSIONER PENNEFATHER: The whole population.

8774 MR. STRATI: The 46 per cent is basically broken down into three different factors. I think it -- first of all, we took the BDM spring 2000 survey and we looked at sort of just in terms of who has off-air, who has cable and who has satellite.

8775 Ten per cent of the households in Ottawa-Gatineau do not receive -- do not describe any BDU so they are over-the-air. They receive all their services over-the-air. That's 10 per cent right there.

8776 COMMISSIONER PENNEFATHER: Yes. I saw that in your deficiencies, the 10, 73 and other numbers.

8777 MR. STRATI: That's right.

8778 COMMISSIONER PENNEFATHER: Right.

8779 MR. STRATI: So it's 10 per cent for off-air, it's 17 per cent for satellite and currently we are carried -- we are not carried by either Star Choice or ExpressVu.

8780 ExpressVu has announced that they are with their new satellite, that they are going to add new services and amongst them they have announced that they are going to add OMNI.2. However, OMNI.2 is not part of the new satellite -- it's not part of the old satellite with the old services, so if you are an existing ExpressVu subscriber here in Ottawa-Gatineau, you will not be able to receive OMNI.2 unless you obtain an upgrade.

8781 Currently ExpressVu has announced that they will only provide a free upgrade to those subscribers who are premium subscribers, so if you are an existing subscriber here in Ottawa-Gatineau and you are not a premium subscriber, you won't get the free upgrade. You have to pay for an upgrade to get those services.

8782 So off-air won't get us, satellite won't get us, and of course for the Vidéotron system in Gatineau, we are not carried, so that's another additional 19 per cent.

8783 If you take the 10 per cent, the 17 per cent for satellite and the 19 per cent, that's where you get the 46 per cent.

8784 Just to round it off, we are not also carried by Look Télé here in Ottawa-Gatineau. Look TV in souther Ontario is carrying OMNI.2, but for Ottawa-Gatineau and Quebec they have a separate Look Télé service and OMNI.2 is just not carried.

8785 COMMISSIONER PENNEFATHER: Well, thank you for that information. I guess it's not possible for you to know though the proportion of that 10 or that 46 per cent which is your ethnic viewing audience.

8786 MR. STRATI: No, it's not.

8787 COMMISSIONER PENNEFATHER: Well, we will go with what you have got then as portrayed in the thesis for the on-the-air in terms of this audience and the importance of that programming. Again, can you just clarify for me in Ottawa and London what you consider to be the available channels?

8788 MS ZINIAK: I will ask Alain to respond.

8789 MR. STRATI: Thank you, Commissioner.

8790 I have the cable list, sort of the Rogers channel lineup here in Ottawa. You have mentioned channels 2 to 28.

8791 If we look at those just in terms of that area, there are non-priority services that are currently carried by Rogers in Ottawa. From that perspective there is the opportunity to add new Canadian services. I would argue there's some existing, for example, American over-the-air broadcasters for which we could take their channel place and position.

8792 COMMISSIONER PENNEFATHER: Relatively speaking, you mentioned this yourself in your application. You used the very term "customer frustration and confusion" when you start changing things around.

8793 If you look at that from the current viewership and you say that you would remove one of those American channels, aren't you also going to cause confusion and disruption?

8794 MR. STRATI: Well, Commissioner, the decision would certainly be the cable channel or the cable operator's decision, but in -- if we take recent experience and we have been added to cable systems in southern Ontario and different services have been displaced for the addition of a new service.

8795 There haven't been significant -- certainly there will be some complaints and there is some frustration. I think we have tried to minimize the frustration and that's part of sort our flexible approach with discussing it with the cable operators in southern Ontario.

8796 We would do the same for operators here in Ottawa-Gatineau as well.

8797 COMMISSIONER PENNEFATHER: The other way of looking at this too is I still have a little trouble understanding -- perhaps it's just me, I'm not sure, maybe I didn't hear you.

8798 I'm looking at this also from a public point of view, not just the economics of the public interest point of view and obviously our mandate and what the distant signal policy is trying to do.

8799 Now, I take your point about channel placement and the decisions that are made, but if I look at what is currently available from 61 to 88 in Ottawa and 59 to 88, I have difficulty with the sense that those higher numbers mean less important and less valuable.

8800 There certainly are -- I understand the reaction to that amongst many, but in this day and age of digital channels, the digital universe says -- is that not changing because people are researching more for channels in different areas? Is that focus on the lower numbers not changing in terms of the message it sends? I think that's the term you used, Mr. Sole, the message it sends.

8801 MS ZINIAK: Before I ask Leslie to respond, I would like to jump in and state that for many communities -- you know, we are a local channel. We actually have a program produced out of Ottawa called "Planet Africa".

8802 I think this kind of experience really exemplifies the frustration of not only the producer but the audience. This producer is producing events, has PSAs on the air. It's covering community events and issues right here in Ottawa-Gatineau.

8803 He is only reaching potentially half of the audience that he can. I think for the communities that we are broadcasting to and also with the cross-cultural programming we are a local over-the-air channel like any other broadcaster, like Global, like CTV.

8804 The fact that we are multilingual and multicultural I think it's even that much more important and the perception of the audiences, the people who contribute to our programming really feel that we are their channel, we're local and we are an over-the-air broadcaster and we should be equal and fairly accessed.

8805 This is further heightened, as I said earlier, that OMNI.1 is very accessible. For me personally I get calls where the pan-Asian African community is saying "Hold it, are you saying that your Latino Caribbean community is more important than we are? Why are we able to access that and the Chinese, south Asian and other communities were not able to readily access the channel?"

8806 I would like to throw the rest to Leslie.

8807 MR. SOLE: I'll comment on the digital world. To take a long view, you are probably right. To take people under the age of 20 you are probably right. They will without looking down go to channel 276 and it will pop up.

8808 I don't think this is the case with our core audience. Digital penetration right now is at a point where we don't think it is the best marketing tool or the most popular idea to try and take a small diversity broad service ethnic station and sort of assign it to the sixties, seventies and eighties.

8809 It may well be that in time the Commission and the broadcasting community might sit down and look at the entire landscape for a more logical placement of channels, but for our viewers, for our advertisers and certainly for the communities, this notion of OMNI.1 and OMNI.2 being similar and presented int he same way is very important.

8810 I do agree that the use of the television appliance is changing, but we are not the station to sort of drive the '60s, '70s and '80s.

8811 I also have to say that in a limited basis, simulcast is important on occasion to these OMNI stations.

8812 COMMISSIONER PENNEFATHER: I will come back to that when we wrap up at the end.

8813 If I can just be cleared though and make sure I have understood. Looking at this again from the business strategy point of view, it's your contention which your current option which was discussed as the big plan B at the hearing in Hamilton of the distant signal carried on cable, currently available channel placement 79.

8814 But apart from channel placement, let's just take the fact that you are currently on the market in that form, in that delivery option, that option as compared to over-the-air transmission. Is it your contention that the business plan is not viable with the option of the distant signal as it currently is? It's early in the process. Why are you assuming that it would not also be viable?

8815 MR. SOLE: Just from a business plan point of view?

8816 COMMISSIONER PENNEFATHER: Yes.

8817 MR. SOLE: From a business plan point of view this is a negative environment. We have always viewed this as temporary. We have always viewed the idea of being a distant signal as a notion that would allow us to get -- because we did launch so quickly -- organized and present the proposition we put in front of you today with what we felt was an encouragement to come and do what we are doing to make sure that these 40 ethnocultural groups have equal treatment.

8818 If that doesn't seem like a business plan it's because there are no numbers attached to it. We have an enormous social responsibility. We have minority groups that are vocal and are passionate and that is the business plan for us, is to represent those people in a way that we can explain, that advertisers can exploit, and that the community can embrace.

8819 The economics of this, as we have mentioned earlier, are important and our growth in Ottawa in terms of conventional audience will be important, but if you ask me the difference between 79 and a rebroad from a business plan, it impacts the $10 million that Mr. Nelles has talked about in a significant way.

8820 More importantly, it shuts off an opportunity for pan-Asian, African viewers, communities and advertisers to reach London and Ottawa, and that concerns us.

8821 COMMISSIONER PENNEFATHER: Thank you, Mr. Sole. We had two elements on the table. One was channel placement, and we have had a discussion on why you have proposed, with due respect to the regulations, a placement which is above -- below the first tier. I keep saying "above", but I mean between 28 and up. We have your discussion around that.

8822 The other discussion I would like to have is the frequency and again in light of your request for over-the-air distribution you have chose frequency 14C.

8823 Can you just confirm with me the number of households that will be reached in the grade A and grade B contours of that frequency?

8824 MS ZINIAK: I will first ask Steve to respond to that. Steve is our Vice-President of Engineering.

8825 MR. EDWARDS: I will let Alain Strati answer that. He heads that in the application.

8826 MR. STRATI: If you will allow me a minute, I will just --

8827 COMMISSIONER PENNEFATHER: We can come back to that.

8828 My next question is the comment you made in your presentation:

8829 What do you mean by "a number of"? Have you got a study to this effect which you could table with the Commission?

8830 MS ZINIAK: Steve?

8831 MR. EDWARDS: I don't think we have a study with us today. We can certainly supply one, but there are three other channels available besides the one that we have applied for, and it is my understanding that the consulting engineer for the other applicant for an over-the-air rebroad in Ottawa concurs with that same finding.

8832 MR. STRATI: Just to close off your questioning, Commissioner Pennefather.

8833 For the grade B contour for Ottawa there is approximately 425,000 households and the grade B contour for London, there is just over 150,000 households.

8834 COMMISSIONER PENNEFATHER: So with Ottawa being about 537,000 households, you feel that this frequency will reach enough of the population of the Ottawa-Gatineau area to keep with our thesis of why the over-the-air is required?

8835 MR. STRATI: Absolutely. Certainly Steve can speak to it, but the frequency we have applied for, channel 14, provides very good coverage and we have tried to find a channel and a coverage area that is quite similar to the current reception and coverage area of OMNI.1 here in Ottawa-Gatineau.

8836 COMMISSIONER PENNEFATHER: In fact, those are my questions. My colleagues may have other questions for you or legal counsel.

8837 Thank you.

8838 THE CHAIRPERSON: Thank you.

8839 Vice-Chair Colville.

8840 COMMISSIONER COLVILLE: I would just like to ask a couple more questions on this issue that you were discussing with Commissioner Pennefather on the carriage issue.

8841 Let me just pose a couple of hypotheticals here. If I was to interpret our signal carriage priority regulation to suggest that even with an over-the-air transmitter in Ottawa or London, you could still be carried on channels 79 and 64 and comply with the regulation. What would that mean to your application? You would have over-the-air coverage, but you would still be on the same channels that you are on now and still comply with the regulation.

8842 MR. SOLE: As much as I am not an accountant and not a lawyer, it's a new interpretation, Vice-Chairman Colville. I have not heard it before. I don't know where it has been applied. In this particular market, rebroadcasters have -- at the last proceedings when we were asked: If we give you a rebroadcast transmitter for CFMT, we wonder how you would feel about your right to be on 2 to 13, which led us to believe that it's not just below the tier.

8843 My understanding as a sociologist, not a regulatory person, is that a local service under the original regulatory structure is welcome to 2 to 13. All we are saying from our understanding is we would suspend that and take under the first tier as being equivalent.

8844 I am not familiar with how being up in the 50s and 70s would be a proper assignment of an over-the-air broadcast licence.

8845 COMMISSIONER COLVILLE: I understand you don't agree with that interpretation. Assuming that interpretation would still comply with the regulation, I would like to know what the combination of being on the high channel and having over-the-air available to you in Ottawa and London would mean to your business case, particularly in terms of the advertising situation.

8846 MR. SOLE: There would be an effect. It's hard for me to estimate what it would be. I assume that we would still be entitled to simulcast. I assume that we would be entitled to everything we would be entitled to between 2 and 13.

8847 I think the impact would be psychological. I think the impact would be perceptual. I can't tell you what it would mean in actual dollars because I don't have any point of reference.

8848 COMMISSIONER COLVILLE: Well, I guess the issue is what do you think is the value of the incremental over-the-air audience, over and above channel 79? Are you able to calculate that?

8849 MS ZINIAK: Before I throw that to Jim Nelles, I think it's very important to note that we have worked very hard to be competitive with other broadcasters in quality. We are an over-the-air broadcaster like any other broadcaster, CTV and Global. We happen to be multilingual.

8850 I think that it's important that when we are working and trying to reflect the best we can of ethnocultural audiences, there is a perception of us isolating -- I don't want to use this word, but almost marginalizing those Canadians, those audiences. OMNI.1 is accessible and available, and I say this because I interact very much with these communities, and certainly they are very vocal and it's a question of fairness and access, and there is a perception of why shouldn't a local channel be available?

8851 So now I think I will turn it to Jim.

8852 COMMISSIONER COLVILLE: Ms Ziniak, I understand.

8853 MS ZINIAK: I know.

8854 COMMISSIONER COLVILLE: I heard all the answers to Commissioner Pennefather.

8855 What I am just trying to grips with is whether there is a way for your to evaluate what the incremental over-the-air audience would be over and above what the carriage you already have is.

8856 MR. SOLE: I would be more comfortable if we did this in detail and supplied it to you later, but I have been talking to Jim. People that watch OMNI.1, which is our historic channel, over the air are generally between 2 and 4 per cent, depending on the market.

8857 COMMISSIONER COLVILLE: Two to 4 per cent of your audience?

8858 MR. SOLE: Two to 4 per cent of the viewing.

8859 COMMISSIONER COLVILLE: Of the viewing, okay.

8860 MR. SOLE: I would like the opportunity to make those calculations more precisely, Vice-Chairman Colville.

8861 COMMISSIONER COLVILLE: Okay.

8862 So given 2 to 4 per cent of the viewing then, what would that translate into in terms of advertising dollars?

8863 MR. SOLE: Again --

8864 COMMISSIONER COLVILLE: In answering that, it it's possible could you tag that onto that?

8865 MR. SOLE: Tag on what the financial impact might be?

8866 COMMISSIONER COLVILLE: Yes.

8867 MR. SOLE: Sure, that would be fine. I don't want to keep sharpening the same skates, but the ethnic audiences are very small and the calculation of over-the-air versus cable it won't be as precise as if Global or someone else did it, but we would be happy to --

8868 COMMISSIONER COLVILLE: Ballpark figures.

8869 MR. SOLE: Okay.

8870 COMMISSIONER COLVILLE: Now, let me ask you a sort of a converse question then.

8871 Let's assume that you didn't have an over-the-air transmitter in Ottawa or London and were able to get below channel 28 -- let's say 19 in Ottawa and 18 in London, which happens to be the Shopping Channel, which I presume you could talk to your owner about.

8872 MR. SOLE: That certainly is an idea for Rogers. It doesn't address our Bell ExpressVu situation. It doesn't address Star Choice and it doesn't address Gatineau.

8873 COMMISSIONER COLVILLE: But you have indicated earlier that you are already talking to the satellite providers.

8874 MR. SOLE: We are, and Alain can tell you that, as he explained, the offer from ExpressVu today is to be on the new bird and that new bird will represent 10 per cent, or somewhere around 100,000 households, and primarily the way to get that dish is to be a Premium subscriber.

8875 All of that sort of flows against the weight of an accessible diversity television station for third-language Canadians. So we don't think we are anywhere with those two situations today. We are talking to Bell ExpressVu and I believe they have announced that we are going to be on the new bird. That doesn't solve much of the 54 per cent that distant signal is giving us.

8876 It's an idea for Rogers to be the distant signal below the tier. I don't know how Vidéotron would feel and I don't know how Bell -- BDUs in the sky are not able to carry local stations. So I will just leave that aside.

8877 COMMISSIONER COLVILLE: Are you able to calculate what that would mean to your business plan if you were on channels 18 and 19 in the two areas without over-the-air --

8878 MR. SOLE: It would be identical to having a broadcast licence in those markets on those cable systems. So it would be --

8879 COMMISSIONER COLVILLE: It would be identical.

8880 MR. SOLE: So it would be 54 per cent again that we have currently, and I think the improvement from going down from 79 to something below 20 would put much more, provided we could have simultaneous substitution, would put much more of that $10 million back into our business plan.

8881 COMMISSIONER COLVILLE: So in Ottawa, for example, if it was also on Vidéotron it would be 54 per cent plus 19.

8882 MR. SOLE: Yes, if it was below the tier.

8883 COMMISSIONER COLVILLE: All right.

8884 Thank you very much.

8885 THE CHAIRPERSON: Thank you.

8886 Vice-Chair Wylie.

8887 COMMISSIONER WYLIE: Perhaps I can ask your engineer this question. I am not clear on whether the use of channel 14C will cause impairment. Do you know whether it will cause impairment to a further -- in this case, I guess, in Ottawa it would be to channel 14 potentially, or will it not cause any impairment at all to the channel?

8888 MR. EDWARDS: It would not cause any impairment whatever to any other television services. Perhaps what you may be --

8889 COMMISSIONER WYLIE: I meant to the use of a channel on cable.

8890 MR. EDWARDS: No, not at all.

8891 COMMISSIONER WYLIE: No impairment.

8892 MR. EDWARDS: No.

8893 COMMISSIONER WYLIE: So that we would end up with as many clear channels as we had before.

8894 MR. EDWARDS: That's correct.

8895 COMMISSIONER WYLIE: Now, it's fine to talk about the business plan, but presumably what I heard in your presentation was one has to look at it from the view of the subscribers as well.

8896 It's not just a question of how much more money, but what is the effect of where you are positioned.

8897 Have you had complaints since you severed a large part of your programming and put it on channel 79 for those communities, in Ottawa in particular?

8898 MS ZINIAK: Yes, we have had many complaints. They have come in various forms. They e-mail us, they actually phone us, they leave voice mails and they have spoken to me personally. We have to do two things -- and, of course, Chinese programming is now OMNI.2 as is South-Asian programming, and also all the new programming that was not available before.

8899 There was a very high expectation from our audiences because we have been working with these communities. We have been doing outreach programs, we have been doing focus groups. We have been talking about our benefit plan, of course, the documentary.

8900 So there is a very large awareness of the potential availability and, you know, we have organized lobbies, in fact -- and I don't want to mention which community. It's not one of the largest communities, but a very cohesive community that was very upset that they were, number one, not available in the Ottawa area to many of the viewers. They were not available on satellite. They were not available -- the BDUs weren't carrying it, and they were not available in Gatineau.

8901 So it has been a busy time working and responding. I think the Commission has had, of course, also some reaction from our audiences.

8902 David, I think, has one other point to make.

8903 MR. BATTISTELLI: Thank you, Madeline.

8904 Vice-Chair Wylie, I am on the ground in the field here in Ottawa. This is anecdotal, yet I still feel it is very valid. We are going out to Divali events, a Punjabi event or Chinese event, Sri Lankan celebrations.

8905 A common refrain that we are getting is, "I don't get OMNI.2". That is the plain fact. I don't have statistics. I don't have paper complaints. These people are just giving me this feedback. I believe it is genuine and valid. They say we just don't get you.

8906 That is unfortunate because, from my perspective, a lot of the times these very local yet important stories we are covering, we are the only camera there. We are the only media covering these events. Then when they tell me "we are happy to see you, but we don't see that coverage", it is disappointing.

8907 That is just a personal observation.

8908 COMMISSIONER WYLIE: Do you know if any complaints were filed with the CRTC?

8909 MR. SOLE: I would say that we try to avoid that. We are encouraging people to wait for the results of this proceeding. We are explaining what we are doing about their complaints or their inquiries, and we are asking them to see what happens.

8910 COMMISSIONER WYLIE: I know there is new programming since OMNI.2 and possibly new American or non-Canadian programming as well, additional, because you have two antennae.

8911 Can you tell me how much non-Latino programming there was prior to OMNI.2 going on the air that then was removed to Channel 79?

8912 In other words, what were the number of hours of the South Asian and Pan-Asian programming that has been lost when you only had OMNI.1? My understanding is you severed the antennae in two grids. How many hours were there then that moved literally to 79 before the new grid?

8913 MS ZINIAK: Before I ask Malcolm to give some very much detailed facts about this, I would like to say that of course the Chinese programming on OMNI.1 and we developed Cantonese programming when we went to OMNI.2 --

8914 COMMISSIONER WYLIE: No. I want to know how much Chinese and Asian programming there was on the OMNI.1 antenna before you developed OMNI.2; that if I were a South Asian or a Chinese viewer, I had it yesterday and the next day it's on 79. Not the improvements.

8915 MS ZINIAK: First of all, we have doubled our programming on OMNI.2 for both Chinese and South Asian. Malcolm will give you the precise factual information.

8916 COMMISSIONER WYLIE: I may not be making myself clear.

8917 What I want to know is how many of these hours were on OMNI.1 and are gone to 79.

8918 MS ZINIAK: Malcolm.

8919 MR. DUNLOP: Thank you.

8920 I will go through all the languages, if you would like, or would you just like South Asian and --

8921 COMMISSIONER WYLIE: No. You can see the point of my question.

8922 MR. DUNLOP: It is 17 hours of Chinese.

8923 COMMISSIONER WYLIE: All right. That were on OMNI.1 and went on OMNI.2 and Channel 79.

8924 MR. DUNLOP: Correct.

8925 COMMISSIONER WYLIE: And South Asian?

8926 MR. DUNLOP: South Asian, there were four.

8927 COMMISSIONER WYLIE: Anything else that would have moved, by virtue of the cultural community involved, to 79?

8928 MR. DUNLOP: Yes.

8929 COMMISSIONER WYLIE: And what was that?

8930 MR. DUNLOP: There was Arabic. There was Armenian.

8931 COMMISSIONER WYLIE: Which has gone to --

8932 MR. DUNLOP: OMNI.2.

8933 COMMISSIONER WYLIE: And was on OMNI.1?

8934 MR. DUNLOP: Yes. There's Farsi.

8935 COMMISSIONER WYLIE: And how many hours was that?

8936 MR. DUNLOP: There was 1.5 hours.

8937 COMMISSIONER WYLIE: In those three?

8938 MR. DUNLOP: In Farsi there was 1.5.

8939 COMMISSIONER WYLIE: How much in all these other languages? I just want to know how many hours.

8940 MR. DUNLOP: I can go through that. Arabic is 1.5; Armenian was .5 hours, half an hour; Farsi was 1.5.

8941 COMMISSIONER WYLIE: So 21 the total would be. Anything else?

8942 MR. DUNLOP: German was .5 -- sorry, I am wrong there. I apologize.

8943 COMMISSIONER WYLIE: German would have stayed on OMNI.1. Right?

8944 MR. DUNLOP: Yes. I apologize.

8945 Japanese was an hour. Korean was .5 hours. Mandarin was 2 hours.

8946 The number I gave you before was the Cantonese number; sorry.

8947 COMMISSIONER WYLIE: So it is 19 hours --

8948 MR. DUNLOP: It is 19 hours; 17 Cantonese and 2 Mandarin.

8949 COMMISSIONER WYLIE: We are talking about 27 hours then?

8950 MR. DUNLOP: There are a few more.

8951 Tagalog, which is an hour.

8952 COMMISSIONER WYLIE: The major one would be Chinese and South Asian where a large number of hours of programming, 19, if you consider Mandarin and Cantonese --

8953 MR. DUNLOP: Yes.

8954 COMMISSIONER WYLIE:  -- would have suddenly disappeared from Channel 14 and gone to Channel 79.

8955 I know, Mr. Sole, you -- I love to say I am not an engineer and you love to say you are not a lawyer, especially when I don't know anything about engineering. In your view, would OMNI.2 be a local channel as defined in the Regs?

8956 MR. SOLE: I think Madeline should answer that.

8957 MS ZINIAK: Yes, it indeed is a local channel.

8958 COMMISSIONER WYLIE: My understanding of the rules, when you say 2 to 13, we have so many channels in Ottawa that they don't even fit, considering the impairment.

8959 Would it be your understanding that it is beginning with 2 to 13, to the extent that there are channels and going on in the lower numbers?

8960 MR. SOLE: We would agree not to interrupt 2 to 13. What we are requesting is below --

8961 COMMISSIONER WYLIE: You may not fit in there. I haven't looked at it. There would be the CBC and TVO --

8962 MR. SOLE: This was the same occurrence with OMNI.1 when we didn't want to --

8963 COMMISSIONER WYLIE: So you understand that.

8964 If we license you as applied for, then the cable operator has to come and say -- well, unless you agree. If you didn't agree, the cable operator would have to come and say for whatever reason I want them on a lower channel -- unlikely to occur.

8965 Have you had a discussion with the cable operators in London and Ottawa as to whether they are prepared to agree with you as to below 30 or below 28, whatever it is?

8966 MR. SOLE: Surprisingly enough, yes, we have, and they are working on it currently.

8967 COMMISSIONER WYLIE: The Commission though, would you agree, would have the power to say: We are licensing you, but there is going to be an exception here and you won't be a local channel. Suppose we did that, because we do have all kinds of power to make exceptions.

8968 Would you accept a licence with an exception to the effect that you wouldn't be able to not only get what you are entitled to but, as you say, are prepared to accept less than you are entitled to? If we said no, you have to be on an upper channel, would you accept a licence on that basis?

8969 MR. SOLE: I don't think I would keep my job if I ever turned down a licence.

8970 I would have to say that it would not --

8971 COMMISSIONER WYLIE: You are not going to give us your first born, I hope.

8972 MR. SOLE: All I am going to say is: Why does the exception begin with an ethnocultural diversity station? Why does the exception begin with a small regional broadcaster that is important in the Canadian communications system?

8973 It would seem unusual to us. That is all I can reference on that.

8974 We would be disappointed. It would just create this inequivalency that would be difficult to explain.

8975 COMMISSIONER WYLIE: Would you agree that with the two main BDUs in London and Ottawa, it wouldn't have much effect, would it, because they could put you wherever they wished?

8976 MR. SOLE: That is not the way I understood what you were saying. I understood --

8977 COMMISSIONER WYLIE: No, no, don't forget you have certain rights. The BDU can agree to not agree with you that your full rights won't be used. Or when the over-the-air broadcaster wants to insist on his rights, then the BDU has to come and fight with the Commission and say: For whatever reason, I don't want to give them their rights under the Regs. It is unlikely to occur.

8978 So even if we had this exception, the deal you would get with the BDU could be different as long as that BDU actually follows the rules otherwise.

8979 MR. SOLE: Let's use Toronto-Hamilton. This is exactly the case. It is exactly the case that the BDUs -- let's leave Rogers aside; that Cogeco, South Mount, Hamilton, we went in there and we listened to what their situation was. We never once ruled out 2 to 13.

8980 If you look at OMNI.2, we are Cable 14, outside of 2 to 13 on the Rogers's systems. We are all different under the first tier locations in the Niagara and through the Golden Horseshoe.

8981 I will tell you that we will put on the record that we are not going to insist on 2 to 13. We would like an obligation from Vidéotron or other local cable services, current owners or in the future, that they would respect below the first tier for an ethnocultural service with a local transmitter.

8982 COMMISSIONER WYLIE: Thank you. Those are my questions.

8983 It is nice to have you on the record as saying that being below 30 is indeed valuable.

8984 THE CHAIRPERSON: Thank you.

8985 Commissioner Grauer.

8986 COMMISSIONER GRAUER: Thank you.

8987 One of the things that has been of interest to me is you asked: Why start now with this channel? I think historically, since I came to the Commission, what I have seen is you are licensed to serve another market. You are not originating any separate programming for this. There is no question that what we have done in the past is, in order to increase the diversity of programming when a broadcaster from another market has come in and applied for a licence as a local station, we have had a tendency to grant that.

8988 One of the big questions on distant signal policy is the whole issue of revenues. Prior to now, the broadcasters have said it's spill. We don't get anything out of this.

8989 But now what we are finding -- and this has not started just with you but over the past couple of years -- is that in fact it isn't just spill; that there is a real revenue opportunity. So it does start to change things.

8990 The fact is that it is that it is an ethnocultural; it's that you are the first in the door.

8991 What we are looking at is: Is there a way -- additionally, what is changing is the digital environment is changing everything. There are a lot more choices. There are a lot more services. Most TVs go up to whatever, 79, 80, and there is a digital penetration.

8992 So the question for us is: In balancing all of these things and trying to preserve the integrity of some of these markets, how can we add the diversity but not end up with a situation where we don't have any local services in all southwestern Ontario because what we have is suddenly super regional services, which are Toronto stations which are available throughout all southwestern Ontario. What happens to the local programming in those markets?

8993 That is what we are grappling with as we look at this.

8994 MR. SOLE: I understand. I think we are less than CJOH and I think we are more than Rochester. If 2 to 28 was chock-a-block with Canadian licence services of various language descriptions and mandates, I think this might be the tipping point. But it isn't. ABC is there. NBC is there. CBS is there. PBS is there. There are community channels.

8995 I would argue the community channels are more local than we are. I just think it is a sensible thing to say.

8996 With OMNI.1 we deferred to a local community channel.

8997 I don't think that we are at the point -- and I don't pretend to be local-local. We really think we are an interesting and important part of the system.

8998 We are a successful business. Ethnic television under our model thrives. It works and we are proud of it.

8999 The perception of this micro audiences is what we brought forward. If we just look at this from a regulatory perspective, I think we would ask you to entertain the case that under 28, if we were allowed to be placed under 28 we would not take the place -- we will assure you we will not take the place of any existing Canadian service.

9000 That is what we would offer you.

9001 COMMISSIONER GRAUER: How can you make that offer?

9002 MR. SOLE: We would not let the cable companies or we would discuss with the cable companies that point of view.

9003 As Vice-Chairman Wylie said, we would rely on your far-reaching powers to help us right that decision.

9004 If we are going to change the way things go and we happen to be the lucky recipient of the first one, we would ask you to consider a hierarchy where Canadian were ahead of non-Canadian.

9005 COMMISSIONER GRAUER: The issue here really is not a rebroad, because you are carried as a distant signal. If we could make it clear to Bell ExpressVu and Star Choice and Vidéotron that we felt this is an important service to be added, the issue is where you are located on the dial.

9006 Is that first and foremost because of the revenue-generating opportunities? I think you said earlier that you cannot generate the same revenues as the distant signal carried in this market as you can as a licensed service in that market.

9007 MR. SOLE: That's correct.

9008 COMMISSIONER GRAUER: I don't think that is necessarily the experience in other parts of the country with that.

9009 MR. SOLE: If we could put evidence in front of the advertising community that we were available in excess of 90 per cent of the homes, one way or another, forgetting how we got there, and that it was reliable, and it was guaranteed -- and I will say it one more time -- and we were under 28, we would be able to maintain the business plan as stated.

9010 COMMISSIONER GRAUER: Again, it is not just being available in 90 per cent of homes. It is being under 28 that is critical.

9011 You are using this to increase your revenue opportunities without doing any local separate programming here in this market.

9012 MS ZINIAK: If I could interject -- and Leslie will answer -- first of all, we are not reaching half of our audience. It's as simple as that.

9013 We have evolved broadcasting to a point where finally we are reflective and we are inclusive. I don't think we think it is right for every broadcaster to have channel placement. We are a local channel. I think that if you look at ethnicity and ethnocultural communities, if we are profiling somebody in London and it is on OMNI.2, say it is the Somalian community, it is very important this is local. No one else is doing this.

9014 We are a local channel. We of course have the Ottawa bureau, and we are doing stories in our different communities that nobody else is. I think it is an important message to say these communities are equivalent.

9015 If you take a look at all the different multicultural policies, that is what we are striving for. As a broadcaster, we are bringing the quality and accessibility of information and reflection finally to that point.

9016 We have been an underdog for a very long time and finally we are competing with other broadcasters, not only with equipment and with people but finally with the programming that we are offering: cross-cultural and ethno-specific.

9017 I look at ourselves as professionals and say we are broadcasters, and why should there be exception in this regard.

9018 Leslie.

9019 MR. SOLE: Commissioner Grauer, I think I would add that we are coming into the market, and I do agree with Madeline. I think that the ethnocultural community in Ontario -- and I know this is sort of counter-intuitive -- is a local community.

9020 I think it is the sum of the parts that bring these people together. I would go so far as to say I think OMNI.1 is more local than CH or City or other people that have been granted the right to rebroadcast into Ottawa.

9021 I don't think we want to pre-empt the potential for more local Ottawa licences on that place on the dial.

9022 Should there be a large enough groundswell, I think the problem is maybe better addressed instead of on a one-off there may be a time that not just Ottawa but Toronto and Windsor and Moose Jaw where the local 2 to 13 or 28-minus has to be restated on behalf of the local communities.

9023 That is different. If everybody has to change their address, it's fair. If one person has to come in with a different address and we have to discuss who is more local, I would suggest that this is a movement that is already started and we are just asking to be part of it on a fair and equitable basis.

9024 COMMISSIONER GRAUER: Well, it's sort of like area codes. We have run out of area codes, someone has to have a new area code, they don't like the new area code. That's part of it.

9025 MR. SOLE: I had a friend who wouldn't move because he couldn't keep his zone number.

9026 COMMISSIONER GRAUER: Right. In any event, I have gone on too long. Thank you very much.

9027 MR. SOLE: You're welcome.

9028 THE CHAIRPERSON: Counsel.

9029 MR. WILSON: Just one question to follow up, Mr. Chairman.

9030 With reference to the incremental impact numbers that you referred to in the discussion with the Chairman or Vice-Chairman Colville, would it be possible to have those filed with us by the end of Monday?

9031 MR. SOLE: This is going to be difficult. I don't know. Jim, do you have an opinion on how -- This is just generally over-the-air use of the OMNI stations and the difference if we didn't have it, non-cable, non-video.

9032 MR. NELLES: Yes. I believe we could furnish those numbers by Monday.

9033 MR. SOLE: Yes.

9034 MR. WILSON: I have no further questions, Mr. Chairman.

9035 THE CHAIRPERSON: Thank you.

9036 Thank you very much, ladies and gentlemen.

9037 MR. SOLE: Thank you.

9038 THE CHAIRPERSON: We will take a break now and resume in 15 minutes with the next item. Nous reprendrons dans 15 minutes.

--- Upon recessing at 1103 / Suspension à 1103

--- Upon resuming at 1118 / Reprise à 1118

9039 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.

9040 Monsieur le secrétaire.

9041 MR. LEBEL: Thank you, Mr. Chairman.

9042 Item 14 on the agenda is an application by Crossroads Television System relating to television station CITS-TV.

9043 The licensee proposes to amend its licence by adding transmitters at Ottawa and London to rebroadcast the programming of CITS-TV, Burlington.

9044 The Ottawa transmitter would operate on channel 32B with an effective radiated power of 54,000 watts, as amended in Notice of Public Hearing CRTC2003-1.

9045 The London transmitter would operate on channel 14B with an effective radiated power of 7,700 watts.

9046 Mr. Richard Gray will introduce his colleagues.

9047 You have 20 minutes to make your presentation.

9048 Thank you.

PRESENTATION / PRÉSENTATION

9049 MR. GRAY: Thank you and good morning, Commissioners.

9050 First I would like to introduce our panel, if I might. Seated next to me on my left is Fred Vanstone, Chairman of the CTS Board of Directors, and at the time of our 1997 licence application hearing, Mr. Vanstone was our Chief of Staff.

9051 Next to Fred is David Mainse, the President and founder of Crossroads Christian Communications Inc. and past Chairman of CTS. On my right is Lorne Freed, our Director of Programming and Operations.

9052 In the second row, starting from my left, are Glenn Stewart, our Director of Sales and Marketing; Rob Sheppard, Program Supervisor; Matt Hillier, our Comptroller and Richard Landau, who was instrumental in establishing interfaith groups in both London and Ottawa, is our Executive Producer of Balance Programming. Richard is now producing a new weekly program on CTS for the fall with religion editors from across Ontario which will include those from Ottawa and London.

9053 I would just like to introduce also five people on the front row of the audience who have been very helpful to us. On the left is Byron Winsor, Secretary of CTS. Next is Janine Maxwell, a member of our CTS Board of Directors and President of Onyx Marketing Group, a company that she founded and which has become the largest marketing communications firm in Canada.

9054 Next are three residents of Ottawa and London who have also been very helpful as advisers to us in our application and having the response of 1,300 letters to the Commission, or almost 1,300.

9055 Bob Dubroy, who is President of CHRI religious radio in Ottawa; Bill Stevens, who is an award willing children's television producer are both from Ottawa, and Harvey Katz on the right is an executive and owner with Esam Property Group in London.

9056 We are pleased to be here this morning to discuss with you our application to establish rebroadcast transmitters at London and Ottawa-Gatineau.

9057 CTS was licensed and launched in 1998 as Canada's first commercial, balanced religious television station. We are a non-share-capital corporation and we are not a charity, deriving almost all of our revenue from the sale of airtime.

9058 CTS is characterized as family friendly television in the sense that our programming is values-based and contains no dramatic depictions or language inappropriate for children.

9059 As most commercial television continues to push the boundaries of what is acceptable, the sensibilities of perhaps a surprisingly large number of Canadians are assaulted, if not offended.

9060 We submit that it is appropriate that there be one over-the-air channel on free television, broadly available on basic cable where violence, overt sexuality and language will not be of concern to anyone.

9061 Our program schedule meets that standard while providing entertaining, often thought-provoking television. Our brokered programs provide for various denominations and the schedule includes a wide variety of faiths and opinions through multi-faith and non-Christian programs as well as programs promoting open dialogue among all religions. In short, we have done said what we would do.

9062 CTS fulfils a need with the reduction in recent years of available time for religious programming on conventional television stations in Ottawa and London markets.

9063 We are the only non-cable religious service with rates that are affordable to many Canadian and U.S. religious broadcasters.

9064 Our accomplishments in balance programming have been well received by the diverse faith groups and by the public at large in our broadcasting area.

9065 From the outset, balance programming has been treated as an opportunity, not just a requirement. CTS puts considerable effo rt and resources into these programs with the intent that quality programs will appeal to audiences and ultimately stimulate dialogue and understanding in our multicultural community.

9066 It is said that Toronto is the most culturally and religiously diverse city in the world. The diversity represented in our balance programming would not be exceeded in any other Canadian city.

9067 To facilitate cross-cultural and inter-faith understanding, all our broadcasts are in English. Some programming addresses single, non-Christian faiths while other programs provide news and opportunity for expression of points of view from all faiths.

9068 As an example, our weekly prime time religious news magazine program "Faith Journal" has won two international awards and one regional diversity award.

9069 We are the only television station that we are aware of in Canada airing two hours each week of original, regularly scheduled Jewish programs. They are produced by independent producers specifically for CTS.

9070 We air two hours of Muslim programming each week, serving the growing Muslim population identified in the recently released 2001 census.

9071 All of our balance programs are Canadian, produced by or for CTS, or acquired from independent producers in the Toronto-Hamilton market area. CTS has created a new environment to encourage diverse expression and to foster understanding in the community.

9072 The CTS model is unique among the country's religious television operators. Future profits must be reinvested in the station's programming and production.

9073 CTS was not designed to be a non-profit operation, but to provide funds to be reinvested in programming and production.

9074 The model did not contemplate, nor can it tolerate, an ongoing financial deficit. In reality, the economic benefits of these rebroadcasters is necessary to the survival of CTS in its present structure and service.

9075 Our problem is lower than anticipated revenues. Advertisers large enough to buy television almost always buy through an agency and commercial experience has now taught us that Ontario is almost always purchased first as a region.

9076 In order to be even considered for most regional television buys, a station in our market must have regional over-the-air presence in London and Ottawa. All Toronto television licensees except CTS and OMNI.2 at this hearing already have that presence.

9077 Toronto-Hamilton has long been known as Canada's most fragmented television market with U.S. border stations taking millions of advertising dollars annually. Increased fragmentation resulting from the introduction of two larger integrated stations will push CTS even further back on the media buyers' lists.

9078 CTS will be negatively impacted more than any other existing station by the licensing of the two new Toronto-Hamilton stations, Toronto One and OMNI.2.

9079 Given these times, there's little likelihood that the advertising pie will grow to meet the enlarged marketplace any time soon. While they will be impacted, the other existing stations will still remain profitable and can wait for the pie to grow. CTS can not.

9080 In conclusion, we require access to regional advertising pools, made possible with rebroadcast transmitters in London and Ottawa, in order to secure and improve the quality of our service.

9081 The licensing of Toronto One and OMNI.2 makes licensing of the Ottawa and London rebroadcasters all the more imperative for the survival of CTS.

9082 With regional status, our model, with its quality of programming, revenue streams, profit reinvestment and independence, can continue to be Canadian religious television at its best.

9083 We view the licensing of rebroadcasters as a win-win situation. Ottawa and London residents would have access to CTS programming and a stable and sound CTS would go on to enhance its programming service.

9084 Licensing of CTS rebroadcasters in Ottawa and London would not result in an undue scarcity of over-the-air channels for future services.

9085 We believe that this request for a licence amendment is in accordance with the Commission's guidelines and it would constitute a valuable addition to the Canadian broadcasting system.

9086 Thank you and we would be pleased to respond to your questions.

9087 THE CHAIRPERSON: Thank you.

9088 Vice-Chair Colville.

9089 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

9090 Good morning, gentlemen. Welcome to our proceeding.

9091 I have a few questions, I guess really it's more clarification of the application and just to get a better understanding of a number of issues here before us.

9092 I guess, picking up on your application, and you don't have to turn there because I will just read this, but feel free to do so if you want, at page 11 under the CTS difference you noted that:

9093 What I thought I would do is sort of pick up on those three points. I guess given that on the first page of your letter of May 8 the number one point, and you may not have intended these in priority, but number one was "CTS urgently requires the increased coverage of the rebroadcasters if it is to survive in its present form".

9094 I thought I would do them in reverse order of the three that were listed on page 11 and start with the question of the economic need. I note that on page 4 of your presentation you just made, the first line of the fourth paragraph:

9095 I take it that's sort of fundamentally why you are here in front of us today.

9096 If we go to page 21 of your application, you talk about like broadcasting. This is the second full paragraph.

9097 I guess I would like you to elaborate on that. I might say, somewhat anecdotally I guess, I have heard an argument made that while it's true that Ontario and perhaps in other parts of the country this issue of regional buy has become important that, conversely, some advertisers perhaps feel they get forced into a regional buy because of the way the nature of the television operation is and in fact many of them would prefer a local buy which you presumably offer.

9098 I would like you to elaborate on this advertising problem.

9099 MR. GRAY: I am going to ask our Sales Manager, Glenn Stewart, if he would handle this response.

9100 MR. STEWART: Thank you, Commissioner.

9101 Essentially it comes back to the point that in the Toronto-Hamilton marketplace there is no longer a true retail market per se. In recent history, and I am speaking of perhaps the last five years or so, there has been a major push in the advertising agency community to buy regional first and foremost.

9102 You have national and you have regional, especially regional Ontario, regional Alberta, et cetera. Then they come back to if they need additional weight in some of the larger markets.

9103 The truth of the matter is that Toronto-Hamilton is the most fragmented market in the country. We have an uncanny problem with the American border stations taking -- some have estimated $20 to $25 million a year out of the marketplace.

9104 CTS on its own with the ratings delivery we can offer to date cannot offer a single advertiser a stand-alone advertising campaign. The advertiser would have to buy perhaps local news on CFTO, CHCH, CityTV, buy a few movies if they can afford to do it and then perhaps round out with us.

9105 I would submit to you that those advertisers are multi-market and really are regional advertisers.

9106 COMMISSIONER COLVILLE: I noted in your response to deficiency, this is a letter dated November 14 to Mr. Andrew McRae, on page 3 of theletter you talk about the assumptions that were based on your revenue projections --

9107 MR. STEWART: Yes.

9108 COMMISSIONER COLVILLE:  -- and the gains that you expected to get. I guess particularly (d), (e) and (f), I guess I would like you to elaborate a little more on those on how you arrived at the numbers that you projected for the increased incremental advertising revenue that you would get in London and Ottawa.

9109 MR. STEWART: Well, first and foremost, we are a small independent broadcaster with no relative history. We don't have the same vantage point as the larger broadcasters who have had many startups through their years.

9110 Our only basis to look at the Ottawa and London markets is to look at our four year history in Toronto-Hamilton. We have made the assumptions that given time, and that could be one, two, three years over that next window of opportunity, to hopefully establish a beachhead in those markets similar to what we have done in Toronto.

9111 I would have the Commission note that we currently deliver approximately a .5 share. We are not a very large audience in that respect, but if we can attain those goals for ourselves in those markets, we believe we can achieve the financial goals we have outlined in the application.

9112 COMMISSIONER COLVILLE: I guess that's what at the root of my question when you say "If we can attain those goals". I want to get a better sense of what leads you to believe that you can attain those goals.

9113 I'm thinking of that not only in the context of you being in these two markets, but presumably on the presumption that OMNI.2 is there as well.

9114 MR. STEWART: In a real sense, we are not all that different from OMNI.1 and 2 in terms of our business model in terms of what we offer. We offer the system an important option with religious programming. Our family value programming block is the engine that drives our ability to do the rest of what we do. There is no secret in that model.

9115 We need access to the regional pool of dollars to deliver that. Now, we are confident we will be able to achieve our numbers because we will have access to literally dozens, if not a hundred more, advertisers than we currently have access to.

9116 I am quite confident that the sales team that I have in place now would be very capable of securing our little share of a number of major advertisers and that will bring us to our projections.

9117 COMMISSIONER COLVILLE: I appreciate your confidence, and I guess that's what I am trying to get a better sense of. Given the unique nature of the kind of service that you offer here, as I read through the application and was thinking about this issue, when you say you want access to the regional pool of dollars.

9118 What leads you to believe that the regional pool of dollars would go to you over and above what you already got merely by the fact that you are into Ottawa and London? I don't have a good sense for that.

9119 MR. STEWART: It's not a question of over and above. It's a question of access to a large grouping of advertisers. We have had numerous advertisers, easily a couple of dozen advertisers over the last four years who have said: "If you are in Ottawa and London we would buy CTF".

9120 COMMISSIONER COLVILLE: What kind of advertisers are we talking about here?

9121 MR. STEWART: We are talking McDonald's, General Motors, many of the majors. I think in our original application we had listed Sears as an example. We have just finally gotten a little bit of Sears money, and only a little bit. But if we were to get our rebroads in Ottawa and London, then we have established that relationship and we have a commitment from that client and that agency to look at us in a more serious manner with all of their clients.

9122 COMMISSIONER COLVILLE: So would existing advertisers be prepared to pay more for the reach you would get in Ottawa and London? Do you that for a fact?

9123 MR. STEWART: Over time, yes, they will. It will be dependent upon whether they buy on a CPM or CPI basis, cost per thousand or cost per rating point basis. In the case of Proctor and Gamble, the country's largest advertiser other than governments, they buy on a cost per thousand basis, and the simple addition of additional markets, once we have proven -- and it will take one or two rating periods, or perhaps six months to look for them to look at us. In the next buying cycle, they will acknowledge the audiences that we will deliver in those markets and, yes, we will get an incremental rate increase.

9124 COMMISSIONER COLVILLE: Maybe this is a bad phrase to use here, but just playing devil's advocate for a second. If you are already at a 0.5 share, I guess if I was an advertiser I might be saying, notwithstanding the fact that you are going to move into Ottawa and London, the relative increase in the market, over and above what you already have, is interesting, but it's not something I am prepared to pay a lot more for.

9125 MR. STEWART: We work real hard at building relationships with our clients and our advertisers. So much of what we do in our business is based on servicing our clients and building those relationships. On a pure mathematical basis, perhaps your argument is well founded, but we are not going to be big enough to make a real big difference.

9126 If every sales organization in this country worked on that basis, then we wouldn't need to have sales representatives and sales organizations. It could all be done on a computer. That program delivers X, we pay X on down the road. That is not how our business was founded. It's not how our business works today.

9127 THE CHAIRPERSON: Let me put it this way. You expect to get in 2005 $1.2 million more than you currently get, $600,000 in each of London and Ottawa.

9128 Is most of that coming from existing advertisers paying more or is that from adding new advertisers?

9129 MR. STEWART: I would suggest that better than 50 per cent would be from new advertisers.

9130 COMMISSIONER COLVILLE: From new advertisers.

9131 MR. STEWART: Yes.

9132 COMMISSIONER COLVILLE: And that is the McDonald's and General Motors.

9133 MR. STEWART: Exactly, and on and on and on.

9134 COMMISSIONER COLVILLE: And you have evidence to support that.

9135 MR. STEWART: Anecdotal. We did not ask for, or did any agencies come forward and file an intervention or a letter of support to that effect, but I can assure you that after four years of trying to get them to buy CTF that that is very much the case.

9136 COMMISSIONER COLVILLE: Now, I guess you were here in the room and you heard the previous applicant indicate that their audience would -- and they are already in the market -- be somewhat slow to take hold and it would take a few years to develop in terms of being able to develop the incremental advertising revenue.

9137 You expect pretty well right away to go to 900,000, almost a million dollars pretty well right way.

9138 MR. STEWART: That figure was arrived at two-fold. One, it is based on where we started out in Toronto in terms of audience generation, and secondly pure need in terms of where we are trying to go at the station and the revenue we need to drive to start eradicating operational losses and find some money to spend on items like promotion and other things that will in turn help to drive numbers in the future.

9139 COMMISSIONER COLVILLE: Now, I guess this kind of overlaps a bit with the other issue about carriage and where the carriage is, but I guess again you were in the room and you heard some of the questions put to OMNI.2.

9140 I guess I would like to get a sense from you what you consider to be the relative value of the off-air audience incremental to the BDU audience that may be available to you in the Ottawa and London markets.

9141 MR. STEWART: As our colleagues from OMNI.2 attempted to answer that question, it struck me that we might be asked the same question.

9142 In truth, it's not a question of A minus B equals C. In truth it becomes a matter of acceptability on the part of advertising agencies. They do not as a rule pay any significant attention to conventional stations carried high up on the dial.

9143 We are at a distinct disadvantage in negotiation. It always becomes a "show me the numbers game" and, quite frankly, the numbers will never match what our projections are indicating.

9144 COMMISSIONER COLVILLE: Let me put the question this way, which I know probably scared the daylight out of the previous group -- it wasn't intended --

9145 MR. STEWART: I thought they answered it very well, by the way. Am I allowed to say ditto?

9146 COMMISSIONER COLVILLE: Sure.

9147 Assuming that whether you had the over-the-air audience or not, that you were carried on the same channel on cable -- pick a channel, I don't care, any channel, but you have that channel and you either have the over-the-air audience or you don't. For the incremental over-the-air audience, what is the value, in terms of you knocking on General Motors or McDonald's or they ad rep door?

9148 MR. STEWART: If I may answer it this way. If the Commission, in his wisdom, decided to mandate below the first tier position, the fact that we are not over the air would not affect our numbers greatly. When I say greatly, it might affect them by 15-20 per cent, perhaps. As long as we can send the clear message to the agency community that we are mandated to be carried on basic cable below the first tier, we should, over time, be able to make up that slight disadvantage.

9149 COMMISSIONER COLVILLE: I may be overstating what they said, or perhaps understating what they said, but the sense I got from it was that the off-air audience from an advertising point of view was probably marginal at best.

9150 MR. STEWART: Only because of the degree of cable penetration. I don't have the exact figures with me, but from memory some 70-odd per cent of cable households have basic cable through tiers, I believe one and possibly two, but only a fraction of cable households spend any time in terms of viewership with channels 70 and above. It's minuscule by comparison.

9151 COMMISSIONER COLVILLE: That raises an interesting question, I think, we hadn't thought of, and I guess I am probably lapsing into my second issue here a little bit, but is it your view that the reason the high number channels are problematic is because a number of people don't have the tiers in between and so once you get up to the highest channel on the low end of the basic, that you just have empty space and so people aren't inclined to go up there.

9152 MR. STEWART: To a very large --

9153 COMMISSIONER COLVILLE: I guess I have all the tiers at home and so I am inclined to go on to 53 to watch golf, or whatever. And so I am used to going up to those channels.

9154 Your view is that for those people who don't have the tiers, you just have blank space between say 28 and whatever it is here --

9155 MR. STEWART: When they hit channel 29 and they get snow or blankness for basic cable subscribers, that's where they stop.

9156 COMMISSIONER COLVILLE: They won't press 7-9 on their remote.

9157 MR. STEWART: Rarely. There is a term in our industry that we talk about: destination stations or destination viewing. I will say that for the major broadcasters who can afford to promote a coming special, you will get the viewership to some degree, but those of us who cannot we will not survive up on the high dial at this stage.

9158 I guess my other answer to the first part of your question would be: In a perfect world if the Commission were going to examine the realignment -- and I am chewing on a big bone here -- and if they were to examine the overall structure and decide, with the onslaught of digital and everything else, that all commercial over-the-air broadcasters were to be grouped together at whatever point, then I think we could all survive in that new universe. The problem is the discretionary tier in between.

9159 That is at the root of the difficulty with channels 70 through 88 for the most part, in my opinion.

9160 COMMISSIONER COLVILLE: Do you and the advertisers then have a sense that where cable subscribers handle all the channels up to 80, it's less of a problem in the case where there is blank space between 28 and 61 as it is in Ottawa?

9161 MR. STEWART: Yes. I can't tell you to what degree but, yes, in principle there would be less of a problem.

9162 COMMISSIONER COLVILLE: Interesting. I must say I hadn't thought of that. I had always thought that this case that was being made was simply the mere fact that nobody is going to go up to that number, but the problem is more that when your channels run out at 28, you are less likely to go up to that number.

9163 MR. STEWART: Again, we are referring to those people with basic cable service.

9164 COMMISSIONER COLVILLE: And the over-the-air audience is kind of marginal.

9165 MR. STEWART: Between cable penetration in the markets of Ottawa and London -- and never mind Greater Toronto -- with the number of folks who have direct-to-home, be it Bell ExpressVu or Star Choice or LOOK TV, folks who are in that vein are more accustomed to searching out and finding their channels as compared to people with basic cable.

9166 COMMISSIONER COLVILLE: Well, that would suggest as we move into a digital world people will be more inclined to do that too. Right?

9167 MR. STEWART: Yes, they will, but I am suggesting that in that world it would be to, I think, the system's advantage to group like services together in clusters. If someone is already paying to get tiers one, two or three, what does it matter whether it channel 29 through 43, or channel 102 through 122?

9168 COMMISSIONER COLVILLE: Right.

9169 MR. STEWART: If they are paying for the additional service, they can well with their converter find their channels. Our problem arises from the fact that the system has grown so rapidly over the last couple of decades and the BDUs have not kind of gotten to that next step.

9170 COMMISSIONER COLVILLE: Let's go back to some of the financial numbers then. We talked a bit about the advertising. I am looking at the financial chart that was included as part of your application which shows fiscal 2002, 2003, and then 2004 approved and denied and 2005 approved and denied, a sheet that looks like that?

9171 MR. STEWART: Yes. Carry on, I will find it as you ask the question.

9172 COMMISSIONER COLVILLE: The block airtime I see for 2004 increases by about 200,000 and then half a million in 2005. What do you credit the increase there to?

9173 MR. STEWART: I will ask Mr. Gray to respond as he handles the block time sales.

9174 COMMISSIONER COLVILLE: Mr. Gray?

9175 MR. GRAY: Thank you.

9176 I have been handling the block religious broker programming time since the inception of the station. So you get to know who all the people are and what is available and how their budgets are, and so on.

9177 My view is that they would be happy to have that additional audience, but I don't see very much of an increase available in their budgets to accommodate that. These types of programmers look for the response they get from donations primarily. So that would be a very slow trend to change where they would see much of a change in their overall revenue of a station.

9178 So I would think that it would be the same clients we have now with a very small amount of change that comes year by year with a modest increase, above inflation, but not much.

9179 COMMISSIONER COLVILLE: I am sorry, I may have missed that first part. When I read this I was trying to get around in my own mind why would it change at all?

9180 MR. GRAY: I think that if we can prove to them that they are going to get some more audience, eventually over the months -- and it probably takes a year before they would see any kind of a response in their donations or their revenue for that particular station, then perhaps I can get them to increase a little bit more than inflation, but what we are projecting is very modest beyond inflation.

9181 COMMISSIONER COLVILLE: If we then go down to the expense side of the column, you have programming and production increasing, 150,000 in 2004 and 300,000 in 2005.

9182 What are those increases? These are incremental increases, assuming the application is approved over denial.

9183 MR. FREED: Commissioner Colville, that is based purely on what appears to be a percentage increase over the years, over the ensuing years, for cost of programming, and some anticipation that there could be an additional increase as the result of the additional coverage in the Ottawa-London market.

9184 But primarily, since we are almost at a point where essentially our programming costs encompass regional purchases, it's really just allowing for the normal business increases over those years.

9185 COMMISSIONER COLVILLE: But I would have thought the normal business increase would have been $100,000 increase that is in the two denied columns, and that the -- I am sorry, I am looking at the wrong line now. It would be the difference in the two denied columns as opposed to the incremental gain over the approved column.

9186 MR. FREED: I am sorry, Commissioner, I don't understand the question.

9187 COMMISSIONER COLVILLE: It seems that you have an increase over and above the normal increase going from one year to the next. Over and above that with the approval, there is $150,000 increase in 2004 and a $300,000 in 2005 and I was just curious to know what that was.

9188 MR. FREED: Again, that would --

9189 COMMISSIONER COLVILLE: With approval you are going to spend more money on programming and production.

9190 MR. FREED: Indeed.

9191 COMMISSIONER COLVILLE: I wanted to get a sense of what that as.

9192 MR. FREED: Again, it would be for the regional, the larger regional purchase rights.

9193 COMMISSIONER COLVILLE: Now, if we could turn to, for a minute, your capital costs which I saw listed on page 19 of the application. I was just curious about a couple of differences here.

9194 Towards the bottom of the page you list the capital expenditures for Ottawa and then separately the capital expenditures for London. Then there are some minor differences in professional fees.

9195 I notice the transmitter is $400,000 for Ottawa and $100,000 for London.

9196 Why is there such a significant difference?

9197 MR. GRAY: Commissioner, the difference in the power for the transmitters is -- I believe, 5,000 watts in Ottawa and 1,000 in London for the basic transmitters; so just the basic cost of transmitter.

9198 COMMISSIONER COLVILLE: It is the transmitter of that power.

9199 MR. GRAY: Yes. It is the power of the transmitter --

9200 COMMISSIONER COLVILLE: Required for London. All right.

9201 If we put all this together, it appears that notwithstanding the gains in advertising revenue, some marginal increases in expenses, even with approval you are still left with a million-dollar loss in '04 and about half a million in '05.

9202 Is that right?

9203 MR. GRAY: I will ask Fred Vanstone to respond.

9204 MR. VANSTONE: Commissioner, yes, that is the projection at that point in time. The projection for '03, accepting the fact of the timing of the decision and our ability to sell into the marketplace is a factor, the second year out we think would be a better result; the third year out better than that. It would be a building situation.

9205 In 2005, while we are showing a net loss of $450,000, we have in fact reached cash flow break-even, if you add back the amortization.

9206 COMMISSIONER COLVILLE: What happens if the advertising gains don't prove out?

9207 MR. VANSTONE: To take specifically your question, if the advertising gains don't work out, we will have to adjust our cost structure. It is our assessment, as Mr. Stewart indicated, that we can achieve those gains through the access to a larger pool.

9208 We are confident internally that he can deliver that revenue.

9209 COMMISSIONER COLVILLE: And if he can't --

9210 MR. VANSTONE: Simply if he can't and there is less revenue, there will have to be less expenditures. The bottom is we can't go on forever spending more than we bring in.

9211 COMMISSIONER COLVILLE: Right. I guess this is based on a certain amount of faith that this incremental advertising revenue will be able to be added on and that the cost of the transmitters and the incremental cost associated with this will be able to be overcome by that.

9212 MR. VANSTONE: If I might, beyond being a faith station, we are basing that on experience in the existing marketplace. We are basing that on the trials that we had dealing with the retail revenue. We tried twice to get in to tap that, and our experience, as we walk through, is that as we can gain access to additional pools of income, we can be successful.

9213 That will be challenged, given the increased fragmentation with more stations in the marketplace.

9214 COMMISSIONER COLVILLE: So is your proposal to us to have the over-the-air transmitters in Ottawa and London fundamentally founded on the need, in your view, to have access to cable but largely under the interpretation that was discussed earlier, access to a relatively low number channel?

9215 MR. VANSTONE: Yes. I would like to state that we don't dismiss the impact that the signal will have in those marketplaces and the demand for the product in those marketplaces. We think that it is a unique service. We think it is fresh programming. We think that it is a positive commitment to those communities.

9216 The fact is that in order to access those regional advertising dollars, we do require an over-the-air signal and we do require what has been an interpretation of priority carriage, which we have agreed up to Channel 36 we would accept as opposed to the 2 to 13 interpretation.

9217 COMMISSIONER COLVILLE: It is time to take our lunch break, so we will do that and come back to some questions afterwards.

9218 I guess you could think about this question over lunch.

9219 I take it from your application and the discussion we have had, the fundamental issue here is a financial problem facing CTS. Largely to overcome that financial problem, we need the incremental advertising revenues that we think access to the London and Ottawa markets would provide us.

9220 MR. VANSTONE: Yes, as well as providing those markets useful service and diverse service.

9221 COMMISSIONER COLVILLE: Let's pursue that a little more after the lunch break.

9222 MR. VANSTONE: All right.

9223 THE CHAIRPERSON: Thank you. We will resume at 1:30.

--- Upon recessing at 1205 / Suspension à 1205

--- Upon resuming at 1335 / Reprise à 1335

9224 THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît.

9225 Commissioner Colville.

9226 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

9227 I will throw it back to you to respond to the issue that I posed just before the lunch break.

9228 MR. VANSTONE: I think your question was the role of economics in the request for cable positioning.

9229 Is that correct?

9230 I think I would like to say again not to dismiss the unduplicated service that the station provides to the area, we feel that there is value to that. We feel thee is a demand for it. We feel there is acceptance of it. So I don't want to diminish that.

9231 In terms of where we are and what we are requesting, economics and the economic necessity is a very high reason.

9232 COMMISSIONER COLVILLE: Would you say the highest reason?

9233 MR. VANSTONE: I would say the highest reason for me. Probably Reverend Mainse is concerned as much about the people that we reach. I think as a station we are concerned about both, but it would be foolish to diminish the economic necessity.

9234 COMMISSIONER COLVILLE: Let me put this issue to you this way.

9235 If I look at 2005, I look at an incremental expense of $650,000 to access theoretically 100 per cent of the market, to gain an incremental advertising revenue of $1.2 million.

9236 It strikes me that another way to solve this problem for you might be to get access to the cable without building the transmitters and incurring the $650,000 incremental expense, to get probably somewhere in excess of 80 per cent of the theoretical audience.

9237 I don't know whether that translates into 80 per cent of the incremental ad revenue. It may not be quite that. But it is probably not far off that.

9238 It strikes me, from a financial point of view, it would make more sense to help improve the prospects for this service to be on cable as a distant signal rather than incur $1 million in capital and $650,000 in ad expenses.

9239 MR. VANSTONE: I think the question, when get to distant coverage, is that distant coverage has a different position along the cable band on the channel selection. I think both the OMNI presentation as well as our position indicate that there is a very significant value to being in the low end of the band.

9240 Seventy per cent of the audience is in the 1-to-35 channel range, the 2-to-35 channel range. To then go into the distant signal coverage and have a high number channel, I think is a significant detriment to the ability to draw audience and to convince advertisers that it is a powerful reason to sell.

9241 COMMISSIONER COLVILLE: When you say 70 per cent of the audience is in the 2-to-35, I am not sure where you are getting that 70 per cent. But that 70 per cent also is in the 61. Notwithstanding the discussion we had this morning about whether or not they may get there, the 70 per cent that is in the 2-to-35 is also in the 61 to 80, whatever. Right?

9242 So the issue is whether or not they ever get up there.

9243 MR. VANSTONE: Right. But 72 per cent of the audience watches in the 2-to-35 category. They don't go up.

9244 COMMISSIONER COLVILLE: But they have it.

9245 MR. VANSTONE: They haven't gone up.

9246 COMMISSIONER COLVILLE: They have it available to them.

9247 MR. VANSTONE: A portion of them have it available to them, if they have the two and three tier levels.

9248 COMMISSIONER COLVILLE: Channel 79 is on basic. The discussion we had earlier this morning was if they have the tiers, they may cruise on through the tiers and get up to 79 at some point. But they have 79 on basic.

9249 MR. VANSTONE: Yes.

9250 COMMISSIONER COLVILLE: So the 70 per cent they have it. The issue for you is whether they go there.

9251 MR. VANSTONE: That is correct.

9252 COMMISSIONER COLVILLE: So I guess the issue then even for you, it seems to me, from a business point of view is to say: Well, we could save ourselves $1 million in capital and $650,000 a year in expense. We probably don't earn $1.2 million incremental new advertising revenue. But even if we earn eight or $900,000 at some channel on cable as a distant signal, we are well ahead of the game, aren't we?

9253 MR. VANSTONE: Are we saying the distant signal is a basic carriage?

9254 COMMISSIONER COLVILLE: Yes.

9255 MR. VANSTONE: Certainly there is a number at some point in time. The judgment we have made is that the investment for the rebroadcasters will earn a return based on the historic application of awarding the channel position in the low end.

9256 COMMISSIONER COLVILLE: Had you approached the cable operators in Ottawa, London or Gatineau --

9257 MR. VANSTONE: We did approach the cable operator before concerning our last application. We have requested a meeting with them to discuss it for this one. The request for that meeting has not been accepted. It was made last fall.

9258 We did request in the interim that they apply to the Commission for distant carriage. As the Commission is aware, they turned that down.

9259 I guess the circumstances are at this point in time we have been unsuccessful in resolving it. They, I think in their letter of the distant carriage issue, punted it back to the Commission.

9260 COMMISSIONER COLVILLE: Going back to my earlier question about the financial situation, though -- and I take the point about the programming and the desire to reach an audience. I am just trying to look at this from what I understand to be one of the main concerns here.

9261 We have a service that is in financial difficulty, and what is it that we can do to reach a wider audience? Fundamentally, what is it that we can do to improve the financial situation of this service?

9262 As I say, it strikes me that you would have to have a lot less -- let me put it this way. You could afford to have significantly less new advertising revenue as a distant signal than spending the money to add the transmitters.

9263 Wouldn't that be the case? Isn't it to your business advantage?

9264 MR. VANSTONE: I think with respect to the business advantage, in looking at the numbers we think that the payback is fast enough and the potential increase, given a low channel placement, positive enough to make that investment pay off.

9265 COMMISSIONER COLVILLE: Isn't it even better with the risk?

9266 MR. VANSTONE: Only if we can attract the attention and the advertising.

9267 The experience has been in the high end that that has not been achieved.

9268 COMMISSIONER COLVILLE: If you can go to those advertisers and say I can deliver 80 per cent of the theoretical audience -- taking that you have a rather narrow piece of that audience anyway. I am not trying to denigrate the service in saying that. You acknowledged that this morning, that it was a .5 share.

9269 MR. STEWART: If I may, I think I can perhaps clarify the positioning a little bit.

9270 If the Commission is talking about making an exception to or somehow changing the current regulations that would indicate that should CTS be given the opportunity through distant signal carriage to be virtually guaranteed bottom tier -- not 2-to-13 but below 28 -- placement with the BDUs, then you are quite right. We wouldn't need to quite get as high as we needed to by virtue of not spending money on the rebroads.

9271 And the 80 per cent factor, if that is the figure it ends up being, could over a period of time be made up. I am certain of that.

9272 The biggest trick -- not trick, but the biggest challenge for us is getting the advertising community to accept CTS as a regional broadcaster. Once that is done, whether it is via rebroads and basic analogue placement below 36-or-28, or whether it is by virtue of the Commission mandating carriage of CTS under 28, we will achieve our goals.

9273 It may be a year or two out, but ultimately yes, we will achieve our goals.

9274 COMMISSIONER COLVILLE: Are you suggesting that if you are, as a distant signal, on basic, notwithstanding the point you raised this morning about those who go surfing up the channels, that there are a lot of subscribers who have the tiers in between, what portion of the $1.2 million would you still get if you were somewhere between 61 and 88?

9275 MR. STEWART: I would have to crystal-ball. There is no way of knowing. We don't have a history. We don't have an alternate service within our large corporate structure to be able to have an example to draw from. We are a small independent four-year-old broadcaster.

9276 I could tell you 50 per cent. I could tell you 80 per cent. I could tell you 30 per cent. We won't know that until we get there.

9277 My real fear is that it will be 20 or 30 per cent --

9278 COMMISSIONER COLVILLE: It would have to be worse than 50 per cent to make you worse off, though, wouldn't it?

9279 MR. STEWART: That would depend on the level of acceptance ultimately by the advertisers and the agencies.

9280 COMMISSIONER COLVILLE: I understand that. If we are looking at incremental $1.2 million and we are going to spend $650,000 plus the capital, then it would have to be worse than 50 per cent to make you worse off.

9281 MR. STEWART: On a short-term basis, I --

9282 COMMISSIONER COLVILLE: If it is better than 50 per cent, you are better off not building the transmitters.

9283 MR. STEWART: On a short-term basis, I would agree. When you look at the longer view, once those transmitters are paid for over three, four, five, six years, whatever it might be, then we are that million dollars to the good as we go on.

9284 COMMISSIONER COLVILLE: All right.

9285 On the particular case of the two cities, then, you mentioned that given the nature of the service, there are available channels that could and, in your view, should be bumped.

9286 I wonder if you might be a little bit explicit in terms of Ottawa and London as to where in fact you think you would fit.

9287 MR. GRAY: Mr. Chairman, perhaps I could respond to that.

9288 COMMISSIONER COLVILLE: Mr. Gray.

9289 MR. GRAY: When we look at the cable channel lineup, we chose channel 36 or lower simply because that's just a condition of our licence now. We are channel 36 off-air in Hamilton-Toronto-Burlington. That is a condition of our licence, that we would be carried no higher than channel 36, recognizing that Rogers in both of these cities above 28 get into the tier one, but if you look at 28 and lower, there are five non-Canadian services under 28 in Ottawa and seven under 28 in London.

9290 I suppose the same discussion when we look at what's available and what the broadcast distributions are. As I understand it, the Canadian stations having priority, and of course the national broadcaster, provincial public broadcasters and down to local stations, so aside from that there are that many frequencies.

9291 We recognize that there is some disruption, but cable channels are realigned from time to time anyway.

9292 COMMISSIONER COLVILLE: Did you have a particular sense as to where you would fit, what channel, what would get bumped?

9293 MR. GRAY: No. I haven't navigated it up to the broadcasters using an undertaking to decide that. We simply would like to be 28 or lower. We are not asking again to be in the 2 to 13.

9294 COMMISSIONER COLVILLE: So you have presumably weighed whatever consumer reaction would be from them of the nosebleed territory, "Now I have got to go to channel 80-something to get WPBS or WOKR, ABC" whatever.

9295 MR. GRAY: And my personal view is that the term "destination viewing" does have some validity because if there is a certain program that is a favourite of yours on a non-Canadian channel, you would seek it out more likely than you will seek a Canadian channel that is not quite as well known and the upper tier are basic.

9296 COMMISSIONER COLVILLE: So you haven't talked to cable operators in terms of should you be licensed through this process or the over-the-air transmitters which lots you would actually get.

9297 MR. GRAY: Yes. We did try. We met on our last occasion in more than one meeting but didn't come to any conclusion. At this time we asked for a meeting and so far we haven't had a response for that meeting.

9298 COMMISSIONER COLVILLE: Okay. Let me just go to the last point I wanted to cover then, a fairly brief one. It's the A point in the list of the three areas which was the question of a new local religious.

9299 You have mentioned in your application that there are no apparent prospects for local religious in Ottawa or London. Is that what you base that on, just simply the fact that we haven't had an application?

9300 MR. VANSTONE: No. I think, sir, we have explored within the communities to see whether there is an interest. At this point in time there has been no intervention against us relative to this application. The other phase communities, Mr. Landau might talk about it, but there doesn't seem to be any latent desire to do that.

9301 As well, the question for us is the economic viability of such an independent station.

9302 COMMISSIONER COLVILLE: It's your conclusion that an independent station could not be economically viable.

9303 MR. VANSTONE: We don't believe that it would be viable as a stand-alone.

9304 COMMISSIONER COLVILLE: In Ottawa or London?

9305 MR. VANSTONE: Yes. In terms of the local market, in terms of the specific advertising available, in terms of the capital costs. As an over-the-air broadcaster we do have the same infrastructure as other over-the-air broadcasters. There's significant capital cost to establish such a station and operate such a station.

9306 MR. STEWART: If I may add to that. From a sales or advertising standpoint, the markets of London and Ottawa are not treated as markets unto themselves by national and regional advertisers. Winnipeg is a designated market on its own. Calgary and Edmonton and Montreal are all markets unto themselves.

9307 Ontario is treated very much as a region. Toronto-Hamilton is scarcely a market unto its own now, other than terms of heavy-up to the national and/or regional weight.

9308 You will find case in point with what was Global is not an issue because they are regional across the province, but I have got personal experience over the years with the CTV Baton properties of old when we put together the mini network for sales purposes.

9309 You had a CJOH, you had an MCTV, you had your CFTO. We went into that with CFTO being the biggest station and from a sales standpoint had a fair degree of retail advertising. CJOH had its own retail advertising, et cetera, et cetera.

9310 When it all came together, that was in direct response at the time to try to compete at the table at the same time for advertising dollars with Global Television. It was licensed as a regional network. That's the history of where the advertising industry has moved to.

9311 I would submit to you that the markets of Ottawa and London are not stand-alone markets for an independent broadcaster, be it a religious broadcaster or otherwise. I don't think the Commission will see in the short term certainly, and I doubt the long term, any applications coming forward, in the English language at least, in terms of Ottawa-Gatineau a local independent licence, besides which there aren't any independent broadcasters left. Everyone is part of a major at this point.

9312 COMMISSIONER COLVILLE: So it would be your view that notwithstanding that Mr. Edwards this morning suggested that there are three other frequencies available in Ottawa, which I guess would mean two others after you, that the Commission shouldn't hold out any hope for a stand-alone local religious or French service in Ottawa.

9313 MR. STEWART: Recognizing the balance in the Ottawa-Gatineau marketplace and the importance, not only the Commission but the public at large place on bilingualism and French broadcasting versus English broadcasting, I think as a broadcaster we understand and appreciate fully the fact that there is an imbalance in this marketplace. It's unique in terms of the bilingual nature, et cetera.

9314 I can well understand the Commission wanting to hold one frequency open for an eventual French broadcaster, be it religious or otherwise. I would suggest that that's probably a safe and relevant thing to do.

9315 In terms of whether there would be a religious independent broadcaster on the horizon, to be frank, there is probably only one potential applicant. Whether that would come at one point is hard to say. The fact that we have not been opposed at this hearing I think is a good indication that there is serious doubt as to whether it would be sustainable in this marketplace.

9316 COMMISSIONER COLVILLE: Okay. Thank you very much, gentlemen.

9317 Those are all my questions, Mr. Chairman.

9318 THE CHAIRPERSON: Thank you, Commissioner Colville.

9319 Commissioner Grauer.

9320 COMMISSIONER GRAUER: Thank you.

9321 I have a couple of programming questions. I know in the licensing decision it talks about the revenue from broker programming, solicitation programming vis-à-vis the advertising revenues.

9322 I'm just wondering if you can tell me where on your return where I have under revenues "local sales, national sales, syndication, production and other" that I would find the brokered programming revenues.

9323 MR. FREED: Yes. It would be the value of the brokered programs in exchange for commercial air time would be listed under box 52, local time sales, contour or other non-monetary transactions.

9324 COMMISSIONER GRAUER: Okay. So it's local time sales. That's where I would find it. Okay.

9325 I also notice in your programming -- if I look at your schedule, where would I find your station-produced programming? You have reported some station-produced programming in here.

9326 MR. FREED: Yes. Thank you, Commissioner. It would appear that we neglected to perhaps shade some of the areas that you question. I would be prepared right now to rhyme them off to you if that's satisfactory right now.

9327 They are not designated in any way on the program schedule that we submitted.

9328 COMMISSIONER GRAUER: Maybe you could file it. Would that be easier than rhyming it off?

9329 MR. FREED: We would be happy to file a list of our locally-produced.

9330 COMMISSIONER GRAUER: That would be great if you could do that.

9331 MR. FREED: Yes, certainly.

9332 COMMISSIONER GRAUER: Now, your parent company produces "100 Huntley Street", is that correct? It appears non-profit. Sorry, not company, non-profit.

9333 MR. VANSTONE: Just to get to the issue of the structure --

9334 COMMISSIONER GRAUER: Yes.

9335 MR. VANSTONE:  -- CTS is an independent, non-profit, non-share capital, non-charity.

9336 COMMISSIONER GRAUER: Correct.

9337 MR. VANSTONE: It was sponsored in its origins by Crossroads Christian Communications, which is a charity, but the two corporations are separate. There is an eight-person member board for CTS, three of whom are board members of CCCI, five of whom are independent.

9338 The organization of CTS is self-sustaining on its own. It does have and has had since its inception some financial support from CCCI, the charity.

9339 COMMISSIONER GRAUER: So what I'm trying to get at is you have, what, 18 hours a week I think of "100 Huntley Street" on CTS. It also is on other broadcasters in the country, Global I think in particular and it was formerly on Vision. I have looked over the exchange of letters on that.

9340 What's the methodology you use to determine the price paid by -- what is it, CTS, that established the broadcaster, the charity that established the broadcaster, acquires the programming -- buys the time on the television station. How do you determine that price that it pays?

9341 MR. MAINSE: When CTS was being developed, actually it goes back to a hearing before the CRTC in 1982 where the model was virtually the same where an independent corporation would be set up and that the charity would pay according to the rate card the identical amounts that any other block time buyer would pay doing that.

9342 My perception was that for a charity to operate a television stationin competition, if you will, with other television stations would be an unfair advantage because you are taking donations as well as commercial revenue and that it should be a separate entity and we should be seen to be eminently fair and the charity should pay the same way as any other time buyer and that's what we have done according to the rate card.

9343 COMMISSIONER GRAUER: So you have a rate card for anybody buying time on the station.

9344 MR. MAINSE: Yes.

9345 MR. GRAY: Yes, we do. I'm the person that handles that and I can assure you I did check before we came to the hearing and Mr. Mainse does pay full rate card, no discount on his prime time as our two U.S. ministries.

9346 Further, I checked to see on the other daytime parts and I was giving him the identical volume discount as I was the others. It was interesting that they are exactly the same, so he is being treated the very same.

9347 COMMISSIONER GRAUER: So 18 hours a week though is a fair amount, is it not?

9348 MR. MAINSE: If I may respond again. The "100 Huntley Street" is one of the telecasts we have produced. For example, it's two and a half hours in the middle of the night seven nights a week which is an open line program.

9349 If I can speak as a pastor for many years, some of those years in the Ottawa Valley, I probably spent 60 to 70 per cent of my time with the people who would not be able to make the monthly payments to the cable company or of late to the satellite home dish.

9350 Those are the people in that 10 per cent or so that have severe family dysfunction, breakup, single moms, alcoholic people, people who need us more than anything else. They need the faith message we bring. They will never get that faith message from a specialty channel that only goes to people who can make their monthly payments to the cable company or to the satellite to home dish company. They will never get it and they are the people who need it most.

9351 From my point of view, as our chairman pointed out, I may have a different perspective as Mr. Colville indicated, but I think he understood that.

9352 From my point of view, that's the reason for an over-the-air licence, because these are the people that need us the very most. So that wasn't in the question. I'm a preacher. I can't help myself.

9353 COMMISSIONER GRAUER: How much of your time is brokered?

9354 MR. FREED: Thirty-eight per cent.

9355 COMMISSIONER GRAUER: And how much of that is Canadian?

9356 MR. FREED: I don't have that figure.

9357 COMMISSIONER GRAUER: You don't have that figure. Have your brokered revenues -- have you achieved the same level of revenues for the brokered programming that you projected in your original application? I think you projected --

9358 MR. VANSTONE: Yes. I believe it is fairly close. "Huntley Street" or Crossroads support the CTS. It has been a significant portion of the support on the brokered revenue. The funding that comes to CTS in that manner is about 14 or 15 per cent of gross revenue, about 25 per cent of brokered costs.

9359 COMMISSIONER GRAUER: Is there any way for you to determine, Reverend, how much revenues are generated from your air time on -- how much of it is original and how much is repeats, do you know, of that 18 hours a week?

9360 MR. MAINSE: I think all of it -- I should know how to operate a microphone by now. I think that essentially all of it is fresh. I know in some weeks we have produced from the charity up to 30 hours and in one way or another the two together, I remember one week I counted it up, I think it was 51 fresh hours produced, by CCCI about 30 and about 21 hours by CTS.

9361 In terms of the 18 hours, that's all fresh programming. It's not repeats.

9362 COMMISSIONER GRAUER: And so CCI would do how many hours for CTS in total?

9363 MR. MAINSE: I would say -- it varies. It depends. We do about two and a half hours on Saturday morning of children's, the rap show and some of those things, although I think that's sponsored by CTS.

9364 We have five hours a week of "100 Huntley Street", we have seven times two and a half, whatever that is, of the middle of the night show. We have a breakfast show in the morning called "Rise and Shine". Those are all fresh and virtually all live.

9365 There is a repeat of the "100 Huntley Street" that goes live in the morning --

9366 COMMISSIONER GRAUER: Right.

9367 MR. MAINSE:  -- on Global as well as other CTV or CBC independent affiliates where we buy time. Plus we repeat it at night. I mean having a television station is virtually the only way we could ever get "100 Huntley Street" on prime time.

9368 I have got to confess that's my main motivation for having the station. It certainly wasn't an ambition to have a television station per se, but was to bring that message to prime time as well as middle of the night times that were not available to us on other stations.

9369 COMMISSIONER GRAUER: Okay. Thank you.

9370 Those are my questions.

9371 THE CHAIRPERSON: Thank you very much, gentlemen.

9372 We will now pause for ten minutes so that the next applicant can set up and resume in ten minutes.

9373 MR. GRAY: Could I just thank the Commission. I needed to thank the Commission for hearing us and also the staff for their assistance and patience with us during this process.

9374 Thank you very much.

9375 MR. FREED: Excuse me as well. If it's okay with the Commission, when I file the Canadian, our locally produced programs, if I may use the current schedule since this schedule that was filed is a year old now. I would file the current schedule so it's more up to date.

9376 We would file that by the end of Monday.

9377 COMMISSIONER GRAUER: Well, it would help to have the figures that fit the schedule too because we have some other figures from last year. Maybe what we should do is get them historically if that's okay.

9378 THE CHAIRPERSON: Perhaps you can discuss it with staff and get both what you have filed and current.

9379 Thank you.

--- Upon recessing at 1405 / Suspension à 1405

--- Upon resuming at 1420 / Reprise à 1420

9380 THE CHAIRPERSON: Order please. A l'ordre, s'il vous plaît.

9381 Mr. Secretary.

9382 MR. LEBEL: Thank you, Mr. Chairman.

9383 The last appearing application is an application filed by Bea-Ver Communications Inc. to amend the licence for CKUE-FM Chatham:

9384 The new transmitter would operate on frequency 95.1 MHz on channel 236A with an effective radiated power of 400 watts.

9385 Mr. Carl Veroba will be introduce his colleagues. You have 20 minutes to make your presentation.

PRESENTATION / PRÉSENTATION

9386 MR. VEROBA: Thank you.

9387 Good afternoon, Mr. Chairman, members of the Commission. I am Carl Veroba, President and General of Bea-Ver Communications. I am the "ver" in Bea-Ver and I have been a broadcaster for 43 years.

9388 With me today on my left is Assistant General Manager and Operations Manager Walter Ploegman. Walter has been a broadcaster since 1984, and an employee of Bea-Ver for 17 years, occupying positions as on-air host, music director and program director before his current position.

9389 Shannon McMath, on my right, is our newest addition to our team. She is Promotions Director/Morning News host, and has been a broadcaster for seven years and an employee of Bea-Ver for one year.

9390 Paul McPhee, our News Director, on my far left has been a radio journalist for 17 years and an employee of Bea-Ver for ten years.

9391 Phil Ceccacci, our Sales Manager, has been in sales and broadcasting for 15 years and with Bea-Ver for nine years. He is in the back on the left. Operating the PowerPoint equipment is Robert Marshall, a Director of Bea-Ver Communications.

9392 We are here today to present our proposal to add a new Canadian radio programming choice for the people of Windsor, as well as permitting a change to our condition of licence that will make our station more competitive with the many U.S. stations in both Windsor and our home market of Chatham-Kent.

9393 We believe that the residents of Windsor deserve an additional Canadian programming choice on their radio dial, one that provides Canadian local and regional news information and community services as well as providing exposure for Canadian artists in one of Canada's larger cities.

9394 The slide you see provides some economic facts about Windsor. With a CMA population of 330,000, Windsor has only four local private commercial radio stations as well as the CBC and one student FM station.

9395 Let's compare that with London, Ontario, a city with a slightly higher population. London is served by eight commercial radio stations and another two stations within 30 kilometres targeted. Kingston, Ontario, a city with approximately half of Windsor's population has five commercial stations and three different owners.

9396 Why does Windsor have so little local radio compared with other Canadian cities? There are essentially two reasons, both caused by the proximity of Detroit:

9398 We believe that we have a proposal that can bring an additional choice to Windsor and address the technical and economic difficulty.

9399 And exhaustive frequency search by our engineers revealed that there are no more viable frequencies available in Windsor. However, the use of the synchronous repeater transmitter will allow us to broadcast on our existing frequency, thereby not requiring a new frequency.

9400 Because of the high concentration of American signals, we believe that our proposal of a repeater that extends the range of CKUE-FM is the only way to introduce a new Canadian FM signal into Windsor. A synchronous repeater must have the exact same programming as the mother station.

9401 Combined with the current coverage of CKUE-FM, the new transmitter will increase the potential reach for CKUE from 102,000 people to 231,000 within the 3mV/m contour. As you can see on the map, we will not have a huge signal -- it essentially covers the City of Windsor and we do not put a listenable signal into Detroit. This means that the opportunity to target the Detroit market is not open to us.

9402 Now, if only the economic challenge was as easy. However, we believe that our approach also means that we can be viable while not causing any impact on the existing stations.

9403 In the early 1980s, the Canadian radio stations in Windsor were in dire straits. In 1984, almost 20 years ago, the CRTC undertook its review of Windsor Radio. The Commission allowed a variation of the regulations concerning Canadian content and hits at that time by permitting an exemption to its ownership rules in 1993, just ten years ago, by permitting CHUM to hold four licences in the same market. The Commission indicated that t he decrease in editorial diversity was justified by the poor state of the radio industry.

9404 But that was over ten years ago and market conditions have greatly changed. Even a cursory analysis of the evolution of the industry makes it clear that the industry as a whole and Windsor stations are on a much firmer financial footing.

9405 Since the introduction of the Commission's 1998 Commercial Radio Policy, the industry has not only returned to viability, it has posted high profits. The combination of the Commission's regulatory flexibility and CHUM's programming and marketing expertise have meant that in its annual report to shareholders in 2002, they could say:

9406 The challenge of competing with all of the Detroit stations also brings the opportunity of accessing the 10th largest market in the United States and CHUM has done as well. As the slide shows, they have more listeners in the United States than they do in Canada. We understand that up to 70 per cent of the advertising on CHUM Windsor stations comes from Detroit.

9407 However, in trying to compete with the American stations, CHUM offers news and information services more oriented to Detroit than to Windsor listeners. While CKLW does provide a local Canadian perspective of news and information in its news-talk format, the other three music stations clearly target the Detroit market in their music, information and marketing.

9408 But Windsor listeners want more access to information on their own city, region, province and country. The Hendershot Research Consultants study submitted with our application indicates that over two-thirds of the Windsor respondents considered it important or very important to listen to a local radio station and this opinion strengthened in older respondents: 68 per cent believed that local news was very important, while about half believed that community events and traffic reports were very important.

9409 Here is Walter Ploegman to speak to the Windsor audience profile.

9410 MR. PLOEGMAN: Thank you, Carl.

9411 Good afternoon, members of the Commission.

9412 Of course, the challenge is to find the right market niche to attract enough listeners to be viable. This slide demonstrates the audience profiles of the Windsor stations by age and gender.

9413 Clearly, CHUM has done a pretty good job of ensuring that women are well served with local radio as are younger men and persons 50 plus of both genders. But even four stations aren't enough to cover all the bases.

9414 The hole, as you see identified on the slide, seems to be men in the middle-aged group 35 to 50 or even 25 to 54. This is also reflected in the tuning patterns in the market.

9415 In analysing the Windsor BBM Fall 2002 survey, we found that 61.1 per cent of all listeners 12+ were listening to out of market stations. Women 18+ were less likely to tune to out of market stations since 54 per cent of this demographic listens to Detroit radio.

9416 However, we note that 74.5 per cent of all Windsor men in the 25-54 age group are tuning to out of market U.S. stations. In fact, of that 21.5 per cent of men 25 to 54 went to three American classic rock stations from Detroit.

9417 These analyses confirmed that men 25-54 are underserved by Canadian local radio and that there is a potential to repatriate a portion of this audience from the Detroit radio stations.

9418 CKUE-FM's existing music format is a blend of classic rock and compatible contemporary rock. It serves a predominantly male demographic of 25-54. The playlist consists of such international artists as the Rolling Stones, The Who, Led Zeppelin, Credence Clearwater Revival, Aerosmith and AC/DC. Canadian artists include Kim Mitchell, The Tragically Hip, Bryan Adams, Loverboy, Rush, Triumph, Neil Young, BTO, the Guess Who, Honeymoon Suite, Nickelback and The Tea Party, to name but a few.

9419 Many of these Canadian artists currently do not get exposure in the Windsor market as indicated in their interventions.

9420 The Hendershot report noted that 64 per cent of the respondents said that they were likely or somewhat likely to listen to a local classic rock station. The study then concluded that a classic rock station would have the potential to generate up to a 12.8 per cent share of the hours tuned in the Windsor market.

9421 Now, our business plan is based on a modest 3 per cent share of hours tuned 12+ in our first year of operation. The Hendershot study assumed a full power station covering all of the Windsor CMA.

9422 Because of the lower power of the transmitter our coverage will be limited to the city and about two-thirds of the CMA population. In developing our revenue projections, we also took into account that we will have to win our listeners from strong established U.S. services.

9423 The 3 per cent of all hours tuned 12+ really means that we will reach about 6 per cent of men 25-54. CKUE-FM already has a 1.7 per cent share in Windsor in this group, despite a feeble signal. We are confident that we can reach the first year goals, but we expect it will take us some time to repatriate a more significant part of the 21.5 per cent of hours tuned going to the three classic rock and rock stations.

9424 I would now like to ask Paul McPhee to speak to news and information.

9425 MR. MacPHEE: Thank you, Walter. Good afternoon.

9426 The addition of a Windsor studio will allow us to provide Canadian news and information programming in a community where private radio is limited to one voice. It would be misleading to tell you that a Classic Rock station is anything but music intensive. However, with a more mature audience, there is demand for news and other information on a regular basis.

9427 At present we have an eight-person newsroom in Chatham-Kent, which covers the large area as noted on the screen. We currently offer service to a number of communities within the CKUE-FM coverage area including Chatham, Wallaceburg and Tilbury, and we will have no trouble including Windsor in our news coverage. In fact, we already provide 10 per cent to 15 per cent Windsor news since there are many stories of common interest to the whole region.

9428 CKUE-FM will add two news persons in Windsor to extend our reach to cover Windsor news and information in greater depth seven days a week. This will result in an increase in the amount of news in the schedule. Newscasts will run on the half hour from 6:00 a.m. to 9:00 and hourly form noon to 6:00 p.m., Monday to Friday.

9429 This represents an increase of 25 newscasts each week. Roughly half of the newscasts would originate out of our new studios in Windsor and half from our existing operation in Chatham-Kent.

9430 I would now like to re-introduce Shannon McMath to speak to marketing.

9431 MS McMATH: Thank you, Paul.

9432 Good afternoon, Mr. Chairman and Members of the Commission.

9433 We recognize that we will face a significant challenge in becoming successful in Windsor, but we have developed a very strong marketing and sales program and plan to draw interest into the station.

9434 First of all, we have earmarked $70,000 in cash and an additional $30,000 in barter prior to the launch of the station through print, direct mail, billboards and television. Our financial projects do include a significant expenditure throughout the period. We do realize that. But we do understand, as well, that we will be building for some time.

9435 The presence of our new studio in the city will attract a lot of attention as we intend to place that in a very visible city area. We intend to leap into a variety of community activities, many of which will actually be extensions of activities currently taken care of in Chatham-Kent.

9436 For example, we work with non-profit organizations such as the United Way, Crimestoppers, Outreach For Hunger and the many service clubs, including The Shriners.

9437 The purchase of a Windsor Community Events vehicle will provide additional visibility for the station. And, of course, the focus of the community events portion of our Web site will also widen to include the entire region. On-air contests as well will be designed to generate interest in both Windsor and in Chatham-Kent.

9438 We also believe that an existing Canadian Talent Development initiative, which is our Youth Talent Search, can play a big role in creating a big buzz about the station too.

9439 Although we have not included this as part of CTC commitments in the application, CKUE partners with our sister stations CKSY-FM and CFCO-AM to promote a Youth Talent Search as a part of a local initiative in conjunction with the Western Fair of London.

9440 It is presented by all three stations and performances are held in Ridgetown, Wallacetown, Essex and in Chatham. Winners then go on to perform at the Western Fair in London. We will extend that talent search of course to include Windsor if this application is approved.

9441 In addition, CKUE does produce a New Band Spotlight. That is with the winner receiving $500 in cash, studio time to produce a CD to begin with, ending as the opening act for the Festival of Nations in Chatham-Kent.

9442 Our Rock Indie Spotlight also gives local groups an opportunity to obtain radio exposure for their artistic works as part of this daily feature. To expand on that, our Bandboard on the Web site is also a vehicle as well.

9443 Both of these initiatives, in fact all of these initiatives, can be extended into Windsor. There is already some spillage currently.

9444 There is also a very active music scene in Windsor, the best known band probably being The Tea Party. Despite their national success, they can't get airplay into Windsor because they don't fit the formats there. They do fit ours.

9445 We have already been approached on a number of occasions as well by bars already in Windsor wishing to take part in the Talent Search and help us there. We are very confident we can create a lot of interest this way among others.

9446 From a sales point of view, we do have some experience in that market. Windsor advertisers are interested in attracting residents of Chatham-Kent to their stores, and we already have a long client list in that city. We intend to add two Windsor-only sales reps. They will convince those advertisers they can reach men in their own market as well with our station.

9447 Thank you.

9448 MR. VEROBA: Mr. Chairman, at the beginning of our remarks, I indicated that there were two problems adding a new Canadian radio service to Windsor. The new technology and creative application by our engineers have solved the lack of frequencies, providing probably the only way to get another signal into the market.

9449 We believe that we have a solution to the second part as well. Finding the hole in the market and superserving it is what every broadcaster applying for a new station in markets across the country tells you. But in Windsor, where every format is available from well financed and programmed Detroit stations, how do you make the Canadian format hole viable?

9450 Our proposal is based on a dual solution to this.

9451 First, the station will be Canadian and provide local service. This will attract a significant number of local listeners.

9452 Second, we will amortize the cost of the service over two markets. Just as the four CHUM stations make a lot of their revenues from their large coverage on both sides of the border, we believe that we can generate incremental revenues in Windsor without having to incur the expense of a whole new station.

9453 In Chatham we also face a large number of U.S. stations in this format. The Commission has already recognized our vulnerability in this area and has granted our other FM station CKSY an increase in hits. The station is now doing very well against many competing U.S. Adult Contemporary stations. We would ask for the same flexibility in hits for our CKUE-FM so that it can repatriate Canadian listeners in both Windsor and Chatham-Kent.

9454 In conclusion, I would note that our application for a synchronous repeater represents an important business opportunity for Bea-Ver. Access to the larger market of Windsor will assure our long-term viability.

9455 Our proposal will provide a new and distinct Canadian programming choice for the people of Windsor, and it will be resolutely local and regional in its news and other spoken word programming, bringing a Canadian orientation to the events of the day.

9456 CKUE-FM will provide a new editorial voice in a market that has been a radio monopoly for some time.

9457 We propose to provide Canadian Talent Development contributions well beyond what is required under the CAB Plan by providing $110,000 in scholarships in music and journalism at the University of Windsor over the next seven years.

9458 In addition, we will extend our Talent Search to the city, giving local rock artists an opportunity to perform in their home town and perhaps win an opportunity to record. And for the first time, Windsor will have a radio station that plays 35 per cent Canadian content in all dayparts.

9459 There will be very little impact on the existing stations in the Windsor market. In fact, the new service will not target existing local stations. As a result, renewed community interest in local radio will stimulate revenue growth for all stations.

9460 Due to the lack of spectrum available, a synchronous repeater on 95.1 is the only way that an additional FM frequency can be introduced into Windsor, and it is the best way to maximize the coverage of 96.1.

9461 Thank you, Mr. Chairman, Members of the Commission. We would be pleased to answer any questions you have with regard to our application.

9462 THE CHAIRPERSON: Thank you very much.

9463 Commissioner Grauer.

9464 COMMISSIONER GRAUER: Thank you. Good afternoon.

9465 The first thing I want to do is clarify the programming and where it is going to originate.

9466 Am I correct when I look at this -- and I want to make sure it is on the record, because I gather there has been a bit of back and forth on it -- that this is what is outlined here? Program source, 6:00 a.m. to 10:00 a.m. will originate from Windsor daily; and then 10:00 to 2:30 from Chatham.

9467 Did I understand that correctly?

9468 MR. VEROBA: Yes, that is correct.

9469 COMMISSIONER GRAUER: So I have that on here. Wonderful.

9470 As you know, your proposal is -- you call it creative; we call it an anomaly. So what we are really trying to do in bringing you here today is to understand what the implications are, partly for the system as a whole but also for your service to Chatham-Kent.

9471 Perhaps you could tell me for starters why you chose this model as opposed to applying for a Windsor only service on that frequency.

9472 MR. VEROBA: Just moving Chatham to Windsor. Is that what you mean?

9473 COMMISSIONER GRAUER: What you have right now is you are proposing a regional service, which is not something we have in our regulatory box, if you want to put it that way. So you are quite right when you say only you can use the frequency. You believe Windsor can take another station.

9474 I am wondering if you looked at the option of taking that frequency, shutting down --

9475 MR. VEROBA: I think I understand.

9476 First off, we have an existing operation in Chatham that is doing quite well. CKUE started in 1999. November of 1999 was the first on-air. It is operating and does reasonably well in the market. It is just getting to the level where it is going to break even.

9477 To extend that down into the Windsor market with a repeater is the most economical way for us to open a new station in Windsor, if you will. If we were to do a complete start-up, transfer the frequencies in some way. There are limitations, of course, in doing that, but a new studio operation, complete with people and staff, would be quite expensive to do.

9478 So this is the most economical way we can enter the market. We feel it is an efficient way to add another station without the huge cost of another station.

9479 COMMISSIONER GRAUER: I think a principal concern we have is what will the impact of this new service have on your Chatham service?

9480 Let me just explain the context of that.

9481 There are a few cases where a smaller market broadcaster has done or attempted to do what you are proposing, and in many cases they have found that competing in the larger markets, where it is incredibly competitive, they have just not been able to pull it off.

9482 In the meantime, as they have struggled to do it, the service to the smaller community has suffered and in the end we end up with having lost the service to the smaller community and not really a very successful service in the larger community and ultimately a less viable company.

9483 I wonder if you had considered that and if you can tell me how you dealt with it.

9484 MR. VEROBA: We certainly did consider that. There is no question that we can't be all things to all people all the time in an application like this. There will be trade-offs. There will be trade-offs in that we are introducing Windsor programming into the Chatham mix. There is no doubt about it.

9485 Our intent here, because of the rock station, because it has a lesser amount, if you will, of spoken word programming, we tend to find that we will be able to utilize or take advantage of the proximity of the communities. They are only 70 kilometres apart. They are quite close really. They have a lot in common.

9486 There is geography that puts a lot in common, but there is also the American border, the auto industry, and that sort of thing.

9487 So we think there is enough that keeps these communities together that we can work with that and make them operate as a harmonious team, if you will, the Windsor studio and the Chatham studio. We feel we can do it.

9488 We don't intend to take everything down to Windsor. That is not the plan.

9489 One of the problems that I think I should point out is that it is very difficult for us to get enough transmitter power, if you will, in the Windsor market to provide a full coverage from Windsor. So if we started a new station in Windsor on 95.1, for example, there are limitations in the amount of power we can have.

9490 We have two adjacent, second adjacent stations in Detroit and so on and so on.

9491 This is the best way to maximize the coverage of CKUE. The trade-offs in having the two markets programming on the same transmitter is something we felt would be maybe a disadvantage in one way and an advantage in another. We can bring the two communities together better perhaps.

9492 COMMISSIONER GRAUER: What is the community of interest in terms of people who commute? Can you quantify that in any way for me?

9493 MR. VEROBA: Southwestern Ontario, the community of interest?

9494 COMMISSIONER GRAUER: Chatham-Kent and Windsor maybe.

9495 MR. VEROBA: Well, we have a huge auto industry that brings the two communities together. We are both so close to the American border. As Chatham sits, if you go to the west, we are really only about 30 kilometres from the United States. So there is a community of interest there.

9496 I think from the point of view of agriculture and the things that happen in the market, Windsor and Chatham are tied quite close together.

9497 COMMISSIONER GRAUER: How would you suggest that we would monitor your commitments and ensure that you are maintaining the programming commitments? As you know, this is not the easiest thing to do.

9498 I am saying that because what I think is really important is that it goes in some respects to the integrity of our licensing process and discrete markets. If we are looking at something that is new and different and you are asking us for some flexibility about how things are done, how would you suggest that we can monitor it and give you this exception? On what basis and what kind of commitment are you prepared to give us?

9499 MR. VEROBA: First of all, let me say that in the Windsor market there are three radio stations that generate a huge share of listeners in that particular demographic that we talked about. They provide absolutely no service to the marketplace, none whatsoever, except music.

9500 I think about the only Canadian things they do is say there is a cold front coming down from Canada. There is no service whatsoever and yet they generate huge shares in the market.

9501 We think that we can operate in the market and provide a service there and bring back some of those listeners.

9502 How you would monitor it, you ask. That is the question. I suppose the success of this is going to be how well we do with the listeners in Chatham and in Windsor. If we can generate some market share out of the Windsor market, we must be doing okay. We must be satisfying the listeners. And the same thing in Chatham. If all of a sudden we are not generating the share that we had before, we are going to have to do something about it.

9503 We are the ones, as a private broadcaster, that are going to have to tailor our programming so that we attract listeners. That is our test. That is always our test to make sure we are successful.

9504 From the Commission's point of view, I don't know what you would be concerned about other than that we --

9505 COMMISSIONER GRAUER: Let me give you an example.

9506 Let's say it doesn't go as well as you hope and expect that it will in terms of gaining the market share in Windsor. You have made this investment and the split, if I can call it that, just is not working.

9507 What you feel at that point is that the best way to start to build it and build your revenues is to in fact take resources out of Chatham-Kent and start really focusing on the Windsor market to gain market share in Windsor.

9508 That is really what I am talking about.

9509 MR. VEROBA: Right.

9510 COMMISSIONER GRAUER: That is what we have to be thinking about. How would we deal with that, in your view?

9511 MR. VEROBA: It's a difficult question for me to answer how you would assure that we carry out what we say we are going to do.

9512 All I can tell you is that we have come to you today with what we feel is a really significant plan to be able to add another station in this market. We feel that we can pull it off. We can make it work. We have a good business plan, we think. We feel it will be successful. I don't think we will be back to you to say it didn't work; we need more space, if you will.

9513 I am satisfied that we can do this.

9514 I don't know how I can answer you how you would regulate and assure that we --

9515 COMMISSIONER GRAUER: That you would do what you say you are going to do.

9516 MR. VEROBA: I mean we are going to do it. You have our assurance.

9517 COMMISSIONER GRAUER: It's not that I doubt you. It's that things happen and it's a long licence term. Gosh, one thing leads to another. It's like creeping incrementalism.

9518 What you are saying is you give us your word.

9519 MR. VEROBA: Yes. Absolutely.

9520 COMMISSIONER GRAUER: But what you won't do if things don't go well is increase your focus on Windsor at the expense of Chatham-Kent.

9521 MR. VEROBA: We have dedicated 42 hours of programming from Chatham, 42 hours from Windsor and we will do it.

9522 COMMISSIONER GRAUER: Well, sometimes people can do programming from one studio which doesn't necessarily reflect that community but can reflect the others, so it is -- anyway I hear what you are saying.

9523 Now, what I would like to do is just go to some other matters. You have made your additional $110,000 commitment. I just want to be clear. It's new money on top of the current 400 -- would it replace the 400 or would it be in addition to the 3,000 required by the CAB plan for Windsor?

9524 MR. VEROBA: In addition to.

9525 COMMISSIONER GRAUER: All those things. Again, for the sake of clarification, if we were to assume the Commission is going to grant you a seven year licence term expiring in 2010, how much additional money would CKUE devote to Canadian talent development in each year of the new licence term by a condition of licence?

9526 MR. VEROBA: Thank you. The original application that we had filed was 5,000 in year one, 10,000 in year two, 15 in year three, 20 in year four and 20 in year five and 20 in year six and 20 in year seven.

9527 Madam Commissioner, we would definitely stick by that.

9528 COMMISSIONER GRAUER: Thank you. I gather you don't expect -- this brings us back to your regional station -- I gather you don't expect there to be a change or any impact on your Chatham-Kent revenues with the addition of this service. Is that correct?

9529 MR. VEROBA: Yes, that is correct.

9530 COMMISSIONER GRAUER: Can you explain that to me?

9531 MR. VEROBA: If you look in our spreadsheet that we had sent you, the only changes in year one are where two people are transferred out of the Chatham operation down to Windsor and that is in program expenses. It represents about $60,000 roughly.

9532 We don't expect to see any revenue change in Chatham because we have Windsor. We treated the application totally each separately so the revenues you see in the application are just the Windsor revenues, just the Windsor revenues.

9533 If you add the Chatham revenues and the Windsor revenues together, then that's a different picture if you will. I have a spreadsheet that shows that if we haven't answered your question correctly.

9534 COMMISSIONER GRAUER: No, that's fine. I just wanted an explanation of how you projected the revenues.

9535 MR. VEROBA: Yes.

9536 COMMISSIONER GRAUER: Your staffing complement, when you talk about doing this news for Windsor, that they really aren't getting into your local information, you think you have devoted enough people to that committee?

9537 MR. VEROBA: In total there will be six people working in Windsor studio. There will be two newspeople and I believe there's three -- two on-air people and then sales.

9538 We have a newsroom in Chatham where we cover Windsor events right now. If there is need to bring people down from Chatham -- it's only 70 kilometres -- we would bring them down to do additional work.

9539 I can tell you that this in the startup phase, the number of people that we indicated. We would hope that if it's more successful than we think it is that we could build on that and have more representation, but in general those two journalists should be able to handle all the news that is required for this type of station.

9540 COMMISSIONER GRAUER: Thank you.

9541 Those are my questions.

9542 THE CHAIRPERSON: Thank you very much

9543 Mr. Secretary.

9544 MR. LEBEL: Thank you, Mr. Chairman.

9545 The first appearing intervention --

9546 THE CHAIRPERSON: Those are our questions.

9547 COMMISSIONER GRAUER: You're done.

9548 MR. VEROBA: Thank you very much.

9549 MR. LEBEL: Mr. Chairman, the first appearing intervention will be presented by the Canadian Association of Broadcasters.

--- Pause

9550 MR. LEBEL: Mr. Chairman, Mr. Glenn O'Farrell will introduce his colleagues.

9551 You have ten minutes to make your presentation.

INTERVENTION

9552 M. O'FARRELL: Monsieur le président, madame et monsieur les vice-présidents, mesdames les conseillères. Je vous remercie de cette occasion d'exposer les points de vue de l'ACR quant aux éléments relatifs à cette audience publique.

9553 Mon nom est Glenn O'Farrell. Je suis le président et chef de la direction de l'Association canadienne des radiodiffuseurs.

9554 A ma droite est M. Luc Perreault, vice-président, communications et affaires réglementaires, Météomédia/The Weather Network. Luc est vice-président du Conseil de télévision spécialisée et payante de l'ACR et aussi président du comité de l'ACR sur le vol de signal.

9555 To my left is Wayne Charman, the CABC Vice-President of Television Special and Pay Services and New Technologies. I should note that while Wayne was at the Commission for many, many years, it's his first time appearing before the Commission. He has shared with me his anxiety about doing a good job here and performing up to the standard that you would expect.

9556 We are here today to provide an industry perspective on the realities that the so-called class of '96 will face over the course of the next seven year licence term.

9557 During their first licence term, the services have had to overcome many obstacles, including a staggered lunch over a three-year period, with varying penetration levels being achieved. As you know, a number of them are still unprofitable today.

9558 Nonetheless, the good news is that the class of '96 is indeed in a class of its own. These are fantastic services owned and operated by programmers who both challenge and reward their audiences with an unprecedented array of Canadian programming alongside the best the world has to offer.

9559 These services have provided thousands of new hours of diverse Canadian programming and have contributed well over $550 million to Canadian programming during their first licence term. This is a true success story and a testament to the vision and the commitment of the licensees.

9560 As we look ahead to the environment in which these services will be operating over the course of the next seven years, we look to that future, but we see many uncertainties.

9561 We encourage you to consider these uncertainties because failure to do so when setting terms and conditions of renewal could very much call into question the ability of the 22 services to sustain business plans consistent with the level of contribution they are currently making to the Canadian broadcasting system.

9562 In today's presentation we would like to highlight five key issues that will have a significant impact on the success or failure of the 22 services over the next licence term.

9563 First, there is the matter of increasing competition for viewers and the resultant audience fragmentation. That trend will accelerate. That competition will come from a number of sources.

9564 The licensing of new Canadian conventional and specialty services, the distribution of more foreign services driven by the constant pressure from the BDU sector to add new services to the lists, existing foreign services transforming themselves into new formats that compete directly with Canadian specialty services. For instance the rebirth of TNN as Spike TV with "superstation" style programming geared to men is a current example and it causes us great concern.

9565 There is also the matter of BDU marketing of distant signals to promote time-shifting and multiple viewing opportunities. Then there is the increasing use of broadband Internet connections to access programming content and bypass the system completely.

9566 Finally, as you know, consumer devices such as personal recorders that facilitate customized viewing and avoidance of commercial content is also a factor to consider.

9567 Indeed, each of these factors will contribute to further fragmentation of audiences and downward pressure on the subscription and advertising revenues on which specialty services depend to meet their obligations.

9568 Luc.

9569 MR. PERREAULT: The second key factor that will affect the next licence term and the single biggest issue that the industry faces today is the ongoing problem of signal theft.

9570 As many as one million Canadian households may already be lost to the system, representing 10 per cent of the existing Canadian distribution market. Obviously this level of attrition cannot and must not be allowed to continue.

9571 The consequences of signal theft are very clear. It could mean the death by a thousand cuts to the ability of specialty services to meet their commitments, not to mention the very regulatory framework on which the entire broadcasting system depends.

9572 Canadian specialty services bear 50 per cent of the losses to signal theft through lost affiliation payments. Signal theft also hits the already slow advertising market due to black market viewing of US DTH services.

9573 Jusqu'à ce que ce problème ait été résolu, ou tout au moins diminué de façon importante, des millions de dollars continueront d'être soustraits du système canadien de radiodiffusion.

9574 Une portion importante de ces argents aurait été investie dans la production de nouveaux contenus canadiens par l'industrie de la radiodiffusion.

9575 Cette perte affecte non seulement la qualité mais aussi la quantité du contenu canadien original qui sera produit au cours des prochaines années.

9576 Comme plusieurs de nos membres l'ont déjà affirmé par le passé, le vol de signal est un fléau qui affecte tous les radiodiffuseurs d'un océan à l'autre, mais ce problème est particulièrement sensible dans le marché francophone compte tenu de sa surface et de sa taille.

9577 The third major challenge these services will have to face over the course of the coming licence term is the mounting pressure by BDUs for pricing and packaging concessions, the need for which is attributed to the alleged low profitability of the cable sector.

9578 In fact, looking at cable's broadcasting activities, it is clear that the cable industry enjoys a very health profit margin. Over the last five years, from 1998 to 2002 inclusive, the cable industry has achieved on average an operating margin on average of over 39 per cent and a PBIT margin of over 19 per cent according to the Commission's financial summaries.

9579 Over that same period, the specialty and pay sector averaged only 15.3 per cent.

9580 In terms of overall performance, as the Commission is well aware, the high cost of cable acquisitions, at record high prices per subscriber and premium financing rates, has put pressure on the balance sheets of Canada's cable operators.

9581 Cable groups continue to consolidate. They continue to invest in infrastructure that facilitates the roll-out of VOD and various non-broadcasting services, enabling them to better compete and generate new revenue streams.

9582 In the CAB's view, specialty services should not be expected to subsidize the cost of competition by decreasing wholesale rates or by accepting relaxed distribution and linkage rules.

9583 Furthermore, it will be critical over the course of the next licence term to establish and enforce clearly defined BDU audit rights for programmers.

9584 Specialty programmers must be able to verify the accuracy of the information provided by distributors relating to their subscriber base. Without such information, programmers are not able to determine whether affiliation payments have been fully made.

9585 Wayne.

9586 MR. CHARMAN: Fourth, the transition of analog specialty services to digital cable distribution over the next licence term creates an enormous area of uncertainty and risk. Their ability to maintain subscription levels and viewing share and to sustain significant investments in Canadian programming in a digital environment will depend on appropriate rules and safeguards to govern the duplication and migration of analog services to fully digital platforms.

9587 As an interim approach, the Commission has stated that the duplication or migration of existing analog services will require the prior express consent of the programmer. We urge you to maintain the principle of programmer consent as a cornerstone of any future duplication and migration framework.

9588 Fifth, and finally, the advertising revenue base for specialty services faces unprecedented challenges as a recent proposals by the cable industry and others to sell Canadian advertising on American services.

9589 Such schemes would flood available commercial inventory, causing downward pressure on advertising rates. The inevitable result would be to draw advertising revenues away from licensed Canadian services, with a corresponding decrease in Canadian programming expenditures.

9590 Glenn.

9591 MR. O'FARRELL: The extent to which we can expect continued success for the 22 specialty services being reviewed at this hearing will depend on their ability to attract Canadian viewers. What is needed from the Commission is a regulatory approach that minimizes uncertainties and provides specialty services with the means to continually exceed the expectations of viewers who have come to expect the best.

9592 Avant de conclure, je voudrais ajouter quelques commentaires pertinents sur un sujet précis qui a fait l'objet de discussions devant le Conseil plus tôt cette semaine. Ce thème touche la réglementation des tarifs autorisés par le Conseil.

9593 The CAB considers that the current approach to setting the wholesale fee for the basic distribution of a specialty service at the time of initial licensing remains appropriate. The system works. This approach best takes into account the specific characteristics and detailed business plan of each individual service.

9594 The CCTA's proposal that the Commission should freeze or even reduce specialty service wholesale fees, presumably linked to some profitability benchmark, is totally inappropriate and should be rejected.

9595 Profitability regulation is a recipe for failure, not success.

9596 By the same token, an arbitrary freeze or roll-back on wholesale fees would be a misguided effort that completely ignores the uncertainties of the next licence term and would have the net effect of reducing Canadian programming expenditures.

9597 Moreover, to put this issue in context, the combined increase in wholesale fees requested by specialty services at this hearing is, as we understand it, to be 70 cents.

9598 While the CAB does not have an industry position on the precise criteria by which wholesale rates should be assessed, we cannot ignore the irony of BDUs opposing these requests on the basis of maintaining "affordability" in the system at the same time that Bell ExpressVu has just introduced a monthly system fee of $2.99 and deregulated cable retail rates continue to climb.

9599 Mr. Chair, that concludes our opening remarks. We welcome any questions that you or your panel may have.

9600 Thank you very much.

9601 THE CHAIRPERSON: Thank you very much gentlemen. Merci beaucoup.

9602 Vice-Chair Colville.

9603 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

9604 Good afternoon, gentlemen.

9605 I have read your written submission. Perhaps I will start with a few questions on that and then we can pick up a few questions from your oral presentation. I guess you have presented some themes that we have heard from individual applicants through the week which I guess is not surprising since they are your members.

9606 I must say, having read the submission, it would be hard not to come across the impression that the question of whether or not the extent to which there is a lack of a partnership I guess, if I can use that term, between program services and the cable industry, recognizing that one wouldn't exist without the other, but one certainly doesn't get a sense of a partnership reading the submissions.

9607 Picking up on the theme of pricing that you raised in your brief and again today, just if I can take you to paragraph 33 in your written submission.

9608 Towards the end of that paragraph you talk about:

9609 I guess it is the relationship between penetration and pricing that I was kind of curious about because we have heard different services through the week that in some cases -- basic rates of bench marks, in some cases they never get to the bench mark or below it, in some cases it's above and whatever. I guess I would like a better understanding of what you mean by that.

9610 MR. O'FARRELL: I will start off and ask my colleagues to add in if they see a need to do so, but I will be very brief to say on your first comment I think it's clear that there is a healthy tension between programmers and distributors that share indeed a partnership in making the system a good system, and from time to time, those tensions rise above the water level and other times they are below the water level. That I think is the normal course of business, as any cycle would suggest.

9611 Having said that, we think that the system, the way it has evolved to date, has created a balance. That I think is a theme that you will hear us say time and time again, if we are given the opportunity today, that is, you struck a balance where there is an understanding of the role of programming services and the regulation of programming services in terms of the commitments that are required of them against business plans that are filed individually by licensees in their applications and that are vetted by the Commission staff and that are considered at hearings such as these. It is on the basis of those specifics that the Commission makes certain and has made in the past, which is why we say there has been a balance certain -- has been certain findings about what is an appropriate wholesale rate. Then when renewals come around, we can see how certain services have either been challenged more so than others by certain circumstances that relate to that relationship with the distribution or others have not.

9612 Ultimately, what we are saying is that we believe that there has to be a balance. To tinker with any part of this balance today, particularly in a hearing that we understand not to be a policy hearing but a hearing relating to the renewal of certain licensees, be it the class of '96, would not be in the interests of the system overall because it could run the risk of taking what looks to be relatively in balance today and tipping it in a way that would not necessarily be predictable, and we caution the Commission to do so.

9613 Wayne, do you want to add anything on that.

9614 MR. CHARMAN: Yes. I will just perhaps add a little bit on this particular paragraph.

9615 I think it reflects one of what we think are the big unknowns in the next licence term, and that is the move to digital distribution. We know that technically this gives a lot of flexibility in terms of packaging and offering smaller theme packs and a la carte for that matter. That is really one of the big issues going forward in terms of maintaining some sort of business plan in an environment where the move to digital distribution may really disrupt the whole system and means by which services are packaged in right now fairly large packages.

9616 What we are suggesting here is I think in a digital world where there could be very significant changes from the high penetration analog tiers that exist today there needs to be some recognition that there has to be a relationship between penetration and pricing. High penetration, low pricing, that is always your best value, but if you want to go to more customized smaller packages, it seems to us that higher wholesale prices and higher retail prices indeed are the costs of that choice.

9617 I think part of the reference here was to that digital transition.

9618 COMMISSIONER COLVILLE: Is that essentially advocating the old make whole concept?

9619 MR. CHARMAN: We haven't used the term "make whole" here, but we are looking for a recognition that there has to be some discussion as to how, going forward as the transition to digital takes place, one maintains a reasonable business plan. That is what we referred to in our presentation this afternoon as well, that is one of the key factors, that transition to digital and the uncertainty it brings out.

9620 Whether it is make whole or whether it is a formula or whether it is a sliding scale, we aren't addressing those specifics in this submission. It is more the principle that as the Commission and as the industry develops the principles for migration and duplication that's one of the factors that we believe has to be considered.

9621 MR. PERREAULT: If I may, Mr. Vice-Chair, there are two elements here that we are discussing which is penetration and rates. There is a third element also that is important to consider which is basically the portion that the operator, the BDU, will add to the pricing of the package for his own profit margin. So there is a BDU margin.

9622 As Glenn was saying, there is nothing wrong with a healthy tension in discussing rates versus packaging versus margins. If we look at the system currently, tier 1 in English Canada has got over 92 per cent penetration, tier 2 is in many systems over 85 per cent, tier 3 is widely over 70 per cent, so the system seems to work as it is now.

9623 When we are going to move to digital we have to ensure that the framework remains solid and that both partners, because it is indeed a partnership, might it be the distributor and the programming services, find their own profitable margins to operate their business, be successful and offer quality programming.

9624 I could cite you many examples that we have encountered at Pelmorex as a business when we operated in Europe. In France there is no such rules as carriage rules. There are no such rules as basic rates. If you look at a country of 53 million French-speaking people having less than 10 what they call services thématiques, specialty services, and when we look at Canada where a population of 7.5 million French-speaking Canadians have access to over 10 specialty services, I think we have proven through very careful regulations and very careful marketing and pricing policies in the industry that the system does work.

9625 These are the three elements that we have to consider.

9626 COMMISSIONER COLVILLE: Okay. I perhaps want to pick up on a few of the issues that were mentioned in a minute, but if we go on to paragraph 35, you talk about a number of the services that are up for renewal in front of us this week. I guess I should say some of them I -- the digital issues that you have talked about I guess, speaking of policy issues, aren't really in front of us now and are going to be dealt with in the whole question of digital migration and so on, so I guess that is for another day.

9627 In this one, in 35, you are talking about the services up for these hearings:

9628 I guess I'm struggling with how or why we should be taking into account the circumstances around the licensee in front of us, wholesale rate, conditions of licence, Cancon, CPE and so on, bearing in mind other services that they own. I mean doesn't this go to the same issue that you are kind of accusing the cable industry of in terms of, well, they are funding high-speed Internet access and other services?

9629 I guess I am having trouble drawing the distinction or fundamentally I guess the point you are asking us to take from this.

9630 MR. O'FARRELL: The point that we are making is that as a second principle that we are going to try to emphasize for you today is over and above balance there is context that has to be a guiding principle for you. While you have 22 services that are up for renewal here, there is the context in which those licensees come before you that has to be considered.

9631 The Commission itself, as far as I know, certainly gave due consideration to the matter of who the applicants were in the digital licensing round to ensure that question of wherewithal, of expertise, of financial backing, of track record, were there to ensure to the extent possible that these services would have a chance of being successful.

9632 What we have seen so far is, while the digital services have rolled out, they have rolled out at a considerable cost to the people who have launched those services. We are saying to you that to not bear that in mind as you look at the applications that are before you today for renewal would be to dismiss the importance of the role that those applicants that are before you today have played in the broader -- and achieving it in playing a role in the broader system and hopefully achieving the objectives of the system.

9633 I would add just two points in addition to that.

9634 Number one is, if it was not a material issue for the Commission that it consider the overall position of an applicant, I would have to think that a number of licence renewals and a number of license applications that this Commission has considered in the past would have gone a very different way if that issue would have been off the table or would have been taken off the table intentionally, so we encourage you to continue that tradition as we understand it.

9635 Number two, with regard to what might be said about the difference between core cable activities and high speed Internet activities, there again the distinction is very clear in our mind when we look at cable companies and we talk about their core cable activities and, for instance, their high-speed Internet activities. We see one core activity that contributes to the growth and the health of the system. We see another one that really is not playing a role in that regard. Whereas, both the specialty services that are before you, the class of '96, and the digital specialty services where they belong to the same family are indeed both contributing to the objectives of the act.

9636 COMMISSIONER COLVILLE: I guess I am wondering, Mr. O'Farrell, how we would achieve this. I mean all we have in front of us this week are individual licensees. Are you suggesting that where we have a licensee that happens to own other analogue and/or digital services, that we should be considering their renewal as a group at a time, because we don't have -- to the extent one of the licensees before us this week may have other services, those services aren't in front of us, and I am trying to think, well, if we had one in front of us that was standalone and didn't own any other services or we had that same one in front of us and it did, how would we treat it any different, how should we treat it any different?

9637 MR. O'FARRELL: Ultimately, we think that first and foremost the applications should be treated on the basis of their track records as a service.

9638 COMMISSIONER COLVILLE: For the service itself.

9639 MR. O'FARRELL: As a service first and foremost. That I think is clearly -- the first item should be, as I'm sure it is, the first item on your radar, but that beyond that and beyond the merits of that application or that service and its track record, there are these other variables.

9640 We are not advocating "group licensing" as it relates to specialty services in a way that would be deemed to be analogous to what happens on the conventional side. We are simply saying to you the context, as it does in your licensing decision, should also be a factor that you consider in your renewal decisions particularly when the system is going through a very, very important and critical period watching the nascent specialty digital services ramping up in a very difficult environment and people are not stepping away from their obligations or their commitments. They are staying with the program and they are staying on track. While that is unfolding and hopefully they will become profitable and they will make larger contributions in the future, they are still operating in another world called the class of '96 services.

9641 All we are suggesting is as you do in every possible manner of licensing as we understand, the Commission contextually be mindful of that because the groups before you are groups that have in some instances more or less assets that are involved in the Canadian broadcasting system. As the ultimate regulator and supervisor of that system, we think it is important for you to be viewing that in its proper context. I don't know if that clarifies it.

9642 COMMISSIONER COLVILLE: I guess what I hear you saying first and foremost we should be considering the licensee, the service, that is in front of us. Perhaps in the back of our mind is some of the other aspects of other services and perhaps the struggle they may have, but I guess you said first and foremost we should consider the service that is in front of us.

9643 Switching to the Wall report that you attached to your written submission, I don't want to take you so much -- well, I guess I will in a second, but I wasn't sure what conclusion that you wanted us to draw from this. It wasn't clear to me. I mean you referenced it and then even reading it itself, and this isn't meant to be a criticism of the report itself, it just wasn't clear to me what you wanted us to conclude from that report. Maybe you could enlighten us.

9644 MR. O'FARRELL: We were hoping that you would take the Wall report and conclude three things.

9645 Number one, that the so-called profitability comparison between pay and specialty as a sector versus cable as a sector is not the picture that was painted to you by other parties but indeed is a picture which if my numbers are correct, and I am citing the report, between '98 and 2002 the profit margin of cable, the PBIT margin of cable on average was 19 per cent, and the PBIT average for the pay and specialty services that are before you are 15.3 per cent. We would like you to take that factor into consideration as a conclusion from this report, if you agree with the methodology and otherwise.

9646 The second issue is, we would like you to consider the matter of why are the depreciation costs as high as they are in the cable sector? I think the Commission already knows this. We were hoping that this was simply highlight it perhaps with a different approach to say, well, there are primarily two factors that have motivated the depreciation expenditures in the first place.

9647 One is the competition of DTH. We saw the cable companies ramp up after the DTH operators launched, and they did so in order to be competitive or more competitive with the digital offerings of DTH. Then of course there is the whole reason about finding a new business opportunity, and we encourage them to do so, in other areas such as high-speed Internet. That again should be something that the Commission considers when it looks at that picture.

9648 The third issue again is that it comes back to this kind of healthy tension in the partnership that for as long as we can draw conclusions or analysis that help us understand how we are both doing respectively in our core business that is regulated, but also in other businesses that flow from that, we caution the Commission in a certain respect to not make findings on the basis of what might appear to be at first glance the financial results of a sector such as cable because, you know, as far as I know the manner in which the allocation between core cable activities and non-core cable activities is made from an accounting perspective in the respective companies is not common to all, in other words they use their own practices in allocating certain activities and expenditures to cable and some to non-core cable. We are in a bit of a grey zone there. We really don't know -- in other words, there is no industry standard as far as we know.

9649 Secondly, the fact of the matter is that while that is a good thing that they should continue to develop other lines of business, the programming services should not be financing, (a) the ability or the need for cable to be competitive or to go into those other lines of business. That is ultimately the third point we would like to have you conclude on that.

9650 COMMISSIONER COLVILLE: I take your point on that. I noticed in your oral presentation today at page 10 you talk about:

9651 You went on in the next paragraph to talk about:

9652 I guess when I read the Wall report I couldn't help but wonder what are we getting at here, some sort of a profitability bench mark when we were pegging, as you said, the cable industry at about 19 per cent and the programming services at about 15.3 or five, depending on which year you take. So then I started thinking, well, what's the message we are trying to get at here? Are we talking about some sort of profitability bench mark that is in the 15 per cent to 20 per cent range?

9653 MR. O'FARRELL: No, not at all. We were simply giving that to the Commission hoping that you would consider that when looking at the presentations that other parties may make to you who may want to draw a conclusion between the sector's profitability, who are looking to make that argument stick. We continue to think that it would be very unhelpful and frankly it would be unfortunate for the Commission to turn back or to turn to that form of regulation when the system has worked as well as it has in another form of regulation that, as we say, is a combination that balances a variety of factors that seems to be working fairly well on the overall picture.

9654 But we are not suggesting that there should be any kind of a range of profitability between 15 per cent and 20 per cent. That is just a matter of saying for those who may look at what other intervenors before you may present in the way of profitability one sector versus the other, please look at this information for what it is worth as a reference point when you do that analysis.

9655 COMMISSIONER COLVILLE: I guess I was struck by at the end of the day the spread on average, and I appreciate we are talking about averages here, is really not that great between the two if we are talking nineteen versus fifteen point something. I suppose particularly when you think about it in the context of the spread of PBITs that we saw in front of us this week.

9656 In that respect, I guess I was kind of curious again, going back to this middle paragraph on page 10, when you talk about the approach to setting the wholesale fee remains appropriate, and I guess particularly in the context of the services that were in front of us this week which are just completing their first licence term.

9657 So if we go back to when they were licensed, they all came in front of us, some perhaps more competitive than others in terms of applying for the licence for other services that they may have been competing against, with revenue projections and expense projections based on certain assumptions for them and for us it was pretty much a guess as to whether those would hold through or not depending on what happened in the marketplace.

9658 As we saw with many of them, in fact they were more successful than we or indeed they thought they would be. Many of them made considerably more money than they expected to make and expenses were able to be held in line even below what the expectations were which resulted in them making considerably more money.

9659 I guess that then begs the question, well, since the wholesale fee was set on taking a look at those revenues and expense projections and they turned out to be not as accurate as they might be, again, not suggesting anything underhanded just that was the best guess at the time, I guess doesn't that in fact question whether that licensing sort of approach in fact remains appropriate?

9660 Even if it is, I am not sure what you are getting at when you go down further and talk about profitability regulation as a recipe for failure. I don't know whether that is a back-door way of questioning whether the Commission shouldn't be looking at saying, well, you have been a lot more successful than you expected to be or we thought you might be, so given that isn't this an opportunity to perhaps make a greater contribution to the objectives of the Broadcasting Act, which I suppose someone might argue, well, that's just a back-door way of regulating profitability.

9661 MR. O'FARRELL: I will try to start with the last part and work my way back through the points that you raised, the first one being the matter of profitability.

9662 We believe that this proposal to freeze rates or to roll them back is profitability regulation in disguise. We are suggesting that makes no sense at all for the reasons that we have articulated in our written brief and that we have spoke about here today.

9663 Secondly, with your point to what is appropriate in terms of the way wholesale rates are set, we do feel that the current system works. Yes, there are times when, based on the very best assumptions that are available to an applicant and an intervenor process and indeed the Commission's consideration, those assumptions are laid out in a business plan and they produce certain results and they may prove, as they always do, most assumptions do prove to be inaccurate in some way, shape or form, positive or negative. The Commission can't be held, in our view, to more than doing its best efforts in terms of the information that is available. But we would caution you to say if anything the Commission should always be looking to leave a leeway to more profitability than less.

9664 In other words, you want to reward success as much as possible, because if you go the other way or if you were to say, well, these assumptions may be overstating the challenges or understating the opportunities, that would run the risk of taking a business plan and sending it in the reverse direction rather than rewarding success. We think that ultimately if the system has been as successful as it has been to date it is because there has been intuitively a sense that we had to reward success as much as possible and give it an opportunity even where assumptions are made and sometimes the challenges that face licensees over the course of a licence term prove to be wrong.

9665 The last point I would make is your question about how does this all fit in to what you are doing today with these 22 services.

9666 You have again a balanced system and a context we believe to guide you in terms of the applications that are before you. In certain instances some applicants are standalone, others are parts of groups. The individual merits and their context are what we are suggesting should guide you. In terms of their business assumptions, in terms of the forecasts they make, in terms of their current performance and their track record, we urge you to consider those factors.

9667 What we have laid out in those five themes that we have spoke of in the oral presentation are the so-called "uncertainties" over which we wouldn't even venture to make an assumption that would translate into a forecast. Whether it is PBRs or whether it is any of the other items that we have discussed, how is that ultimately going to affect fragmentation? We don't know, but we know there is going to be an effect.

9668 We don't relish the task that you have to try to factor that into your decision, but we would urge you to use more caution because of that uncertainty than the opposite because the business plan could be in place, which is why we state that changing or providing stability and certainty to these licensees going forward is a huge opportunity for the Commission to seize upon to do what it can to ensure the success of these services.

9669 COMMISSIONER COLVILLE: I take your point on providing an opportunity to be successful and in fact rewarding success. I mean certainly I think it would be fair to say that the Commission wants to see the licensees be successful. It is certainly not in our interest to see them fail. But wouldn't you agree that the ones that sort of exceed that level of success should then make an even greater contribution to the objectives of the act? Wouldn't that go along with kind of exceeding the success?

9670 MR. O'FARRELL: That would be a reasonable proposition in my mind only if I could predict the future, and I can't. I can only predict trends that appear to me to look like significant challenges that the future holds and that it is not necessarily going to be, as we say in French le garant de l'avenir is in the hands of God as far as I'm concerned, but we can't make that prediction.

9671 COMMISSIONER COLVILLE: But we are always going to be in that situation. I mean we were in that situation when we issued the original licence and unless there is somebody in the room who can predict the future I think we --

9672 MR. O'FARRELL: You weren't in that situation because you didn't have a track record. What you are saying, if I understand the question, and maybe I don't, is we look at the success of the track record and should that influence our decision about how and the terms of the renewal. We are saying, well, for those that enjoyed profitability of a level called X as opposed to a level called Y, why should they be treated any differently when the future remains as uncertain for the applicants who had X as the applicant who had Y?

9673 What we think is that you have to be very cautious because of the numerous uncertainties that lie ahead in making an assumption that, well, we can require more because of the past record. The past record is there and, you know, where services were more profitable one would argue it is because they had more revenue, in most instances that translated into larger, for instance, Canadian program expenditure contributions. It seems to me that that has in itself a built-in set off factor that may not satisfy all of your concerns but certainly goes a long way in satisfying mine.

9674 COMMISSIONER COLVILLE: I guess I won't pursue that. We have gone through I guess the individual issues with the different services, depending on their degree of success or not, as the case may be.

9675 Just a couple of other things from your oral presentation.

9676 On the last page you said:

9677 And so on.

9678 Do you have sort of criteria that perhaps aren't quite precise beyond what we have heard this week?

9679 MR. O'FARRELL: No. We do not have an industry criteria and we leave it to the applicants to raise the arguments or the points of view or the comments that they feel are pertinent and the discussions that they have had with you. We don't have criteria to suggest.

9680 COMMISSIONER COLVILLE: Okay.

9681 One other question related to your presentation. I only have just a couple of other questions I want to ask you.

9682 On page 8 you -- and this issue was raised a couple of times through the week -- you raised this issue about:

9683 I wonder if you could elaborate on that and I guess more particularly what you think the Commission's role should be in that.

9684 MR. PERREAULT: Yes, Mr. Vice-Chair.

9685 As you are, the programming services don't have a direct relationship with the subscriber. The BDU basically sends the monthly bill and collects the fees and remits to programmers. There are elements that need to be addressed from a programmer's point of view where you need to go in with an independent auditor of your choice that you send in and verify that the remittances have been done properly and that all of the elements of your affiliation agreements are respected.

9686 Example, what is a subscriber? Is a hotel one subscriber? Is a hospital one subscriber? Some BDUs will count it as one subscriber, some others will not. Whatever clauses you have in your affiliation agreements have to be respected. Some don't, some do. So this has to be addressed.

9687 You also have to make sure that all the subscribers are properly counted. You have to verify how the billing system works and so on and so forth.

9688 In our own company, Pelmorex, this is not a secret. I mean we have audited many BDUs and in some areas we have found that there were significant discrepancies, in some areas there weren't. But this business relationship where there is a healthy tension, as Glenn described it, has to maintained. To maintain that healthy tension in the relationship, both parties have to have access to information that governs this relationship. I see the role of the CRTC as being a facilitator.

9689 I mean in some of your decisions in the past you have said that services should have access to records to see if they have been compensated properly. I think that this is a key role for the Commission to make certain that services have access to records.

9690 COMMISSIONER COLVILLE: So Pelmorex has been able to do this on your own dealing with BDUs. I mean is this something that is left to the individual programmers, is it something the association is developing, some sort of --

9691 MR. PERREAULT: To your question, Mr. Vice-Chair, some audits we have done on our own, some audits we have done in an incorporated fashion where one specific auditor's services were retained by a group of programmers. In some instances it was very easy to establish the parameters of the audit with the BDU. In some other instances the Commission had to get involved and through this process we gained access to records and were able to perform the audit.

9692 What we are doing at the CAB right now is that we are kind of -- and we have a task force on this, we are canvassing the members right now: what would be the important points that would need to be addressed in an audit? We are basically trying to get some kind of a template that would satisfy all of our members so that in the end everybody would be auditing the same things, so that all of the members of the CAB would not cause any surprise to any given BDU with --

9693 MR. O'FARRELL: Apples to apples.

9694 MR. PERREAULT: That's it, apples to apples; nothing different from one to the other so that a BDU wouldn't have to go into producing extra reports or getting into databases and formatting new ways of displaying the information. One service would come in. If another comes in in a month the exact same information is going to be looked at.

9695 We are discussing this within this audit task force that we have created internally.

9696 COMMISSIONER COLVILLE: Is this something that fundamentally we can leave to the association, the individual players and the BDUs to resolve and if the tension gets a little out of hand it will come to the Commission for dispute resolution?

9697 MR. PERREAULT: This is exactly what happened in the past. But we outline this because also there is a role in there in fighting piracy. One of the BDUs has mentioned very often that there is cable signal theft. I know that in our own audit in our company we asked the auditor to go and identify 30 or 40 MDUs and then the auditor will go out and visit those 30 or 40 MDUs and look at the patch panel and see how many illegal connections are there if there are any. Then from these audits we can basically arrive to an average of signal theft and all of the MDUs of this specific cable operator.

9698 So audit to us is extremely important, also a way at looking at how trapping is done because the job of an auditor is also to look at trapping. You know? How many traps do you install? Okay, you have so many traps installed and so many subscribers. Does that compute? So all of these elements are key.

9699 COMMISSIONER COLVILLE: Fundamentally, though, we can leave that to the players to, as you say, establish and enforce clearly defined audit rights if necessary when the tension gets a bit too much of a struggle we may be called to --

9700 MR. PERREAULT: Arbitrate.

9701 MR. O'FARRELL: Yes. We are flagging that issue for you in this presentation because it is the key to the health of the services going forward, but clearly it is an item that we will raise with you again in the licence renewals of BDUs. For instance, we hope that it will be appearing before you come the fall with Bell ExpressVu whenever you deem that appropriate, Star Choice and others as well. This is a subject that we will raise with you in those contexts that we are giving you and we are working on this template as Luc said earlier to try to have a useful, succinct instrument to use in addressing our concerns.

9702 COMMISSIONER COLVILLE: Switching topics here, we have heard through the week some discussion about described video. We have heard about a lot of the difficulties for specialty services in particular and being able to address it, in particular the technical difficulties related to it. There has been reference made to the CSUA activities in that regard and the request for information which we have been provided a copy.

9703 I honestly haven't read it through yet myself, but I would just like to get a sense of what role the association, as an association representing the program services, is playing in trying to come to grips with a resolution to this issue.

9704 MR. O'FARRELL: Wayne.

9705 MR. CHARMAN: I think you mentioned the technical issues and the fact the CSUA has established a working group to try to look into those issues with respect to satellite delivery. Several of the members are part of that process and that is really where the work is going on.

9706 I think we are just saying that it is an issue that can't be resolved by the programmers alone. What the industry needs to do is move forward in a more co-operative fashion. It is a joint effort between programmers and distributors to try and resolve the technical issues which really limit the extent to which DVS can be delivered as of right now. So it is really I think our members working through the CSUA working group and looking at their own individual plans going forward.

9707 COMMISSIONER COLVILLE: Is this an area where there is perhaps a little less tension and more common purpose to getting a resolution?

9708 MR. O'FARRELL: Wherever there is money there is tension. There is money here though.

9709 COMMISSIONER COLVILLE: I would like to know whether we can have some comfort level that there is likely to be a resolution to this issue sometime soon.

9710 MR. CHARMAN: Frankly, I am not in a position to assure you that there will be a resolution at a specific point in time. I just can't give you that assurance. It is not easy to solve.

9711 COMMISSIONER COLVILLE: It strikes me that this is the kind of issue that an association like yours can take on because it is something that affects all your members. It is something where I mean, given the somewhat competitive nature, given the various ownership structures you have had go across your members here is an issue that the association as an association can take hold of and presumably resolve or work to a resolution at least.

9712 MR. O'FARRELL: I assure you it is a matter of considerable interest to us and that we are working on it. We just are not in a position today to give you any assurance as to a date or a time or a place when we can see the resolution of the technical issues opening the way for ultimately a solution and a plan going forward, but we continue to work on it.

9713 COMMISSIONER COLVILLE: Somewhat similarly, the issue related to the question of disabled persons in terms of representation on the screen with respect to program services, is CAB doing any work in that area?

9714 MR. O'FARRELL: As you know, we have a task force that was struck by a PM that the Commission issues on the subject of cultural diversity on the screen. That as you know has not touched that specific area because the terms of reference have been confined to the PM's parameters.

9715 However, our board did discuss this topic, and I will ask Luc to speak to it in a minute, at this last meeting in February. The matter has been turned over to the joint societal issues committee, which is a committee of the CAB, to look into this matter.

9716 Luc, if you want to speak to that.

9717 MR. PERREAULT: As you might be aware, Mr. Vice-Chair, our company has been very much involved in all of these proceedings and our vice-president, human resources, is also tremendously involved in all of these societal issues. She will be helping this committee in dealing with the portrayal of people with disabilities. This is some priority for the CAB committee on joint societal issues. We are going to be bringing forth all of these discussions with members.

9718 As you may be aware people with disabilities is something that has been brought to fruition later than earlier in this whole process. Only the fact that it is not even mentioned in the act is maybe an oversight that we collectively didn't correct in the past few years. But the fact that we have created a committee, the joint societal committee will be looking at it, it is on our radar and very much on the radar, so you can rest assured of that.

9719 COMMISSIONER COLVILLE: What is the mandate of the committee in terms of action?

9720 MR. O'FARRELL: Specifically at this point in time the board asked the joint societal issues committee to be seized of the matter of how the committee could formulate recommendations that would speak to the issue of the portrayal of disabled people on screen, so what I would expect is that over the course of the next little while that committee will do its work in analyzing what can be done, what could be done, and formulate recommendations that will come back to the board of the CAB and at that point in time will be considered as they do in the normal course of considering any other so-called option under joint societal issues. That would be the exercise that I would see unfolding.

9721 From a timeline perspective, we didn't give, to my recollection, Vice-Chair Colville, a timeline, but I would expect that for the November boards, which are our next board meetings, there would be a report from the joint societal issues committee that would either include recommendations or at least a progress report on where they are landed.

9722 COMMISSIONER COLVILLE: Thanks for that.

9723 The last issue then I just wanted to get a sense from you of we have heard from -- well, I guess through a number of complaints through the CBSC, but also as part of this process, there has been some discussion through the week about the problem of the watershed hour and time zone differences. Again, as kind of the umbrella organization under which all of these program services fit, I guess I am wondering what you may be doing in order to try and address this.

9724 Some of the individual services have addressed it through separate feeds. You know, one suggestion has been, well, maybe no programming should be put on that would violate the watershed hour in the part of this different time zone, which I guess for Ontario would mean that effectively the watershed hour would be midnight. I guess I would like to get a sense from you about what you are doing as an association perhaps to deal with that issue.

9725 MR. O'FARRELL: What we are doing as an association clearly is, as you know, we have participated in the revision of the code of ethics last year and have encouraged our members to participate actively in that process.

9726 But beyond that, perhaps I could give you a little bit of data that might again contextualize this issue for you. If you look at the last seven years being the seven-year term of the class of '96 services that are before you, there have been 107 complaints we are told by the CBSC on the subject of the watershed hour. So what is that in terms of the overall volume of complaints that have gone to the CBSC over that term? It is exactly -- .5 per cent of the total complaints that have gone through the CBSC have addressed that issue.

9727 Again, that's just context, it's no more, but that gives you I think a little bit of an order of magnitude as to what significance this issue has in the broader constituency of people who take the time to complain to the CBSC and perhaps don't necessarily have a vested interest in this particular issue for whatever reasons that may be. We feel that the code and what the CBSC has done to date is to recognize the difficulties that arise from six time zones.

9728 In the various decisions that have been rendered on points, I think there is a WTN decision that spoke specifically to that issue and how the code of ethics requires that the CBSC look at the watershed hour from the point of view of the time zone of origination of the program to demonstrate or to define whether or not it was complied or not. To that extent there is compliance, does it do everything that certain voices would want us to do on point? Probably not, but I think that it is the best balance we cans strike right now.

9729 You know, if you wanted to use an example, if we required all specialty services to have six signals to each time zone to apply that kind of time zone specific, we all know what the costs of that would be to the service and that would impact on the contributions that those services make to the system, be it through Canadian programming or otherwise. Again, it is a matter of balancing various interests in the overall picture of what is in the best interests of the system overall.

9730 I think to date, when we look at the order of magnitude of the number of complaints that have come in, it looks as if we are not doing a bad job, and in fact the 2002 code of ethics revision is still quite fresh, we will see what will unfold. We would encourage you to -- and we will keep a vigilant eye on how this evolves, but I think that you have heard from various applicants during the course of this proceeding how they had individual practices that they apply to the scheduling of their programs.

9731 COMMISSIONER COLVILLE: I guess I take your point on the complaints, but I'm not sure that one can use complaints as a measure for this, because if you accept that as a matter of principle we are going to have a nine o'clock watershed hour in Quebec and Ontario, which ends up working fine for Atlantic Canada because it's an hour later for us anyway, if you can make the case that, well, since there was only a few complaints out west then we shouldn't be worried about it, then I suppose you could back that argument up and say we shouldn't even bother having a watershed hour at all.

9732 But we do have a watershed hour, you know, because we all thought that was important to deal with, you know, violence and the issues around that. So if we are going to have a watershed hour and we are going to respect it, then it seems to me whether or not we are getting complaints we have to find a way to try and respect the principle of that as best we can across the country.

9733 I take your point about, you know, to be absolutely pure about it you would probably have to have six feeds, but that is probably not practical either. So is there a middle ground somewhere that we can come to a solution that respects that across the country and yet doesn't unduly penalize the system.

9734 MR. O'FARRELL: Two quick comments.

9735 Number one, again back to the statistics from the CBSC, of the .5 per cent of total complaints that were on the subject of watershed, there were more from Ontario than any other place in the country, which is perhaps a reflection of where there is a greater concern if nothing else.

9736 With regard to the matter of finding the balance, we thought that the balance was found through the process that brought about the amendments to the code of ethics only a year ago where at the end of the day, having balanced off the various variables, it was felt that at this point in time, point of origination could be the responsible thing because of the other variables that had to be balanced off, including the costs that were prohibitive and so on for the so-called ideal solution.

9737 You know, it is back to the realm of the possible and the doable in the overall context of where we sit and the overall regulatory regime. But do we have a concern? Sure, and we continue to monitor it as closely as we can.

9738 COMMISSIONER COLVILLE: Thank you, gentlemen.

9739 Those are all my questions, Mr. Chair.

9740 THE CHAIRPERSON: Vice-Chair Wylie.

9741 COMMISSIONER WYLIE: I have one question or two.

9742 Of course this hearing is the renewal of specialty hearings primarily, and we look of course at the success of the services and both in terms of their performance, their compliance, but also how well they are doing, which in some cases is measured to a large extent by the fact that their national advertising -- their revenues in one case is almost half the advertising as opposed to subscriptions and in some cases it is rising from the first tiers.

9743 So this, for me anyway, would be, to a certain extent, a measure of their popularity and therefore, to some extent, one could conclude that they are offering diversity in the system because people are watching them, advertisers are buying time on them to an increasing extent. So of course you hear us say, well, you are doing very well, you are popular, maybe you should do more of what it is we are supposed to look for after diversity, which is Canadian diversity, Canadian content.

9744 Let me ask you -- so then we have had different views as to how the Commission should look at that -- should it look at the specialty service that is before it primarily, not being completely blind to the overall, or should it look to the family of services and the ability to cross-subsidize between or among services?

9745 On page 10 when you seem to be quite clear that with regard to wholesale fees and the setting thereof the approach should be, I am paraphrasing, but to take into account, I would say primarily because one cannot say completely, the specific characteristics and detailed business plan of each individual service, would you allow me to transfer that to an analysis of what expectations the Commission could have in the future from those services, in other words, to look primarily if not completely exclusively to the service you have before you?

9746 That is why I had that preamble that if they are doing well and if their popularity is measured to some extent by the ability to sell advertising to quite an extent, is that what the Commission should look at first or should it look at what else that company has in terms of broadcasting undertakings?

9747 Because we have had more than one view put forward. It is not only with regard to a wholesale fee. Would it also be the CAB's view that it should -- that philosophy that I have just read with regard to wholesale fees should also be with regard to establishing expectations for the next licence term?

9748 MR. O'FARRELL: Madam Vice-Chair Wylie, we would suggest that the intuitive reaction that the Commission should have, each of you individually in this particular proceeding, looking at the renewal of these services that are up before you, is to come at them saying: how can we guarantee, what can we do to ensure, that they will be as successful and more successful than they have been in the past? That would be our going in position.

9749 Frankly, we say so because to take the opposite approach would be to make a prediction on the state of the future. All things being equal is not a reality for predicting the future. We have seen that in the past.

9750 Sometimes our assumptions might prove to be more conservative than liberal in their likelihood of success, but we think that it should be the role of the Commission to ensure that success is rewarded.

9751 We have had this thing about the broadcasting sector, because it is a cultural sector, that their for profit sense -- this kind of connotation to it that we are not comfortable with. Well, we are very comfortable with it because if we don't make sure that it is profitable where is it going to go? Monies will go elsewhere.

9752 The fact of the matter is, if we don't reward investment the investors will look elsewhere for returns. So we would say to you wherever the system is working and players are contributing to the goals of the system and making contributions that are meaningful and that are measurable that the Commission has stated as their objectives, they should be rewarded for that success and given every opportunity to continue in that vein and to continue to be profitable as they can.

9753 Because again, we have outlined five factors in broad terms for you this afternoon that speak to uncertainties that we wouldn't fathom a guess on where they are going to go because we really don't know.

9754 COMMISSIONER WYLIE: Perhaps licences should be shorter.

9755 MR. O'FARRELL: Perhaps. Perhaps they should be longer too.

9756 COMMISSIONER WYLIE: Yes.

9757 The method that the Commission continues using to set its expectations for specialty services is based on achieved growth revenues. To what extent do you think that alleviates -- that this uncertainty you are talking about is alleviated if the Commission increases the percentage of expectation by the fact that if revenues do decrease there will be less required because gross revenues will be lower?

9758 Does that give us -- of course mandates are different from yours, there is -- of course if services were not profitable they wouldn't stay in business and they wouldn't be discharging our responsibilities. There has to be a balance. But all this uncertainty when we see a very healthy picture and we want to increase the CP, for example, which is basically the measure with specialties, is it not alleviated by the fact that if your predictions come to pass the percentage will yield less to be expended; and, secondly, by the fact that the Broadcasting Act allows broadcasters to apply for relief if these predictions come to pass, but doesn't give us a whole much to discharge our mandate of increasing Canadian content if they don't come to pass?

9759 So there are two areas here. One is that it is based on CP expenditures which have a certain constraint because if revenues go down so do expenditures, and secondly, as I said, one can always come and apply for relief and heaven knows people do. And saying all that and having to balance what Commissioner Colville talked about earlier about our mandate of what it is we are supposed to inject in the system, is it not something that we should do, considering that there are factors or mechanisms to come forward and correct the course if your predictions come to pass?

9760 MR. O'FARRELL: Clearly, you are absolutely right, Vice-Chair Wylie, that the percentage of the revenues for a Canadian programming expenditure cuts both ways. It increases if revenues increase and it decreases if the opposite occurs, and that is an offsetting factor for both the good and the bad.

9761 But we sit here before you at the end of May 2003 with possibly, just as an example, over a million Canadian households that have ceased to be subscribers to the Canadian broadcasting system, that have checked out of the system, for which no subscription revenues are available nor are there advertising revenue. Therefore, we sit before you knowing that while we are -- and we appreciate the Commission's efforts, in particular the Chairman's efforts, in bringing together the CEO summit and trying to make this a top priority, we have no idea as to our ability to either stop the trend, slow it down, or ultimately correct it.

9762 But we now have lost potentially 10 per cent of our marketplace and we worry about where things are going. I think it is not unreasonable for us to say to you, why would we not be looking at these applications more with a view to ensuring their success than to ensuring that contributions are necessarily more than they were? Ensuring their success would be ensuring at least that the contributions of the past would be maintained if the conditions allow for that. As we stated and we continue to state, the uncertainties that face the industry are such that it is not possible to make that prediction with any certainty today.

9763 I know that the Commission has a responsibility to ensure that the system is making the maximum -- each sector is making the maximum contributions that it should but at the same time we are facing a number of very real, new challenges that we haven't faced in the past and for which some of the solutions are not imminent or frankly not even possible in the eyes of many, because I am not sure for instance whether -- and maybe Luc wants to speak to this, because he has done so much work on the signal theft, how many of the so-called million, if it is a million, households will we ever be able to bring back in whole or in part? I don't know.

9764 THE CHAIRPERSON: Thank you.

9765 Mr. O'Farrell, I would like to just address a few comments on the follow up.

9766 To be sure, this is not a policy hearing. Before we change policy we give everybody an opportunity to comment, and so some of the material in the Wall report I think would be better addressed in the context of a policy hearing should there be one. But we do at the same time have before us four applications for subscriber rate increases on the basic wholesale rate. That was one of the reasons we set out in the Notice for Public Hearing the point that we would be looking to people appearing before us to advise us on the criteria that ought to be used in helping us arrive at those decisions.

9767 I take it and I note that you have said that you have no industry position on those guidelines. I want to focus for a moment again on profitability. You say profitability regulation is a recipe for failure not success, and I don't disagree with that. Alone, one can't use any factor rigidly in an effort to get a result.

9768 But at the same time, financial measures must be looked to. The applicants look to them. The Commission looks to them. In coming forward with rate increase applications one assumes they wouldn't be coming forward if they were satisfied with their financial performance in each and every one of them, and a variety of criteria suggests that they are not and that is one of the reasons that they are coming before us. The flip side is if we don't look at profitability, we wouldn't be able to take those factors into account.

9769 What we have been trying to do is to help sculpt the raw stone, if you like, and to get assistance in what of the criteria, which financial measures we should look at, how should we take them into account? Should we group applicants; should we group categories of service? Are there target profitability measures? Human nature tends to round to averages. We have averages. Should there be some tolerance or -- what do the statisticians use -- deviations from an average that should be taken into account? These are the kinds of factors that we have been looking to applicants to help us with and indeed over the week that we have been sitting here they have.

9770 You yourself mentioned I think in your remarks, in your answer, to Mrs. Wylie, "help us continue to be successful, that is, profitable", so you too are taking that into account.

9771 I don't know whether you can be any more helpful than you have been on that, bearing in mind that you represent an industry and that you don't have an industry position, but I wanted to make clear on the record and seek your comment if you have it that we don't regard this as a policy hearing and yet we are -- we do value assistance in helping us come to the results that we have to come to.

9772 MR. O'FARRELL: Well, we appreciate la mise au point, as I'm sure many of the applicants before you will as well because I think there was some concern that maybe there might be some propensity to enter into an area without necessarily -- but, no, we have no other comments to offer, Chairman Dalfen. We feel that the applicants have made cases for rate increases where they felt they were warranted, they haven't where they felt they weren't warranted, and they did so on the basis of the individual applications that are before you, and we defer to the merits of those applications as they stand.

9773 With regard to the whole concept of profitability, yes, indeed we think it is a -- to try to regulate profitability would be a failure in itself. But we continue to think that the Commission has a fiduciary obligation in a sense to understand the motivations, if they are clearly articulated or to perhaps seek the justification from parties who do seek a rate increase, and I'm sure you have done that to your full satisfaction.

9774 Where rate increases are requested or not, they are motivated by factors that the applicants can speak to, whether that is based on past performance or future considerations or a combination thereof, which is why we say the individual merits of the application before you should guide in that respect and there is no industry overall position.

9775 THE CHAIRPERSON: Thank you very much.

9776 I think we will take a short 10-minute break and resume with the next intervention following that.

9777 Nous reprendrons dans 10 minutes.

--- Upon recessing at 1615 / Suspension à 1615

--- Upon resuming at 1625 / Reprise à 1625

THE CHAIRPERSON: Order please. A l'ordre, s'il vous plaît.

9778 Mr. Secretary?

MR. LeBEL: Thank you, Mr. Chairman.

9779 The next appearing interventions will be presented by the Canadian Film and Television Production Association. This intervention applies to some of the specialty applications.

9780 Appearing for the CFTPA, Mrs. Elizabeth McDonald and Mrs. Suzanne Vaas.

9781 You have 10 minutes to make your presentation.

INTERVENTION

9782 MS McDONALD: Good afternoon, Mr. Chairman and Members of the Commission.

9783 My name is Elizabeth McDonald and I am the President and CEO of the Canadian Film and Television Production Association.

9784 With me this afternoon is Suzanne Vaas, who is CFTPA's Director, Business and Production Financing.

9785 I would like to thank you very much for finding the time in your schedule to see us today.

9786 It was also nice on Monday to see some of the other remnants of the class of '96, whether we sat in the audience or were applicants.

9787 The CFTPA represents over 400 companies that finance, produce, distribute and market films, television programs and multimedia products in English. Our members are present in every region of Canada from coast to coast to coast.

9788 In an ever-consolidating media world, it is the voices of independent creators who provide diversity to the Canadian broadcasting system.

9789 Our members obtain the rights from authors and others with stories to tell, employ writers to prepare screenplays, hire directors, actors and craftspeople to make the stories and the programs and conduct all of the business dealings to finance the provision of these stories to Canadians and often foreign audiences.

9790 As such, we have a vital interest in the terms and conditions governing the program practices of our major customers, Canada's television pay and specialty services.

9791 While several independent producers have written in support of various applicants' applications appearing before you it is important to note why the CFTPA makes submissions in CRTC regulatory proceedings.

9792 As you are well aware, producers have a marketplace relationship with the broadcaster to commission and acquire their programs. The association on the other hand, with significant input from our members, addresses the broader policy issues. This is not a contradictory exercise. While the individual production companies often have no choice but to intervene in their own self-interests, our broader intervention addresses matters that pertain to the production industry as a whole.

9793 Mr. Chairman, this hearing is the Commission's first opportunity to review the progress to date of what has become known as the class of '96. The licences of 22 specialty services are up for renewal. Our written remarks address 10 of these applicants, six of which have appeared before you over this past week.

9794 Canadian specialty services have become a major component of the Canadian broadcasting system and invaluable partners to the production sector. In looking back over the past performance of the class of '96, we are struck by the diversity of the formats and genre they offer and recognize the important role they have come to play for Canadian audiences and of course for our members.

9795 1996 was the first year that expenditures and independent production by specialty services surpassed that of Canada's conventional broadcasters. During the lifetime of the services under consideration, this aspect of their contribution to Canadian programming has more than doubled, from $134 million in 1998 to $286 million in 2001.

9796 It is looking forward that we have some concerns with certain of the proposals in the renewal applications. In particular, we wish to discuss the following:

9797 Canadian programming, exhibition and expenditure commitments.

9798 Changes to the nature of the service definition where it involves the addition of drama programs.

9799 And the proposed use of independent production, including a comment on the financing of Canadian programming.

9800 For the most part, the specialty renewal applications under consideration at this hearing have sought to maintain the status quo in terms of Cancon exhibition expenditures. Notable exceptions are the proposals from Outdoor Life to increase its Canadian content exhibition levels to the actual levels it has achieved over its first licence term, 50 per cent overall and 35 per cent in the evening viewing period. We consider this to be an appropriate commitment.

9801 Star!TV has proposed to increase its Canadian program exhibition levels commencing in year three.

9802 Comedy Network and History both applied to decrease their Canadian content exhibition levels. We are pleased to note that in questioning the CRTC indicated it wants commitments to original Canadian programming as part of any effort to improve the quality of the program offering and to reduce the number of repeats.

9803 This week we have heard several requests for changes to the nature of service definition. As mentioned, CFTPA has reviewed the proposals of those services that have asked to add or increase the amount of drama they are permitted to air.

9804 We consider drama programming to be a key element of Canadian cultural expression. While many programming categories are important vehicles for telling our story, it is drama that enables a creator to tell a story in a creative and entertaining way. No wonder that drama attracts larger audience numbers than any other category of programming. Is this the reason that many services have requested to add or increase the drama component of their program schedules?

9805 HGTV and Outdoor Life have requested to add a limited amount of drama programming to their schedules and Prime has asked for changes to the copyright limit on Canadian drama programming.

9806 We have noticed that your questioning has attempted to ensure that any such changes would be in keeping with the services' core mandate. This is a key consideration for genre protection and to ensure the integrity of the service.

9807 CFTPA's support for such proposals is contingent on the services' willingness to commit to commissioned programming from Canadian independent producers.

9808 For our part, we also want to ensure that the addition of drama programming to a lifestyle service is both integral to the services mandate and that there is a commitment to Canadian independent production.

9809 In terms of the commitment to independent production, this has become an increasingly important issue for us. While a bench mark of 75 per cent has been established with regard to independently produced priority programming by conventional broadcasters, many of those same players have been reluctant to make the same level of commitment with regard to original Canadian programming on their specialty services.

9810 It is important to bear in mind that at this hearing you are considering applications by most of the largest broadcast interests operating in English Canada: CTV, Global, CHUM, Alliance Atlantis, Astro and Corus. For producers to become successful, they must be able to fully exploit their copyrights and catalogues. Absent such control, they are really only line producers and cannot build the kind of businesses able to invest in new productions.

9811 There is an unfair imbalance in the broadcaster-producer relationship when the broadcaster, as is the case of Alliance Atlantis, is also producer and distributor of television and film productions or, as in the case of CHUM, CTV and Global, where the broadcaster owns a number of different outlets and several windows, for example, conventional and specialty television services.

9812 The licence fee that a broadcaster brings to a production is a key piece of the financing puzzle. Without a licence agreement, the producer cannot access tax credits, public funding support such as CTF, and the provincial and private funds.

9813 Further, absent a broadcast commitment the producer often cannot convince distributors to pay advances or find international broadcast partners. This gives the broadcaster enormous powers at negotiating tables. This is why the association insists upon fair treatment for its members.

9814 We consider that broadcasters in this position should not be entitled to self-produce more than 25 per cent of original Canadian production. Our written intervention contains a table that outlines past commitments with regard to self-production and the broadcaster's proposal for the new licence term.

9815 While several broadcasters were prepared to commit that 75 per cent of original production and in some cases of Canadian program expenditures would be reserved for unaffiliated independent producers, others were less willing to see restrictions on their ability to self-produce. We are prepared to review with you our response to the commitments or the lack thereof of HGTV, TeleToon, Treehouse, Prime, Outdoor Life, Space and Star!TV.

9816 I would like to just take one moment more to elaborate upon the matter of CTF contributions which have been discussed with some of the applicants.

9817 The licence fee program at this Canadian Television Fund was intended as a means of increasing the licence fees for underrepresented categories of programming now known as priority programming that have always received government support. CTF establishes appropriate licence fee thresholds by program genre.

9818 As noted in two published economic assessments of the role of the CTF which CFTPA has funded, it is thanks to this public-private funding support that broadcast licence fees contribute as much as they do to independently produced dramas, documentaries, performance variety and children's programming.

9819 Let me be clear, and I wish Glenn was in the room to hear me say this, the broadcasters do not pocket this money. The CTF contribution is added to the cash payment offered by the broadcaster in exchange for the rights to exhibit the program on its service. The licence fee is also the trigger for all other financial support mechanisms.

9820 The CTF licence fee top-up is essential and necessary. It is also important that you recognize that there are a lot of productions created and exhibited in this country that have no input from the CTF.

9821 A considerable amount of the time this week has been devoted to discussing whether it is appropriate for specialty services to be able to count CTF licence fee contributions as part of their Canadian programming expenditures. While in principle CFTPA agrees with the positions taken by the Directors' Guild that this effectively permits the broadcaster to reduce its Canadian program expenditures by a commensurate amount, we are not certain that this hearing is the appropriate venue to reverse this practice.

9822 For one thing, the application of such a ruling would be unfair to the class of '96 if other services licensed at other times were permitted to continue to do so until the time of their licence renewal, nor would it be appropriate for the CRTC to make such a ruling applicable to parties not present at this hearing by way of a directive circular.

9823 Therefore, we concur with the position of André Bureau that any significant change in the regulatory approach should rightfully occur in a public proceeding with the opportunity for input from all interested parties and with sufficient notice to enable participants to address the issues from a reasoned perspective, supported by concrete evidence. An appropriate forum might be a hearing devoted to the subject of Canadian drama or more broadly speaking programming in the priority categories.

9824 Mr. Chairman, Members of the Commission, thank you for your attention today. We would be pleased to answer any questions you may have.

9825 THE CHAIRPERSON: Thank you, Ms McDonald. I must say on my own behalf and on behalf of my colleagues that we are going to miss you in the future. We have enjoyed the presentations you have given to us, me in the less than a year and a half that I have been here; I know my colleagues share that view, so I will express our appreciation.

9826 MS McDONALD: Thank you very much. I'm not sure I will go that far away. People keep trying to lure me into other projects related to this sector, but I very much appreciate your comments and the fact that over the last eight years the CFTPA has built an excellent relationship with the Commission, so thank you all very much for your support in making the organization a more effective voice. We appreciate it and I appreciate your kind words.

9827 THE CHAIRPERSON: Thank you.

9828 Commissioner Grauer.

9829 COMMISSIONER GRAUER: Thank you.

9830 Good afternoon. I guess what I would like to do is start with the issue you have raised with respect to the CTF contribution being part of Canadian program expenditures. What I would like to do is just give you my understanding of a bit of the history here. Perhaps if there is anywhere that I have not understood it properly you can help me be clear.

9831 As I understand it originally with the Cable Production Fund, which was established in the mid-nineties, it may be something you characterize as private funds, I view it as sort of an involuntary contribution by cable subscribers.

9832 MS McDONALD: It was quasi voluntary. I was working at the CCTA at the time. It was an offer, it wasn't exactly the same offer. It was a meeting of minds, so let's call it quasi voluntary.

9833 COMMISSIONER GRAUER: I guess what I am saying is on the part of the subscriber.

9834 MS McDONALD: Oh, yes.

9835 COMMISSIONER GRAUER: Who is a member of the public.

9836 Then we went into the licensing let's say of these services which was in advance of the significant growth of the subscriber contribution to the funds and certainly in advance of the significant government contribution to the fund.

9837 The reason I am looking at a bit of this history is that a lot of discussion has also taken place at this hearing about the business plans and assumptions filed by this class of '96, and those are what is in front of us right now. We don't redo everybody at the same time, so we are dealing with what is here.

9838 These assumptions on the business plan and the CPEs that were established were done absent an expectation of the kind of public money that has come into the funding system, number one, which I think is important. I mean I can talk about some of the other assumptions and the assumptions of carriage and whatnot that were in existence at the time, but let's for a moment just deal with that.

9839 There is no suggestion that the broadcasters are pocketing the money, but what has happened to licence fees, number one? There is an expectation now that every single project that is licensed should be funded and in the absence of this kind of funding that this is a failure somehow on the part of the government to supply enough funds to support all these programs.

9840 Interestingly, and I am going to talk a bit now because we have to not take forever, I did some math last night and I noticed that the --

9841 COMMISSIONER COLVILLE: You gotta get a life.

9842 COMMISSIONER GRAUER: I know I have to get a life.

--- Laughter / Rires

9843 COMMISSIONER GRAUER: It's difficult when I'm here. I don't have one here.

9844 Is that I have added up the amount of CTF money that is included as part of Canadian program expenditures for the pay and specialty services, all of them, and it added up to $30 million. I thought, you know, if that $30 million had not been included as part of Canadian program expenditures, it is all public money, that would have more than offset whatever the government didn't put in.

9845 I know I have given you a lot to deal with, but I just wanted to have some context in which to say: what are the licence fees; if the services are exceeding profitability levels shouldn't they be paying decent licence fees? I am not saying they shouldn't be eligible to get the money, but should we be including it as part of Canadian programming expenditures when they weren't built into the original business plans?

9846 The public, it seems to me, and that is who I am here talking about, has shown enormous support through access rights, through funding for the system.

9847 I know that was a long speech.

9848 MS McDONALD: It strikes me that I might in September be able to appear at a hearing as a member of the public so...

9849 When the original Cable Production Fund was set up and the concept of the licence fee top-up was included in that decision in 1994, it was very much in response to the fact that the production industry, the licence fees, were low. I think that was an effort on the part of the Commission to increase not only the quantity but quality of Canadian programming at the time, and that is good for Canadians, and so I rest at that.

9850 But that probably has a lot to do with --

9851 COMMISSIONER GRAUER: We are at one with that.

9852 MS McDONALD: The question you asked is very complicated and I am going to be very honest that we spent yesterday an hour and a half on a conference call trying to decide how we would answer this question and trying to think very much about what is appropriate should it be in a broader context for all services.

9853 First of all, licence fees in drama we see are going down, so that is of concern to us. Overall, Suzanne and I were talking about it, licence fees generally have been going down, particularly in recent years although there are some very notable exceptions.

9854 The reality is that when a broadcaster really falls in love with a project, and we see this on the specialties, you may see some licence fees of 60 per cent. I could put producers in front of you that would say, we had this program, it was a priority, and I use the word priority in that non-CTF word so we don't have to go there, but just they really wanted it, they were very committed to it and, you know, that is a huge licence fee. That is up there with a UK licence fee. And they will do that.

9855 Generally I think we see licence fees not being robust and it is always a reluctant relationship between the producer and the broadcaster. There are cases where the broadcaster will come up to a higher level. Interestingly enough, I think one of the reasons we don't know the end of the CTF story is in some cases the broadcasters are putting in significantly more money.

9856 I think it is not just a question of the CTF. I think it would probably be important to differentiate that money in the reporting.

9857 I am glad you did the math. One of the challenges is to really see that, and then do you overall challenge rather than take away that incentive, I guess the other question is do you challenge the broadcaster by saying, well, you have that incentive, therefore if that is going to be included your overall percentage of commitment should go up. That would also be good for the quality of independent production. I think that would become important.

9858 On the issue of entitlement, I think that Ms McQueen's report actually deals with it an I always feel I have to respond to that because it is one that producers are faced with all the time and certainly that I, as the President of CFTPA, have to answer to. I think that Ms McQueen was very clear in her report when she said that there has to be more clarity around the CTF. There is never any definition, there is sort of this amount of money, everybody takes a run for it. I mean I actually kind of look at it like a Kentucky Derby now and see who ends up, you know, actually crossing the line.

9859 So I think there needs to be some clarity about the kind of programming and the amount of programming. I think people thought that was there this year. In fact, people went into the application process believing that all the priorities would be funded and there would be a percentage over that. That is not what happened.

9860 Quite clearly, there is a lot of homework that has to be done over the next six months and surely to God if this fund continues we can find one way to do it the same way for about five years. That would be probably very useful. I think the fund has worked hard to try to limit the access to it. It really only represents 14 per cent of overall production activity in the overall system if you look at our non-CTF study.

9861 So in general, yes, licence fees are an issue. If you separated it and had a better -- if you want to leave the incentive in, I think that is important. I think part of what we were concerned about is responding to a policy issue within a specific licensing, so are we going to end that penalizing specific licensees or, in their view, penalizing them.

9862 However, if we moved to a period of clarity, I think it would be very useful as well.

9863 COMMISSIONER GRAUER: Can I ask you, just on the clarity issue, our first annual report on the expenditures we are asking the conventional broadcaster to report on is out, have you seen it? No? Yes?

9864 MS McDONALD: Yes.

9865 COMMISSIONER GRAUER: I guess what I would like to know is you have recommended perhaps doing some of the same reporting requirements for the specialty services, which could include this, but I wonder if you can give any other suggestions about how we might improve what we already have from the conventional broadcasters, if you have any suggestions, or what we might do with the specialties. Or you could file them.

9866 MS McDONALD: That is a really big question.

9867 COMMISSIONER GRAUER: Okay. I'm sorry.

9868 MS McDONALD: I mean there are obviously areas where producers would like more information about activity with affiliated and non-affiliated et cetera, so that would be an issue.

9869 Distinguishing the licence fee top-up I think would be worthwhile because I think it would provide clarity to what is that applicant really paying for versus what is being added to their ability to pay and then look at it from that point of view.

9870 I would be more than happy to answer that in writing. I think it is important that I go back -- I wasn't expecting that question so nobody gave it to me as an answer to be quite blunt. Wow. That is a question you have always wanted to be asked.

9871 So, you know, if you would like us to answer we could answer it in writing. But I do think one of the things is a level of independent and non-independent. We would actually really like to see the report on the CBC that they said that they would file as part of their licence renewal, just anything.

9872 COMMISSIONER GRAUER: I actually had a specific question about whether you think it would be useful to have reporting on payments to affiliated companies. The context in which I was going to ask that was that the issue you have raised with respect to first window/second window distribution, vertically integrated broadcaster-producer-distributors I suppose.

9873 MS McDONALD: I first of all have to -- this is an immensely difficult question for the CFTPA to answer because, as you know, vertically integrated producers are part of our membership and they are important hardworking members of the CFTPA, so it always puts us in this very difficult position which is why it has made it eight long years. I guess if I were to look at it it is not just a -- I mean, I think it is important to know what activity is taking place with affiliated productions but one of the underlying issues is there is a lot of -- where there is a distribution arm attached to a broadcaster-owned company, it may be that they buy from an unaffiliated company but it may be very attractive to have your distribution done by their distribution arm, incredibly persuasively attractive. So I think it is important to look at that because it becomes a tool as well.

9874 The other issue I think that we need to understand is the role of facilities. Is there a monetary value being given to a non-monetary transaction because in some cases the facilities become part of the deal between the broadcaster and the producer. In some cases, it is very important that the production wouldn't be made, but I think we need to be more clear that there are now dollar values attached and in fact it may be a non-monetary transaction.

9875 COMMISSIONER GRAUER: I think what I was thinking about, and maybe it is a separate question, is this second window/third window issue and question because in fact I wondered if it wasn't part of the distribution.

9876 MS McDONALD: It is never clear to us where it is part of the deal and it is obviously very difficult. When a producer comes to us and says they are being asked to sell to a corporate entity but more and more we are seeing deals where it is a company that is buying as opposed to a licensee. And we have seen them, so they do exist.

9877 I think the issue is: where does that Canadian programming expenditure get allocated? Is it allocate over four windows equally; is it allocated four times the same amount? We don't know. That really has the effect of diminishing licence fees. So we are getting away from a sophistication of windows to actually one deal, many windows and it is not clear to the producer what it is meant for.

9878 COMMISSIONER GRAUER: Does that mean that for a producer who has a creative product he makes one sale and he loses the ability to exploit the rights of his project, product?

9879 MS McDONALD: He or she probably does not lose the ability to exploit the rights in Canada totally, although it would tie it up. It wouldn't preclude the ability to exploit in other territories, but it would pretty well exhaust you in Canada, yes.

9880 COMMISSIONER GRAUER: So when you talk about them losing the licence fees, what you are saying is that the revenues for the project accrue mostly to perhaps a distributor or separate company. Is that --

9881 MS McDONALD: No. I think what I am meaning is that Company A comes to you and they have several properties and they want to do a deal on your, I don't know, 22-episode documentary and that company will do a single deal with you and it will appear on a number of their broadcast outlets.

9882 COMMISSIONER GRAUER: The licence --

9883 MS McDONALD: But it is definitely for that part of the licensing for the front end. And then they decide which window it goes on.

9884 The practice that we were used to is a company would come and give you a licence for a program for window one with so many opportunities to play, and then the producer would do window two, three, four. If you look at some of the programming the number of windows are this long.

9885 Now, we are seeing more and more as a single company you have no idea and you just agree because without that agreement there would be no licensing.

9886 COMMISSIONER GRAUER: You mention in your intervention in terms of trade agreements with these services. What is the status of those and would that result from these issues?

9887 MS McDONALD: I am pleased to say that yesterday I signed CBC's CFTPA terms of trade and so they have the other page today. This is the end of a long story that will start that process. The other broadcasters, we have been in discussion with CTV and CHUM and they are both on course. We had very good discussions with them and they have all wanted to see the CBC's trade of terms of trade before they will relate to anything. I believe it's 48 pages. It will soon be on our Website and the CBC's Website and I hope it doesn't discourage them because that is unusual.

9888 You know that in the United Kingdom, the Government of the United Kingdom has taken a very strong position on the terms of trade in their new broadcasting legislation and it actually imposed financial penalties to broadcasters who do not make their commitments in their terms of trade.

9889 COMMISSIONER GRAUER: Thank you.

9890 You have supported the request for a number of the services to add more drama, original drama.

9891 One of the things that occurred to me is that I find it difficult to reconcile, given the demands that already exist on the funding organizations, that we would want to add more demand as opposed to maybe increasing Canadian program expenditures.

9892 MS McDONALD: I thought some of the recommendations in Ms McQueen's report were interesting, to say if you want to do it, but you can't access the funds right away.

9893 First of all, I think it has to be clear, while the CTF plays a very crucial role in terms of very high quality, distinctly Canadian drama, it is not the only financing mechanism, and there is non-CTF Canadian drama which may have less Canadian points and may, should the international market pick up, have some legs elsewhere.

9894 So I think the Canadian Television Fund is a very important fund. I think we have to be careful we don't obsess about it too much, although I must say it has been my life for the last little while. I mean, I just think we have to look at the whole funding panoply and to say what do we want to do for these kinds of services?

9895 On the other hand, there could be a great opportunity. These broadcasters have been huge supporters of the independent production sector. They tend to do very different programming. They attract Canadian audiences. If they want to stay within their genre, and they can do it and attract audiences, that's great. I mean, that's really great. So that's the effort for us if we want to see it.

9896 Also the specialty programming tends to have some appeal internationally. You see a lot of it when you go around the world. And so that could be an opportunity that could have some international financing. It tends to be less expensive. It's lower cost. If it would work and attract Canadian audiences, we shouldn't, I think, just walk away from it.

9897 I think staying within the genre is very important. So we just don't have a whole lot of what appear to be almost conventional broadcasters and specialty. I think the genre differentiation has been important to viewers and we shouldn't lose that.

9898 COMMISSIONER GRAUER: I could spend a lot of time here, but in the interest of -- I have one more question and what it is is you have made a number of recommendations with respect to the 75 per cent acquisition from independents. Some say original, some say all, some say drama, some say new.

9899 Is there some magic to this?

9900 MS McDONALD: I think everybody takes a different approach to it, and obviously it's not a popular issue with vertically integrated production broadcasting companies.

9901 First of all, let me be very clear. This is a reluctant recommendation. If you might remember, for many years Mr.  Ellison and I tried to pursue 100 per cent by non-affiliated, and so we recognized that that was not going to take place.

9902 So we are trying to find something that recognizes the dominance in the marketplace -- the dominance and the strength of a vertically integrated broadcaster/producer/distributer and the opportunity for independent producers.

9903 I think the most important thing for us is original first run. That is very important. That is critical. That is the real opportunity for independent producers.

9904 I think most of our question is market dominance and market access and that is a very difficult issue for us, and a concern we have. I mean, if you look in recent discussions in the United States, there is starting to become a significant lobby about diversity and access to the networks because since the end of the fence in rules, the opportunities for independents to access the airways in the United States have almost disappeared. We have invested a lot in this country in the creative community. Let's not shut them out and how do we do it because it really is David and Goliath.

9905 But the most important thing I would say, if we had to put a priority, is first-run original Canadian programming.

9906 COMMISSIONER GRAUER: Notwithstanding the fact that it appears that the demand for funds can't be met, and I take your point on the CTF and what you said about licence fees being low. I just wonder if we want to increase the demand, that's all.

9907 However, I take your point.

9908 MS McDONALD: Do you mean the demand for programming from --

9909 COMMISSIONER GRAUER: I mean if we keep the CPE at a certain level and don't increase demand, we increase the amount of money going into the existing programming which should increase licence fees.

9910 MS McDONALD: We will see.

9911 COMMISSIONER GRAUER: Thank you.

9912 THE CHAIRPERSON: Thank you very much.

9913 Mr. Secretary.

9914 M. LEBEL: Merci, monsieur le président.

9915 La prochaine intervention nous sera présentée par TQS et M. Bernard Guérin comparaîtra pour TQS.

--- Pause

9916 M. LEBEL: Monsieur Guérin, vous disposez de dix minutes pour faire votre présentation.

9917 Merci.

INTERVENTION

9918 M. GUÉRIN: Monsieur le président, mesdames et messieurs les conseillers. Je me présente, Bernard Guérin, je suis le directeur général des affaires juridiques de TQS. Je suis ici en remplacement de Luc Doyon dont le nom apparaît sur le document qui vous a été transmis. M. Doyon ne pouvait pas être présent ici cet après-midi.

9919 Dans le cadre de cette audience publique l'intervention de TQS concerne au niveau des principes l'ensemble des demandes visant à ajouter des catégories d'émissions qui n'étaient pas incluses dans les conditions de licence initiales des canaux spécialisés concernés.

9920 Je tiens à souligner cependant que notre intervention porte plus précisément sur les demandes des canaux MusiMax, Teletoon et Canal Vie puisque ces canaux sont ceux les plus susceptibles d'empiéter sur les champs d'activité des chaînes généralistes et d'autres canaux spécialisés existant au Québec.

9921 Il faut d'abord rappeler que le Conseil a défini les services de programmation spécialisés comme étant des services d'intérêt particulier offrant des émissions thématiques ou verticales s'adressant souvent à un groupe démographique particulier et ayant un genre bien défini comme les nouvelles, les sports ou la musique.

9922 En 1993, à l'occasion d'un appel de demandes de licence en vue d'exploiter des entreprises offrant des services spécialisés, le Conseil affirmait que les nouveaux services de programmation devraient :

9923 Le Conseil ayant bien pris soin de réitérer ses propos au moment de délivrer de nouvelles licences de canaux spécialisés, il est indéniable que ces canaux sont essentiellement complémentaires aux chaînes généralistes, et surtout qu'ils doivent le rester.

9924 Le Conseil a d'ailleurs déjà précisé qu'un canal spécialisé ne doit pas concurrencer un service de programmation canadien déjà en place.

9925 Ceci signifie qu'en principe les créneaux de programmation des canaux spécialisés ne devraient d'aucune façon s'apparenter à ceux des chaînes généralistes. Ils devraient eux aussi être complémentaires, conformément aux principes définis par le Conseil lors de la délivrance des premières licences aux canaux spécialisés.

9926 Alliées aux talents et au dynamisme des équipes en place, les conditions de licence dont jouissent actuellement les canaux spécialisés leur ont permis de connaître une croissance importante et soutenue, et ce depuis le tout début de leurs activités.

9927 Les données de Nielsen Média concernant la population francophone des 2+ nous permettent de faire quelques constations fort révélatrices en ce qui concerne les heures d'écoute et les parts de marché des canaux spécialisés.

9928 Entre l'automne 1997, les heures d'écoute des canaux spécialisés francophones sont passées de 25 millions à plus de 50 millions, tandis que celles des quatre chaînes généralistes francophones ont diminué de 106 millions à 103 millions.

9929 Au cours de la même période, les parts de marché des canaux spécialisés francophones sont passées de 16,8 pour cent à plus de 29 pour cent, tandis que celles des chaînes généralistes francophones baissaient légèrement de 69 pour cent à 57 pour cent.

9930 Les canaux spécialisés affichent aussi une progression spectaculaire sur le plan des revenus. Leurs revenus publicitaires sont passés en 1997-1998 de 29 millions à 68 millions.

9931 En plus de leurs revenus publicitaires, les canaux spécialisés ont accès aux frais d'abonnement imposés aux téléspectateurs par les câblodistributeurs et par les télédiffuseurs par satellite. Les chaînes généralistes, elles, n'ont pas accès à cette dernière source de financement.

9932 Compte tenu de ce déséquilibre concurrentiel qui avantage grandement les canaux spécialisés, il n'est pas surprenant que les revenus totaux de ces canaux soient passés, entre l'année 1997-1998 et 2001-2002 de 184 millions à 301 millions.

9933 Il est donc clair que l'élargissement des licences des canaux spécialisés aura pour effet de leur donner accès à un plus vaste auditoire accroissant dès lors leurs revenus au détriment des chaînes généralistes du Québec.

9934 Les revenus de ces dernières n'ont d'ailleurs augmenté que de 11 pour cent pendant la même période, soit un résultat inférieur à l'inflation.

9935 Entre 1998 et 2002, le bénéfice d'exploitation des chaînes généralistes au Québec a baissé de 10 pour cent, ce qui démontre encore une fois l'impact de la poussée des canaux spécialisés.

9936 En fait, en 2002 le bénéfice d'exploitation de ces derniers a été, pour la première fois, supérieur à ce lui des chaînes généralistes.

9937 De façon plus précise voici les raisons de nos oppositions aux demandes faites par MusiMax, Teletoon et Canal Vie.

9938 En ce qui concerne MusiMax nous tenons à rappeler que le Conseil a précisé dans sa décision de 1996 que la programmation de ce canal doit être  constituée principalement de vidéoclips . J'insiste sur le mot  principalement  qui veut dire surtout, en majorité. Nous trouvons donc qu'il y a une incongruité dans la demande de MusiMax de réduire de 65 pour cent à 50 pour cent le pourcentage d'émissions de musique vidéo de la catégorie 8(c), émissions de vidéoclips.

9939 Il faut savoir aussi que la nouvelle définition des émissions de vidéoclips prévoit elle-même que ce sont des émissions qui ont 50 pour cent de vidéoclips fait en sorte que ce pourcentage avait déjà été réduit par l'application de la nouvelle définition et que si on appliquait 50 pour cent (une définition qui parle de 50 pour cent) on pourrait arriver à 25 pour cent, à aussi peu que 25 pour cent de vidéoclips dans une chaîne qui doit être principalement dédiée aux vidéoclips.

9940 Donc afin de ne pas dénaturer le service pour lequel une licence a été octroyée à MusiMax, nous croyons qu'il faut aussi maintenir la condition concernant le ratio minimum musique-création orale qui est de 60-40.

9941 Il va sans dire que nous nous opposons aussi à la demande d'éliminer la limite hebdomadaire de films de la catégorie 7(d) longs métrages car la diffusion de ces derniers s'avère un élément important de la programmation des chaînes généralistes, et notamment de TQS.

9942 Nous sommes aussi opposés à la demande de modifier la condition de licence afin d'ajouter les catégories 2(a), 2(b) et 7(c).

9943 En effet, ces catégories empiéteraient sur les orientations des chaînes généralistes et d'autres canaux spécialisés s'intéressant à l'information, à l'analyse et au suivi de l'actualité d'hier et d'aujourd'hui sur tous les sujets.

9944 En ce qui concerne Teletoon, il faut rappeler que la raison d'être de ce canal spécialisé est de diffuser des dessins animés et des films d'animation. Or, Teletoon voudrait pouvoir programmer à l'avenir des émissions de catégorie 7(a), séries dramatiques, 7(b), séries comiques, 7(c) et 7(g).

9945 Non seulement le canal s'éloigne-t-il substantiellement de sa condition de licence initiale, mais il réclame des ajouts de catégories d'émission qui sont de nature à modifier considérablement sa nature et à lui permettre de concurrencer les chaînes généralistes qui diffusent ces émissions en très grand nombre.

9946 Quant à la demande de Canal Vie, elle va carrément à l'encontre de la nature du service décrit dans la décision rendue par le Conseil en 1996, soit une offre  d'émissions d'information et de divertissement axées sur trois thèmes bien précis : les habitudes de vie, la santé et les activités de plein air .

9947 Il est important de rappeler que ce canal jouit déjà d'une grande latitude quant aux formes que peuvent revêtir les émissions présentées à son antenne. Dans sa décision le Conseil était très clair sur la nomenclature des catégories d'émission qui lui étaient permises. C'était précisé de façon très claire.

9948 Selon nous, rien ne justifie le Conseil de revenir sur sa décision et de permettre à Canal Vie de diffuser dorénavant des émissions de la catégorie 7(a), séries dramatiques, largement diffusées par les chaînes généralistes, ni de déborder des trois thèmes que le canal s'est engagé à respecter. A l'évidence, Canal Vie dispose de suffisamment de souplesse pour continuer à croître.

9949 En résumé les demandes d'élargissement des conditions de licence de MusiMax, Teletoon et Canal Vie constituent à nos yeux autant de tentatives d'empiétement sur l'espace occupé par les chaînes généralistes.

9950 Avant de conclure notre intervention, nous tenons à nous inscrire en faux contre l'affirmation formulée par Astral Media dans le complément de sa réplique selon laquelle TQS aurait adopté  pour position de principe que les conditions de licence fixées lors de l'autorisation initiale d'un service ne devraient jamais être modifiées par la suite .

9951 Nous ne prétendons pas que les conditions de licence ne devraient jamais être modifiées. Cependant, nous soutenons qu'elles peuvent l'être, mais de façon à ce que ces modifications ne dénaturent pas les services offerts par les détenteurs de licence. En fait, nous souhaitons que les canaux spécialisés demeurent distincts des chaînes généralistes ainsi que complémentaires à elles et non entre eux.

9952 Compte tenu de la concentration de la propriété des canaux spécialisés, les ajouts de catégories d'émission demandés par ces derniers risqueraient de déboucher sur une situation dangereuse et nuisible, soit la diffusion des mêmes contenus par plusieurs canaux spécialisés à un même groupe.

9953 Je m'arrêterai ici. Je vous remercie de votre attention et je suis réceptif à vos questions.

9954 LE PRÉSIDENT: Merci beaucoup.

9955 Madame la vice-président Wylie.

9956 CONSEILLÈRE WYLE: Bonsoir, monsieur Guérin. Nous vous remercions d'être venu aujourd'hui tard pour nous accommoder.

9957 Vous avez suivi l'audience jusqu'à maintenant, ou quelqu'un de chez TQS, surtout la comparution de Teletoon et de MusiMax.

9958 M. GUÉRIN: Oui.

9959 CONSEILLÈRE WYLE: Est-ce que vos préoccupations ont été atténuées par les engagements qui ont été pris par les titulaires ou par peut-être les questions posées par le Conseil en ce qui vous inquiète?

9960 M. GUÉRIN: On parle d'une limitation en terme de pourcentage notamment. Nous persistons à croire que ces catégories d'émission ne sont pas nécessaires à la nature des services en question, et qu'une limitation à un certain pourcentage, de 15 pour cent, pourrait faire en sorte qu'il y aurait autant de films en soirée qui pourraient être présentés en heures de grande écoute, par exemple. Ce pourcentage nous semble trop élevé et devrait à tout le moins être limité à son maximum ou devrait être accompagné de limitations quant au nombre de diffusions qui pourraient être faites des films en question, et aussi accompagné de représentations comme quoi les films devraient respecter la thématique associée intimement et directement à la thématique des canaux en question.

9961 CONSEILLÈRE WYLE: Alors je peux conclure que vous n'êtes pas d'avis qu'il est impossible d'ajouter quelque catégorie que ce soit à la nature d'un service sans en dénaturer le genre ou le caractère.

9962 M. GUÉRIN: Nous ne disons pas que c'est impossible, pas du tout. Il faut regarder les choses au mérite, les demandes au mérite, bien évidemment. Il faut présumer que quand les licences ont été octroyées par le Conseil que les bonnes catégories ont été données initialement et que s'il y a de nouvelles catégories d'émission qui sont demandées, que le contexte ou l'environnement a changé de façon à justifier l'ajout de nouvelles catégories qui seraient nécessaires et directement reliées aux canaux qui doivent être spécialisés, qui doivent demeurer des canaux spécialisé.

9963 CONSEILLÈRE WYLE: Il serait juste de dire que vous vous inquiétez surtout des catégories de programmation qui sont spécifiquement importantes pour les télévisions conventionnelles.

9964 M. GUÉRIN: Tout à fait.

9965 CONSEILLÈRE WYLE: Les films, évidemment, les nouvelles, et cetera.

9966 M. GUÉRIN: Il y a des domaines qui sont déjà bien couverts et ils le sont depuis de nombreuses années, et même avant l'arrivée des canaux spécialisés, plus spécifiquement pour TQS la diffusion de films qui était à l'origine de la licence de TQS, les séries dramatiques qui sont un peu la marque de commerce de TVA, de TQS.

9967 Alors ce sont des secteurs, des domaines, des catégories d'émission qui sont déjà très bien exploités par les généralistes. C'est pourquoi je crois qu'il y a un fardeau qui est important du côté des canaux spécialisés pour justifier des demandes, pour dire que maintenant c'est rendu nécessaire d'avoir des catégories pour atteindre et respecter les thèmes de leur programmation.

9968 CONSEILLÈRE WYLE: Mais vous acceptez que même avec des changements s'il y a des balises quelconques ça peut atténuer les préoccupations que vous avez. Par exemple, en trouvant des mécanismes qui contraindraient ces catégories-là à une thématique très reliée à la nature du service en question.

9969 M. GUÉRIN: C'est vraiment un deuxième choix.

9970 M. GUÉRIN: C'est vraiment une alternative parce que quant à nous le principe demeure, mais si le CRTC devait aller dans cette direction, nous croyons que ça doit être encadré de façon très précise directement reliée à la thématique réduite ou maximum en terme de pourcentage, parce que les pourcentages, si on fait un peut de mathématique, permettraient quand même de diffuser des films en soirée. On pourrait atteindre les trois heures et demie, deux heures et demie de films.

9971 Donc ça doit être encadré quant au temps de diffusion en terme de pourcentage de la programmation et aussi ça pourrait être encadré en terme de nombre de diffusions.

9972 CONSEILLÈRE WYLE: Par exemple, en parlant de ces balises-là, on a entendu parler, par exemple, de cette difficulté de 60-40 que vous préconisez.

9973 Est-ce qu'il y a, à votre avis, des façons de décrire les balises sans chronométrage dans certaines catégories? Par exemple, les films comparés à un documentaire. Est-ce que vous avez des conseils à nous donner à ce niveau-là? Est-ce que c'est possible, à votre avis, de définir suffisamment la contrainte?

9974 M. GUÉRIN: Je crois qu'il est possible de dire que ça doit respecter de façon stricte la nature du service tel qu'il va être décrit dans la décision du CRTC. Je pense qu'il y a moyen de dire cela, mais ça doit être en combinaison avec les autres moyens d'encadrement dont j'ai discuté.

9975 CONSEILLÈRE WYLE: Donc, par exemple, les limites de certaines catégories.

9976 M. GUÉRIN: En terme de pourcentage.

9977 CONSEILLÈRE WYLE: Vous mentionnez, par exemple, dans le cas de MusiMax la réduction des vidéoclips.

9978 Est-ce que vous êtes d'avis qu'on ne peut pas avoir un service qui est strictement musical, si on utilise les balises dont nous discutons, sans que ce soit nécessairement plus que la moitié des vidéoclips? En d'autres mots, est-ce que l'autre programmation ne peut pas être aussi très musicale et donc selon la nature du service de MusiMax?

9979 M. GUÉRIN: Il y a deux aspects. Je pense que la combinaison de la demande de réduction du pourcentage de la nouvelle définition de la catégorie 8(c) fait en sorte que la demande de réduction nous semble exagérée parce que ça ne serait plus un service principalement dédié à des vidéoclips, d'une part. Mais pour le restant de la programmation, oui, je crois qu'il y a moyen de définir de façon très précise que ça doit être lié à la musique de façon générale comme le service est déjà décrit dans ces conditions actuelles.

9980 CONSEILLÈRE WYLE: Je ne crois pas que c'est un service de vidéoclips. Le Conseil avait dit que c'était un service de musique pour adultes avec 65 pour cent de la programmation de vidéoclips.

9981 M. GUÉRIN: Dans la décision...

9982 CONSEILLÈRE WYLE: Alors la question est : Est-ce qu'on peut demeurer un service de musique avec 50 pour cent de vidéoclips?

9983 M. GUÉRIN: Dans ma lecture de la Décision 96-74 on indiquait que c'était une programmation qui était constituée principalement de vidéoclips.

9984 CONSEILLÈRE WYLE: Alors 51 pour cent ça serait bien aussi.

9985 M. GUÉRIN: Principalement pour moi c'est sur tout.

9986 CONSEILLÈRE WYLE: Mais à la fin vraiment ce sont les balises là où...

9987 M. GUÉRIN: Ce qui n'est pas couvert dans cette partie.

9988 CONSEILLÈRE WYLE: Au niveau du pourcentage et au niveau des descriptions pour essayer de garder les services plus près de leur nature.

9989 Maintenant au niveau des films et des dramatiques, c'est plus important peut-être au Canada anglais, comme vous le savez bien, mais est-ce que vous avez des commentaires sur est-ce qu'on devrait avoir une flexibilité plus grande dans ce domaine-là pour mousser la production au Canada anglais et qu'on continue à produire au Canada français, si on exige que ce ne soit que des productions canadiennes au niveau des films de 7(c) et de 7(d)?

9990 M. GUÉRIN: Je dois vous dire que je n'ai pas regardé la question du...

9991 CONSEILLÈRE WYLE: Parce que c'est plus important, évidemment, au Canada anglais...

9992 M. GUÉRIN: Oui, oui. Je n'ai pas regardé la question. Moi je l'ai regardée de façon très précise au mérite des trois demandes.

9993 CONSEILLÈRE WYLE: Mais avec une inquiétude spéciale pour les dramatiques et les films. Surtout les films?

9994 M. GUÉRIN: Les dramatiques et les films, beaucoup les films vu la nature actuelle de TQS qui diffuse beaucoup de films, mais qui a des ambitions au niveau des séries dramatiques également.

9995 CONSEILLÈRE WYLE: Nous vous remercions de votre contribution et d'être venu de si loin.

9996 Merci, monsieur le président.

9997 LE PRÉSIDENT: Monsieur Guérin, juste une question sur les comparaisons que vous avez tirées à la page 2 de votre présentation orale aujourd'hui.

9998 Vous faites des comparaisons entre les canaux spécialisés et les postes de télévision conventionnelle. Moi j'ai des chiffres de nos relevés statistiques et financiers qui indiquent... et je vois où vous avez tiré les chiffres pour les revenus de publicité. Je ne suis pas certain où vous avez tiré les chiffres pour les revenus totaux parce que vous mentionnez là une augmentation de 184 jusqu'à 301 millions de dollars de 1998 à 2002. Nos chiffres indiquent que le revenu total dans cette période-là ont augmenté de 155 jusqu'à 255.

9999 Je me demande si vous pouvez apporter une clarification là-dessus.

10000 M. GUÉRIN: Je ferai des vérifications. Au meilleur de ma connaissance ces données ont été tirées des statistiques publiées en février par le CRTC. Ce n'est pas moi qui ai fait les calculs, mais je peux certainement faire...

10001 LE PRÉSIDENT: Je vous en prie.

10002 Aussi en faisant les comparaisons je note que le ratio entre les dépenses pour les émissions canadiennes sur les revenus totaux pour les canaux spécialisés sont d'environ 41, 42 pour cent, dépenses sur la programmation canadienne sur les revenus totaux.

10003 Est-ce que vous avez le chiffre comparable pour les postes de télévision conventionnelle que vous comparez avec les canaux spécialisés? Moi je ne l'ai pas devant moi, mais...

10004 M. GUÉRIN: Je peux obtenir ces chiffres. Je ne les ai pas.

10005 LE PRÉSIDENT: Je me souviens que c'était à peu près 25, 25. Peut-être que je me trompe, mais il y a une différence et quand vous les aurez, si vous avez les commentaires là-dessus, sur la comparaison entre ces deux chiffres-là. J'attends votre réponse d'ici peut-être lundi.

10006 M. GUÉRIN: Certainement.

10007 LE PRÉSIDENT: Je vous remercie pour votre présence. Je ne sais pas si notre conseiller juridique a des questions. Non? Merci et bonne fin de semaine.

10008 M. GUÉRIN: Merci, vous aussi.

10009 LE PRÉSIDENT: Nous sommes ajournés jusqu'à 9 h 30 lundi matin.

10010 We are adjourned until 9:30 Monday morning.

--- Whereupon the hearing adjourned at 1729, to resume

on Monday, June 2, 2003 at 0930 / L'audience

est ajournée à 1729 pour reprendre le lundi

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