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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
April 9, 2008 Le 9 avril 2008
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /
Révision des cadres de réglementation des entreprises de
distribution de radiodiffusion et des services de
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Michel Arpin Commissioner / Conseiller
Leonard Katz Commissioner / Conseiller
Rita Cugini Commissioner / Conseillère
Michel Morin Commissioner / Conseiller
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Chantal Boulet Secretary / Secretaire
Cynthia Stockley Hearing Manager /
Gérante de l'audience
Martine Vallée Director, English-Language
Pay, Specialty TV and
Social Policy / Directrice,
TV payante et spécialisée
de langue française
Annie Laflamme Director, French Language
TV Policy and Applications/
Directrice, Politiques et
demandes télévision langue
Shari Fisher Legal Counsel /
Raj Shoan Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
April 9, 2008 Le 9 avril 2008
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Bell Canada 340 / 1944
Allarco Entertainment 482 / 2696
CFTPA 524 / 2922
APFTQ / ADISQ 539 / 3003
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon commencing on Wednesday, April 9, 2008
at 0900 / L'audience débute le mercredi
9 avril 2008 à 0900
1940 THE SECRETARY: Please be seated. We are about ready to start. Thank you.
1941 Bonjour à tous. We will continue the hearing this morning with Bell Canada's presentation.
1942 Mr. Gary Smith will be introducing his colleagues, after which you will have 15 minutes for your presentation.
1943 Mr. Smith...?
PRESENTATION / PRÉSENTATION
1944 MR. SMITH: Thank you and good morning, Chairman and Commissioners.
1945 I am Gary Smith, President of the Bell Video Group. Joining me on our witness panel this morning is, to my immediate right, Mirko Bibic, Chief, Regulatory Affairs for Bell Canada. To Mirko's immediate right is David Elder, Vice‑President, Regulatory Law, Bell Canada. To his right is David Krause, Director, Economic Analysis for Bell Canada.
1946 To my immediate left is Chris Frank, Vice‑President, Programming for Bell Video Group; and to Chris' left is Barry Keifl, President of Canadian Media Research Inc.
1947 Also in attendance today, on Bell's behalf, although not on the panel, is Jeff Walker, Senior Vice‑President with the Market Research Firm of Harris/Decima.
1948 The Bell panel represents Bell Aliant with its Aliant TV distribution business, the Bell ExpressVu DTH business and the various Bell Canada terrestrial distribution businesses. We are pleased to have this opportunity to share our thoughts on what is without question a critically important broadcasting regulatory review.
1949 Our comments this morning will have the following focus. We are recommending a set of fundamental principles that we believe will guide and facilitate that Commission's development of a revised regulatory framework. We will comment on the issues addressed by the Commission's five questions, and we will comment specifically on the issues of fee for carriage and distant signals.
1950 The broadcasting system is evolving ever more rapidly. As a result, the Commission must establish a forward‑looking framework whose flexibility anticipates and accommodates change. This goal cannot be achieved without a robust principled and analytical approach.
1951 I will now ask Mirko Bibic to present Bell's approach to the reliance on such principles.
1953 MR. BIBIC: Thank you, Gary.
1954 Mr. Chairman, Commissioners, a good regulatory framework starts with a solid foundation. The development of a forward‑looking framework for broadcasting distribution should be based on four key principles.
1955 Our first principle relates to the cultural objectives of the Act. In support of this principle, Bell favours a sufficient degree of regulation to protect Canadian cultural interests. This should anchor the regulatory system and we have taken the objectives of the Act seriously in developing our proposal.
1956 Sustained support for access to a diverse and predominantly Canadian broadcasting system is necessary. Thus, a revised framework should feature a basic service comprising at least one of each of the CBC's English language and French language owned and operated television services, the service of at least one local affiliate of each of the major station groups operating on a national basis and those services authorized for distribution under section 9(1)(h) of the Act.
1957 This basic service will ensure that consumers can access Canadian priority services and the diversity of Canadian voices. As well, BDUs must remain free to customize their basic packages by adding services, including non‑Canadian services.
1958 A revised framework should also feature a preponderance of Canadian services received by subscribers. There is no need to regulate the number of Canadian services offered by BDUs as the Act's objective is already met with the preponderance of services received. The reality is that BDUs are motivated to carry a broad range of Canadian services to meet consumer demands.
1959 The framework should also relax genre exclusivity. Specialty genres should be open to Canadian competition. However, the current prohibition against non‑Canadian services competing with similar domestic specialties should be retained. This approach will provide consumers greater choice, encourage competition and protect the Canadian rights market.
1960 As well, regulation should ensure Canadian over the air broadcasters continue to receive needed advertising revenue through the maintenance of simultaneous substitution.
1961 Mr. Chair, these are all the elements required to make positive contributions towards achieving the objectives of the Act without imposing impractical or unnecessary restrictions. Bell supports such regulatory continuity.
1962 This first principle acknowledges that the customer is in control; call it the autonomy or sovereignty of the consumer or market forces. Canadians will continue to seek out the content they want and if their preferences are frustrated by regulatory constraints, they will seek out illegal or unregulated sources.
1963 Bell submits, then, that much of the remaining regulations is not required and that the Commission can increasingly rely on the marketplace to meet the objectives of the Act. This is our second principle.
1964 While the revised framework must promote Canadian cultural content, it must also accommodate new technical realities and consumer preferences that may soon render its current protective mechanisms at best irrelevant and at worst counterproductive.
1965 The new framework should provide regulated distributors with the flexibility to better compete with each other and with unregulated distribution technologies. For example, Bell proposes the elimination of must carry outside of basic service and all distribution and linkage rules. Consumers should decide the fate of programming services, not the regulator.
1966 Bell's proposal to eliminate or revise current regulation should not be misconstrued as advocating a compromise or abandonment of the objectives of the Act. It is simply that the marketplace can and will achieve many of the objectives of the Act on its own.
1967 Bell's third principle calls for continued regulation of key differences between cable and DTH distributors. No one‑size‑fits‑all solution to regulation will suffice. The rules for DTH and cable should be the same, except where technology and DTH's national footprint dictate otherwise.
1968 This position is based upon the government's 1995 Order in Council direction to the Commission. Clearly what is called for is responsible regulatory symmetry, equitable but not necessarily identical.
1969 For example, cable companies are required to carry all local conventional channels in their local markets. Broadcasters argue that DTH should be required to do the same and operate as cable in the sky. However, our market is national. The extra channels would consume 15 to 20 per cent of our capacity for standard definition services. If forced to do this, we would have to drop 50 to 60 services, including many Canadian discretionary services, to make the space available. This would cause significant damage to our business.
1970 Mr. Chairman, in a moment Gary will speak to the significant benefits that DTH has delivered to the system.
1971 DTH has brought competition to the television distribution business. It is a business that was monopoly controlled prior to that. We did it without any new entrant concessions. We did it without any regulatory whining. It's technology that made this possible, technological differences DTH that made this possible and regulation should recognize technological differences.
1972 As a fourth principle, we believe stakeholders should have access to a more effective dispute resolution process to resolve contentious issues, especially during the transition to a revised regulatory framework and as stakeholders pursue new broadcasting initiatives which may create competitive situations not contemplated by regulation even a short time ago.
1973 In summary, and before I turn it back over to Gary, Bell believes that these four principles should form the basis of the regulatory framework which will govern BDUs for the next decade. We also believe that the Commission was on the right track in the Public Notice whose lines of inquiry focused on the consumer, Canadian content, technological change, reduced regulation and an increased reliance on the marketplace.
1974 The recent focus on fee for carriage and distant signals could be a significant step back and the assumed distribution model revealed in mid‑March seems to reflect a degree of regulatory oversight little removed from the status quo. This is disappointing.
1975 Instead, we encourage the Commission to sustain the positive direction reflected in the Public Notice.
1977 MR. SMITH: Thank you, Mirko.
1978 Mirko has explained the principles that we believe should determine the new distribution regulations in Canada. There are, however, two proposals for regulatory change before the Commission which Bell strongly opposes: one, the imposition on BDUs of a fee for carriage; and, two, a Commission mandated settlement regarding distant signals.
1979 These proposals would negatively impact BDUs and other stakeholders while solely benefiting the OTA broadcasters.
1980 To provide some context for our comments on these proposals, I would like to take a moment to remind the Commission of the tremendous benefits that DTH has brought to the broadcasting system.
1981 Since its launch in 1998, DTH has brought over 1.7 million net new subscribers into the broadcasting system ‑‑ "net new" meaning subscribers who were not already cable customers. This has generated over $2.4 billion in new revenue for Canadian pay and specialty services.
1982 Further, the DTH operators have contributed hundreds of millions of dollars to the Canadian Television Fund, other independent production funds and to the small‑market local programming fund.
1983 All of this has and will continue to be accomplished as a result of Bell's investment of more than $2 billion in creating the Bell ExpressVu business. The Commission should note that Bell continues to invest in this business, despite having yet to see any positive free cash flow.
1984 Most recently we have put forward an innovative proposal called Freesat to assist with the free to air distribution of high‑definition signals outside major urban centers.
1985 In the spring of 2007, the OTA broadcasters failed to convince the Commission that an actual need existed for a cross‑subsidy from BDUs in the form of a fee for carriage. The Commission ultimately determined that they had not made their case and Bell believes that nothing has changed since then that would warrant a different finding. Most significantly, in the Public Notice, the Commission specified the elements that the broadcasters had to address to justify the imposition of a fee for carriage regime. They failed to do so in several important areas, such as ignoring the impacts on specialty and pay services.
1986 There is strong evidence that this sector is not at all in the financial crisis that it claims.
1987 One, there continues to be strong investor interest in conventional station and network startups and acquisitions.
1988 Two, increased spending on U.S. programming is obvious.
1989 And, three, OTA broadcaster owned specialty services are sustaining impressive levels of productivity ‑‑ profitability, sorry.
1990 The broadcasters themselves acknowledge this. Leonard Asper, President and CEO of Canwest Global Communications, recently noted to financial analysts that the margins from the Canadian conventional TV business, even without fee for carriage, are certain to exceed 10 per cent and claims that 20 per cent is a very realistic goal.
1991 A fee for carriage would be bad for consumers who would be taxed for services they already receive in return for no additional value, bad for independently own specialty services whose channels could be dropped by consumers looking to accommodate inevitable price increases, and bad for BDUs who already incur considerable expense backhauling, encoding and space segment, for example, distributing these signals.
1992 There is no doubt that broadcasters will come to rely on this tax, a purely regulatory fix, in support of their bottom lines.
1993 Of equal concern to BDUs is the broadcaster proposal regarding distant signals. Viewing of distant signals in DTH households results in approximately 20 per cent greater viewing of Canadian OTA services than in non‑DTH households, representing a bonus audience for these broadcasters that would not otherwise exist.
1994 It is worth noting that much of this audience has been repatriated at the expense of U.S. programming services.
1995 Broadcaster claims of financial damage have been consistently exaggerated based as they are on unreliable evidence. In any event, in the past this issue has been dealt with by our compensation arrangement negotiated between distributors and the Canadian Association of Broadcasters. Under the current arrangement, and contrary to Rogers' statement yesterday, we pay the equivalent of 43 cents per subscriber for distant signals.
1996 When the Commission considered this issue last year, it rightly determined that a continuation of commercial negotiations would be appropriate. Bell agrees and strongly encourages the Commission to issue a similar directive to the parties.
1997 To finish, I would like to remind the Commission that Bell ExpressVu has contributed considerably to the Canadian broadcasting system over the last 10 years, driving the introduction of digital television and bringing a diverse range of services to every corner of this huge country. We look forward to continuing to play a vital role in fulfilling the objectives of the Act under a more streamlined and focused regulatory regime.
1998 We thank you for your attention and we welcome any questions you may have.
1999 THE CHAIRPERSON: Thank you.
2000 As always when I see Mr. Bibic before me and he has a presentation, I am impressed by his logic and the logical way which he presents issues. He has done this again with the principles.
2001 I think we don't really have an issue with your principles, but of course as always the devil lies in the details. So let me ask you a few questions about your presentation.
2002 But before that, you mentioned in your written submission and this morning Freesat. I must say it is the first time I ever heard about it.
2003 Could you explain to me what Freesat is and how it works?
2004 MR. SMITH: Mr. Chairman, we have spoken about Freesat on a couple of occasions in front of the Commission, although perhaps not in front of the current Chairman.
2005 The concept is ‑‑
2006 THE CHAIRPERSON: Humour me and repeat it.
2007 MR. SMITH: I'm sorry?
2008 THE CHAIRPERSON: Humour me and repeat what you said before.
‑‑‑ Laughter / Rires
2009 MR. SMITH: Certainly, sir.
2010 The concept here is that satellite technology is a very, very efficient way to distribute television signals across a very wide geographical footprint which we have in Canada, and at the moment the terrestrial broadcasters are faced with the need to find a solution to distribute the new digital and particularly high definition signals across the vast tracts of Canada.
2011 One option is to follow the current technology, which is to build transmission towers and to enhance existing transmission towers in the various towns across Canada to carry these signals. But that is a huge expense and I think we have to bear in mind that the viewing of signals over terrestrial distribution means is a very small amount. The majority of Canadians do subscribe to a distributor such as ExpressVu.
2012 So to meet that need for the customers who don't wish to subscribe to a television service but still need to gain access to the digital signals, Bell ExpressVu believes that we can provide a service whereby we carry a certain number of high‑definition signals from each of the major national and regional networks on our satellite and we do not require customers to subscribe to obtain access to those signals. All they would need would be the reception equipment.
2013 We think that it wouldn't damage the pay‑TV business model if it is restricted to just those signals that would otherwise be made available over the air, and it would enable the broadcasters to avoid the need for huge investments in the terrestrial transmission towers and distribution systems that would otherwise be necessary to carry these high‑definition signals.
2014 THE CHAIRPERSON: Is this along the line of the deal that you have with APTN for Northern stations?
2015 MR. SMITH: Yes, we have an arrangement with APTN which is very localized in nature; but yes, that is a similar concept.
2016 THE CHAIRPERSON: So a small community, let's say Moose Jaw, rather than having to build a new tower to transmit high definition TV and digital TV, would ‑‑ how does it work? The broadcaster signs on with you and everybody in Moose Jaw can receive the local station on a Bell ExpressVu receiver and satellite as long as they buy a receiver and satellite ‑‑ an antenna and satellite ‑‑ and a blackbox?
2017 MR. SMITH: Simply put, yes. I think the essence of the arrangement would be that consumers would need to acquire their own distribution ‑‑ their own receiving equipment, but once they have that equipment they would be able to receive those particular signals without any subscription fee.
2018 THE CHAIRPERSON: And they don't have to pay you and get into contact with you or anything. They just buy a Bell ExpressVu blackbox and antenna, install it and they can receive the local over the air station on that system?
2019 MR. SMITH: At a very high level, Mr. Chairman, that is the concept.
2020 THE CHAIRPERSON: Well, I am interested in the details, not the high level.
2021 Does that consumer then have to deal with Bell and are you going to make a sales pitch to sign them on, et cetera?
2022 Is that the idea?
2023 MR. SMITH: There is a relationship with Bell for a number of different reasons. One is because they would need reception equipment which is unique to the Bell ExpressVu platform. So they would need a relationship with us for that.
2024 The other aspect is that we would wish to make available only the signals which that customer should receive locally. So we would need to have a relationship to know where the customer lives in order to make sure they receive the signals that they are entitled to.
2025 But apart from that, there will be no subscription fee, Mr. Chairman.
2026 We think it is a powerful concept and we have engaged discussions with the broadcasters concerned and most of the broadcasters have indicated interest, although we haven't concluded any arrangements yet. Obviously our ability to ‑‑
2027 THE CHAIRPERSON: Then the next step for a broadcaster wanting to do that would be to come to us and say rather than forcing us to convert by 2011, I am going to use Freesat and distribute my signal that way?
2028 MR. SMITH: Yes. I think we are giving the broadcasters an alternative way to satisfy their obligations under the Act, which they would have to come to the Commission and seek your approval.
2029 But I must stress that the whole concept is an exciting one, but it does depend upon, you know, the outcome of negotiations between us and the broadcasters. It isn't free to the broadcasters to provide this service.
2030 THE CHAIRPERSON: And probably us, too, because we would have to say that we consider you a conventional broadcaster even though you don't do any over the air distribution any more; you are doing it exclusively via ExpressVu.
2031 MR. SMITH: Yes, that is correct.
2032 THE CHAIRPERSON: All right. Thank you for that information.
2033 Now back to your proposal. Let's start with beginning with your basic package.
2034 I notice the basic package today you say "the local station and each major group operating on a national basis and in 9(1)(h)".
2035 What happened to the educational broadcasters, the provincial ones?
2036 MR. SMITH: We feel that the Commission need only, if you like, regulate the minimum contents of the basic package and the proposal we have of one each of the national and regional networks, plus the 9(1)(h), we feel is an acceptable minimum.
2037 The reality, Mr. Chairman, is that we would expect to carry many other services in basic and that could include some of the educational services. But we don't think it is necessary for the Commission to regulate that the educational services must be contained within basic.
2038 Chris, can I ask you to expand upon that?
2039 THE CHAIRPERSON: But when you say we would most of them, that implies you might not carry all of them.
2040 MR. FRANK: At the present time, Mr. Chairman, the educational services are not a required carriage for ExpressVu, yet we carry all of them from coast to coast, and we have done since the inception of our service.
2041 THE CHAIRPERSON: Well, in that case, if you do it anyway why couldn't it be part of your basic package?
2042 MR. SMITH: I think, Mr. Chairman, we would recommend that you rely on market forces because clearly they are achieving the objective today, which was I think Mirko's second principle.
2043 THE CHAIRPERSON: I'm sorry?
2044 MR. SMITH: Our recommendation is that market forces are already causing us as a distributor to carry those services, so we recommend that the Commission does not need to regulate that they must be contained within basic because we already carry them, despite the fact that they are not must carries under the current rules.
2045 THE CHAIRPERSON: And each group operating on a national basis, that I assume is code for CTV, Global and City?
2046 MR. SMITH: Chris, can you expand on that?
2047 THE CHAIRPERSON: And CBC of course.
2048 MR. FRANK: Yes. It would be CBC, Radio‑Canada, CTV, their two networks, TVA and Rogers City, that's correct.
2049 THE CHAIRPERSON: TVA is considered national by you, is it? That was my question.
2050 MR. FRANK: I believe it is considered national, yes, sir.
2051 THE CHAIRPERSON: Okay. You heard yesterday CBC here complaining bitterly that for instance people in Québec City do not ‑‑ the Québec City signal is not carried by I think it was you. Was it you? Was it you they were talking about? And the Gatineau signal was not available on DTH.
2052 When you say on a national, you are including CBC and CBC French.
2053 Would that mean that one station for all of Québec or would you have more than one station? How does this work?
2054 MR. FRANK: Currently, we have two stations in Quebec, one from Quebec City and one from Montreal. When we added the Quebec City station, we discussed at length with the CBC which station they would like and they chose overwhelmingly Quebec City.
2055 Now, from coast to coast we carry six Radio‑Canada owned and operated stations: one from Moncton to serve L'Acadie; two from Quebec, as we have just talked about; one from Manitoba, Winnipeg; one from Alberta, Edmonton; and one from British Columbia, Vancouver.
2056 So we carry six owned and operated Radio‑Canada service.
2057 We also carry other, within Quebec, affiliates of the CBC. Radio‑Canada gets more local stations than any other French language station group on our service.
2058 THE CHAIRPERSON: Okay. And you say "the service of at least one local affiliate of each of the main station groups".
2059 If I look at that literally, that could mean that you are carrying Global from Toronto but you don't have to carry it from Winnipeg, from Edmonton or Vancouver. Yet, you know, the news from Toronto may not be what the people in Edmonton want to see.
2060 MR. FRANK: Currently, sir, we carry nine Global affiliates from coast to coast. As Gary said, a combination of negotiations with the Canadian Association of Broadcasters and our own sense of time zone sensitive local and regional television distribution has led us to carry those nine.
2061 So what we are talking about is the minimum, the minimum requirement. I think you can expect us to exceed that minimum requirement, as we have done since the inception of our service, by quite some distance.
2062 THE CHAIRPERSON: So the reason why you don't want to put it in this is really for negotiating purposes. You feel if you are obliged to carry them, then you are in a disadvantage in your negotiations.
2063 Is that it?
2064 MR. SMITH: If I can just interject here, Chris, one of the critical reasons for this is because of the growth of HD services, is that satellite technology is not appropriate for carrying local, inter‑local in Canada.
2065 Physically, as I explained in my opening statement, we would have to carry a significantly larger number of services than we do today. Now, that situation exists in both SD and in high definition.
2066 When you look at high definition, we would be unable to carry high definition services to the same extent we carry standard definition services and we were proposing a basic package which provided both.
2067 The reality is, as you can see from our current packaging, we do carry many more than just one signal from each of the national networks in standard definition, but in high definition I think our written submission was that we expect to carry two, one east, one west, and we believe that the regulation should be a requirement for one only.
2068 MR. FRANK: If I can just add to that, Mr. Chairman, your question about our negotiations with the CAB, I would note for the record that a cornerstone of the existing or last deal that we did with the CAB was equitable treatment of all of the station groups, and we have attempted to do that.
2069 We have, for instance, nine Global signals, nine CTV signals, nine CBC. And as you go down the list, there is equitable treatment based on size and reach.
2070 THE CHAIRPERSON: Sorry, I'm getting confused here. Maybe you can explain to me.
2071 So basic service of at least one of each major station groups. Now you tell me you carry nine Global and nine CTV, et cetera.
2072 I'm not an ExpressVu customer so I don't ‑‑ educate me here.
2073 If I sign up and I get the basic package, would I get automatically all nine or would I get one and I would have to pay for the additional eight?
2074 MR. FRANK: At the present time, you would get the ‑‑ if we are talking about Global, you would get nine, yes. In all of the other station groups there are similar equitable numbers.
2075 So we do provide multiple variants at this point all across the country.
2076 THE CHAIRPERSON: As part of your basic package?
2077 MR. FRANK: As part of our basic package.
2078 THE CHAIRPERSON: And you are proposing in future to do less?
2079 MR. SMITH: Not necessarily, Mr. Chairman. I think we have to distinguish between what we actually do as a result of both regulation and market forces and consumer demand and the proposed regulation.
2080 Our proposal for what should be regulated, minimum content of a basic package, is different to what we currently carry. I don't expect in the near term to be changing our current packaging whereby we do make available many more than one signal per network group across Canada.
2081 THE CHAIRPERSON: But as part of the obligation, you want the obligation to have only one per group?
2082 MR. SMITH: That's correct. It particularly works in high definition.
2083 THE CHAIRPERSON: Not per group. Not per group, but per province as some of the interveners have suggested.
2084 MR. SMITH: No. Correct. It is, for example, per group, per time zone for example in standard definition is what we effectively currently do. We actually go further than that, but we couldn't do that in high definition. The economics simply don't work.
2085 THE CHAIRPERSON: Okay.
2086 The second issue, the whole issue of guaranteed access for specialty and pay services, if I understand it, you basically think that is not needed any more?
2087 MR. SMITH: Correct. We think that the existing regulatory environment was created back in 1993 when there were many, many fewer Canadian services than there are today.
2088 In fact, ExpressVu has been at the forefront of helping those services launch in the digital world. Back in 1998 we created the digital platform and we have been launching many Canadian specialty services and other services since then.
2089 We think the market has matured significantly. There are 400 or 500 services available on our platform and also on some of our competitors' platforms. These businesses, these broadcasters have created good brand recognition amongst consumers. They have created, you know, good viewing figures and we don't think that they need the protection of the must carry anymore.
2090 THE CHAIRPERSON: And so if we granted your wish how would it change your offering?
2091 MR. SMITH: In the short term I don't think it would change it very much at all, Mr. Chairman. I think ‑‑ you asked our colleagues from Rogers yesterday about whether there should be ‑‑ I think you were talking about transition arrangements or something. And I think that our position on that would be that we would think it would be sensible for the Commission to signal by giving a notice period of perhaps two or three years for the must carry status of the existing channels to be withdrawn and the channels would then have to stand on their own feet.
2092 But in the short term I think that, you know, our packaging wouldn't change and I think that all the time the services continue to be successful and deliver good viewing figures then they will continue to be part of the line up as they are today.
2093 THE CHAIRPERSON: And in future I guess you have suggested that we do not create any new services that would have guaranteed service. I mean what I discussed with Rogers yesterday was, you know, whether you basically sort of give people the leg up or start up to the new service, et cetera. It has to establish itself, et cetera.
2094 So it would have guaranteed service for the extent of its first licence term after which it will be in the same position as everybody else?
2095 MR. SMITH: That is our position I would like to ask Mirko to expand upon.
2096 MR. BIBIC: Well, I'll turn it back to Gary in a second. He can talk about the business issues surrounding a proposal like that.
2097 From my own regulatory perspective and this notion of protecting new services ‑‑ brand new, protected and in some regulated industries, my experience has been that those who receive regulatory protection don't ultimately like to grow up and then when it's time to become an adult they throw tantrums. And it hasn't ‑‑ it's not uncommon for regulators to accede to those requests at a certain point in time.
2098 So if we have a seven‑year licence term, even with no extensions that's a fairly long time and close to the shelf life of a regulatory framework, frankly. And then there is always the risk of an extension and I don't think the Commission can guarantee that there wouldn't be any. So you can have an end result with a fairly constrictive regulatory framework where practically everything becomes a guaranteed access.
2099 Fundamentally, we believe that if a new service is to be launched it should succeed or fail on its own merits, and there is absolutely nothing wrong with that. Of course, I wholly subscribe to Gary's viewpoint about a transition period for those who currently have must carry status and we shouldn't lose sight of the fact that ultimately the preponderance role which we support would provide a measure of protection as well.
2100 THE CHAIRPERSON: But I mean, as you know, guaranteed carriage doesn't come for free. It is coupled with higher Canadian content and higher CPE expenditure requirements, et cetera, which takes us to the next point of genre protection which you say, "Let's let go of it".
2101 So how do you see us getting from where we are now to this new world that you are propositioning now of no guaranteed access and no genre protection between Canadian channels? I mean how do we put them all on the same level of obligations?
2102 MR. SMITH: Well, I think we liked Rogers' proposal yesterday that this is done by maintaining genres although it will be perhaps wider genres. And Rogers' proposals yesterday of, I think, five genres would be something that we would support.
2103 We feel that if the level of Cancon obligations, CPE per genre is constant and is in fact created by the Commission to be an average of the services which currently occupy that genre both in must carry status and in non‑must carry status, then the Canadian content and CPE obligations of the industry remain on average constant although you may get some flow from one broadcaster to another and you get a transition period of perhaps three years for the industry to adjust to that new regime.
2104 THE CHAIRPERSON: Put some flesh on the bones for me if we establish these four genres that Rogers talked about, say lifestyle.
2105 MR. SMITH: Yes.
2106 THE CHAIRPERSON: You have a Category 1. We in fact (0930@5:13) have Category 2 here.
2107 MR. SMITH: Yes.
2108 THE CHAIRPERSON: They have totally different content obligations and CPE obligations. How do they harmonize the two? Say we give them a five‑year period or whatever and then at the end of that what happens?
2109 MR. SMITH: Well, I think the Commission would look at those services today and would work out what the CPE and Cancon obligations would be if the Cancon obligations were to be harmonized across all those players even though at the moment they have a discrepancy.
2110 THE CHAIRPERSON: So if one is 15 and the other one is 16 we bring them both to (0930@5:44); that's your suggestion?
2111 MR. SMITH: Well, you would look and take into account the number of services with the different obligations but yes. And then the Commission would signal through the results of this hearing to those broadcasters that in three years' time, say in 2011 or 2012, that will be the obligations of everybody in that market without must carry ‑‑ those without must carry status would have lower obligations. Those ‑‑ sorry ‑‑ those losing must carry status would lose some obligation.
2112 Those currently not without must carry status would actually have a slightly higher obligation going forward but it would create a truly competitive market, which is where this industry needs to take these broadcasters.
2113 THE CHAIRPERSON: And what do the Cat 2s get in return for increasing their Canadian content and their CPE?
2114 MR. SMITH: Well, we would also support the proposal that genre protection is removed so that these services can compete more effectively with each other and they can morph their services into other parts of the same genre or perhaps even into other genres as we discussed yesterday.
2115 We do feel, though, that if the services wish to morph outside their existing genre or morph so that that they become a service which serves two genres then the proposal yesterday that this service should attract the Cancon and CPE obligations of the higher genre would be appropriate.
2116 THE CHAIRPERSON: And genre protection vis‑à‑vis foreign services?
2117 MR. SMITH: We believe it should be retained.
2118 THE CHAIRPERSON: In its present form?
2119 MR. SMITH: Yes, we think that the ‑‑
2120 THE CHAIRPERSON: So basically no duplication test rather than what Rogers suggested yesterday which was a viability test?
2121 MR. SMITH: Yes, we think the current genre protection regime with regard to the presence of foreign services into the Canadian market ‑‑ it works quite well and it can be retained. It needs to be done on the sort of specific basis that it is done today and particularly if you go to the wider genre definitions that Rogers were proposing yesterday then looking at it on a genre basis is meaningless because there is so many services in each genre.
2122 THE CHAIRPERSON: That's exactly where I was going. I buy your idea we have broad genres. We harmonize everybody. Now comes a foreigner and wants to come and wants to have permission (0930@8:03) to be carried here by a BDU. So how do I relax the genre protection with regard to a foreign service; the present one, in a world of these broad concepts rather than the specific genres that we have now?
2123 MR. SMITH: Well, can I ask my colleagues to contribute here?
2125 MR. ELDER: I think the problem, Mr. Chairman, is the U.S. doesn't really follow Canadian genres. So you are in ‑‑ whatever way you classify it you are going to be in a position that on a case‑by‑case basis you are going to have to assess any given U.S. service against a Canadian service and, really, the test would be whether there is material overlap between the services.
2126 You would look at the genre programming, type of program and the size of the audience, scheduling; a whole range of factors, more or less what you do today. But I don't see a way out of that. Whatever genres we put in place the U.S. is not going to respect them and they are going to put together services as they please.
2127 THE CHAIRPERSON: And every time you say case by case I am sort of putting myself in the position of an applicant and I have no idea of whether they are going to approve it or not because there are no rules. This is going to be done case by case.
2128 Don't we owe it to the industry to give them some predictability as to what will be the rules, how we are going to judge an application? If I say, "Yes, it will be done on a case by case" ‑‑ we have this big genre called lifestyle. Well, we will look at ‑‑ once you come forward with a specific channel we will look at whether this is in effect a clean conflict or not. It's on a case‑by‑case basis, come forward, give it a whirl. That's basically what you are saying.
2129 MR. ELDER: Well, yes and no. I don't think it's completely open ended and we certainly, as much as anybody, appreciate certainty. But I'm just not sure how far you can go here given the realities of the marketplace that's between Canada and the U.S.
2130 So what you can give people is your test, is the approach that what you will take. And so as people are coming forward with new services if they want to get a new U.S. service authorized for distribution in Canada they have some idea of the tests that they have to meet and they will be looking around at other existing Canadian services to see whether there is material overlap.
2131 MR. SMITH: Could I just add to that, because I think from a business perspective any business owner looking to launch a new service in the Canadian market they are going to be highly, highly focused on the services that they are going to be competing with most closely.
2132 So most of the analysis that the Commission would need to do in this case would have to have been done by the applicant anyway to find, you know, a business justification for entering the market. And they will be well prepared to answer the Commission's questions in respect of services that they would see them competing with.
2133 THE CHAIRPERSON: Oh, I'm sure they are going to make wonderful presentations and elaborate arguments. It's me trying to make a decision and trying to make it consistent and trying to indicate a rule or a line that we are raising (0930@11:06) of the following for the industry. When you have broad categories such as suggested by Rogers yesterday I think it's not going to be easy at all.
2134 MR. SMITH: I think ‑‑ Mr. Chairman, I think the broad categorization we have to bear in mind, but the only real reason for the genre categories to be retained is to maintain a set of CPE and Cancon obligations by genre. So assuming that the genre ‑‑ sorry ‑‑ the Cancon and CPE obligation for say drama are going to be different to news then you need to maintain genres. But that's the only reason for the genres. The interruption of foreign services would need to be done as a test on a case‑by‑case basis and the genres don't really help that at all. They don't have any bearing.
2135 THE CHAIRPERSON: And how do you square this with the point you made before, with the ability to morph and having no genre protection between the Canadian services? Are these foreign services, if we allow them in, limited to their genre or if they try to morph and change do they have to reapply to us?
2136 MR. SMITH: I will invite my colleague to add to this answer but I think that the genre ‑‑ sorry, the licence conditions associated with foreign services would need to be specific to that service and licence the service for a particular purpose and the use of the genres again wouldn't help because they would be much, much wider than the Commission would want to define the permissions of that service to operate.
2137 THE CHAIRPERSON: So while we allow Canadians to morph foreigners are constrained to the genre in which they apply?
2138 MR. FRANK: Mr. Chair, I'm not sure that that's practical. History has taught us that American stations morph without consultation to their Canadian clients ‑‑
2139 THE CHAIRPERSON: Hence my question.
2140 MR. FRANK: ‑‑ or the CRTC. So I think the underlying principle here is that we are promoting or we are advocating competition within the Canadian programming industry with a very, very strict eye on a distinct Canadian rights market.
2141 So foreign services that come into Canada where there is overlap or significant potential competition with Canadian services presumably would not pass the Commission's test. And their obligations, as we see it too in respect of rights, exclusive rights, if American companies have exclusive rights then that will block Canadian companies from accessing foreign‑produced programming, so not good for the Canadian market; inconsistent with the principle we are advocating.
2142 THE CHAIRPERSON: But you haven't answered my question. I mean the issue is you have advocated a relaxation of genre for Canadian channels. I understand that. You want to have all genre categories along the lines of what Rogers has suggested.
2143 But now when it comes to foreign services who, as you just said, morph very easily, et cetera, do we apply the same genre test or if not ‑‑ and assume somebody is fine. You say, "Yes, you can come in and we don't see you conflicting with anything there." But then being American they change the genre and at that point in time we basically say, "Well, too bad. Now, you are competing head on with whatever Canadian specialty channel there is. That's too bad. You are in; you are in." Now, surely that's not what you are advocating.
2144 So we have to ‑‑ that's why I am trying to figure out how you deal with foreign channels which are let in under your test, this present one or a future one, because essentially they are not competing with an existing genre but they then change the genre. Presumably, you want some protection against that or do we just say, "Well, the Canadians have been there before. They are established. Let them take on whoever comes"?
2145 MR. SMITH: Mr. Chairman, you know, it's a tough, tough question because, you know, Bell Canada doesn't want to keep out foreign services which are genuinely going to add value to the Canadian consumer experience and the system isn't intended to keep them out entirely. We need to protect Canadian rights and Canadian broadcasters' interest to the greatest possible extent but we have to do in ways that work.
2146 Bell's position is that the use of genres in the future, we feel, does really only have applicability to the issue of Cancon and CPE and unless you were to go in the opposite direction and narrow the genres really tightly and then enforce them for foreign services, then the use of genres is only relative to Cancon and CPE applications.
2147 The foreign service issue is a different issue. It means that the licence conditions associated with the foreign service being licensed for distribution in Canada need to contain ‑‑ need to limit that service. The question then becomes what are the consequences when that service steps outside its boundaries and I think that is an issue that we are happy to take away and perhaps address in reply.
2148 THE CHAIRPERSON: Well, I remind you that Rogers yesterday ‑‑ I mean I questioned him on this point ‑‑ suggested that for foreign service the existing genre of protection stays in place. Their whole idea of broad categories only applied between Canadians.
2149 Mr. Rogers quite categorically said: No, for foreigners, the present system just works fine, unless I misunderstood him. So maybe you want to take that same position.
2150 As you know, there will be an ability for you to come back but I think you should expound on this in your further submission because this is going to be a big issue: Foreigners morphing genres, how do we treat them under your revised system.
2151 MR. SMITH: Okay, we will take that and respond in reply, Mr. Chairman.
2152 THE CHAIRPERSON: Okay. Fee‑for‑carriage, I gather you are great enthusiasts of it?
2153 MR. SMITH: I am sorry, Mr. Chairman?
2154 THE CHAIRPERSON: Fee‑for‑carriage, I was making a joke, I said you are full of enthusiasm.
‑‑‑ Laughter / Rires
2155 MR. SMITH: I don't think it is a laughing matter, Mr. Chairman.
2156 THE CHAIRPERSON: The discussion we had yesterday with Rogers, et cetera, as you know, and I have said it publicly and I will repeat it here, our whole system is built really around the conventional broadcasters, who we consider the cornerstone, and we impose on them local content requirement, drama for protection and also CPE exposure, whatever you want.
2157 It has worked very well in the past but their business model is becoming increasingly under challenge and they have made ‑‑ and you have seen their submission ‑‑ an elaborate plea for a fee‑for‑carriage, saying that: In effect, we provide content that you the BDUs want, that the customer wants, and you are offering ‑‑ you know, people don't buy your offering just in order to get specialty channels, they also get it to get a clear, crisp conventional signal now and digital or HD in the future. Why should we not be paid for it? The compensation that we had in the past of advertising and income tax benefits was great when we were the principal source of providing advertising means. Now that a lot of advertising is done differently, especially over the internet, we need an additional income source in order to maintain our traditional obligations under the Broadcasting Act.
2158 I gather you don't accept this argument and I would like you to elaborate on this.
2159 MR. SMITH: We don't agree. We have made the point in our written submissions and without wanting to repeat all of the statements that were made yesterday by the representatives from Rogers, we feel that the broadcasters concerned simply haven't established that there is a problem to solve here.
2160 We look at their profitability, we look at the average profitability of distributors in Canada and we look at our own profitability, which is at the bottom end of the distributor scale, and we don't think that there is a problem. The advertising revenues are growing, albeit slowly but they are still growing.
2161 And the broadcasters need to deal with these issues as they move into the future, just as other players in the industry are dealing with our challenges, such as we have a huge transition from standard definition into high definition which involves huge investment by our shareholders and further defers the point at which Bell ExpressVu is going to generate any cash for our shareholders, and yet, we are stepping up to the plate. We are investing and we are investing in an extra satellite capacity to be able to carry these services.
2162 And we think the broadcasters need to evolve their business models as we are evolving ours and not come to the regulator for a regulatory fix.
2163 MR. BIBIC: Mr. Chairman, at the risk of being controversial, I would like to address this point of local broadcasters as the cornerstone, and while I wish them the best and I hope they do well, I am personally not particularly sympathetic to the challenges they face. We all face them and that is how it goes.
2164 I do understand the challenge you are facing. It can't be easy to find the right balance and we struggled with that ourselves when we put together our proposal.
2165 I think the problem is that or the difficulty is that the Act when you read it doesn't actually prescribe a particular amount of local programming as being necessary. It also does not prescribe or state that local over‑the‑air broadcasters are entitled to a guaranteed rate of return. So the Act is open as to how much local programming is the right amount, either in absolute terms or in relative terms vis‑à‑vis regional and national programming.
2166 So in the absence of that, you are left to make a judgment and I don't think we should necessarily subscribe to a point of view that while local broadcasters have been the cornerstone up to now and have done quite well, who knows what kind of delivery system will become the cornerstone in the future to advance the cause of Canadian expression, local, regional and national.
2167 So my point being because they have been the cornerstone and they have done quite well, they are meeting the objectives of the Act and the system has worked, I am not sure that there is a need to have fee‑for‑carriage, to stand still in order for them to meet the current requirements or even to do more. While more would be good, I don't think it ought to be on the back of fee‑for‑carriage.
2168 THE CHAIRPERSON: Your present service ExpressVu, if you offered it without conventional broadcasters, do you think anybody would buy it?
2169 MR. BIBIC: I am not saying we wouldn't carry it. I do concede that they are doing a good job.
2170 THE CHAIRPERSON: That is what I mean, they are an essential part of the broadcasting system. The appeal of ExpressVu or Star Choice or Rogers Cable or whatever is that they deliver the whole gamut and you pay for part of the gamut and not the other.
2171 That is the argument. If you think that argument is wrong, I am just appealing it, that is what I am being told by the conventional broadcasters.
2172 MR. BIBIC: What I am challenging is the link. They are an important component of the broadcasting system and of course we carry them and of course they are watched.
2173 But we are meeting the objectives of the Act currently with the programming commitments that they have and that they step up to and that they have the means to deliver, and there are challenges, and we all face challenges, and there are ways around those challenges where you need innovation and creativity.
2174 I am challenging the next step in the logic, which is, well, we are struggling, and therefore, fee‑for‑carriage.
2175 I mean if I take CBC's submission from yesterday, anytime there is a shock to the system, fee‑for‑carriage. If there is a recession, fee‑for‑carriage. If labour costs go up, fee‑for‑carriage. If the programming is lousy and advertising revenues go down, fee‑for‑carriage.
2176 I mean that can't be the solution to every single problem in the broadcasting industry.
2177 THE CHAIRPERSON: No, but you are picking a bad example because CBC, as you know, is a not‑for‑profit organization, public broadcasters with special responsibilities, et cetera.
2178 Let's take the CTV or Global. As I said, I don't think anybody would subscribe to your service unless you carried those stations and so therefore, you clearly get a benefit and that is their point. They, of course, get a benefit too because people get their signal much better, et cetera.
2179 MR. SMITH: Mr. Chairman, you know, I would just like to remind the Commission that while we don't pay fees to the broadcasters, there isn't a fee‑for‑carriage at the moment, we incur significant costs in carrying those services.
2180 We have to fund the entire platform and fund satellite bandwidth to carry them and these broadcasters already enjoy significant benefits. They enjoy the benefit of simultaneous substitution, they enjoy the benefit of must‑carry status and other benefits by virtue of their status.
2181 We feel that taking into account that they really haven't demonstrated that they have a problem here because they are profitable, they are spending increasing amounts every year on U.S. programming, that this does seem to be that they are crying wolf and coming after the distribution community for a regulatory fix that just isn't appropriate and the distribution industry can't afford it either.
2182 THE CHAIRPERSON: The line of questioning I had yesterday with Rogers basically said it is just a money grab and what does the customer get more by a fee‑for‑carriage. My point was, you know, you are assuming that the fee‑for‑carriage is without strings, it may very well be with strings.
2183 Would that, in your view, make the fee‑for‑carriage more acceptable?
2184 MR. SMITH: No, Mr. Chairman. I think that our objections to the fee‑for‑carriage are fundamental and we just don't feel is appropriate.
2185 If the broadcasters are given any new source of revenue, wherever it may come from, we would expect the Commission to take a view as to whether that new source of revenue should be attached to other obligations such as increased CPE or increased Cancon.
2186 So I would certainly divorce the ‑‑ you know, I would have no objection to the Commission's suggestion that if there is an increase in revenue sources for the conventional broadcasters that I would expect the Commission to review their Cancon and CPE obligations. That would be the sensible thing to do but we still don't agree for fee‑for‑carriage, I am afraid.
2187 THE CHAIRPERSON: But yet you feel as a distribution you are entitled to more income by being allowed to advertise?
2188 MR. SMITH: I think there is advertising inventory in the market which is being under‑utilized right now, so I think there is an opportunity for the industry to benefit. It is a very modest change.
2189 THE CHAIRPERSON: Yes, but us granting you that, if we accede to your wishes will undoubtedly mean new streams of revenue for you?
2190 MR. SMITH: I don't disagree with the Chairman, of course, but I think the key factor is that it is a very small source of revenue. We have estimated the total value of the advertising inventory that we would gain access to if the Commission accedes to our request to be about $20 million per annum. Now, $20 million per annum is tiny compared to the size of the advertising pie accessed by the OTA broadcasters.
2191 THE CHAIRPERSON: Twenty million, that includes both local avails, community channels and everything?
2192 MR. SMITH: Well, don't forget, for ExpressVu we really only have the local avails on the U.S. channels. The advertising inventory that Rogers were referring to yesterday, things like VoD, VoD is not a satellite capability and we don't have community channels of our own.
2193 THE CHAIRPERSON: What about the targeted advertising that Rogers was talking about, you know, doing specific inserts targeted ‑‑ you know who your customers are, you must have more or less the same database that Rogers has as to customers, what they view, et cetera, so the ability to insert different ads in different programs in order to target different audiences.
2194 Are you technically capable of doing it? Rogers claims they are.
2195 Do you see this is a potential new source of additional income that could be shared with broadcasters?
2196 MR. SMITH: Well, I always have to remember though, I have multiple hats sitting in front of you, Mr. Chairman.
2197 From the point of view of our ExpressVu satellite business, then the technology does not lend itself to the same form of dynamic ad insertion that Rogers was describing yesterday.
2198 Obviously, our wireline interests in the Aliant TV service would have that capability. I think it is an attractive opportunity and I would encourage the Commission to certainly be very flexible and not introduce any barriers that would prevent the introduction of such technology because it is a good thing, it does increase the value of advertising inventory where it is available.
2199 On the ExpressVu platform we don't have that option. The example that was used yesterday, I think it was a car manufacturer distributing an advertisement for a car in one locality and a truck in a different locality. The satellite distribution carries one signal with the adverts embedded in the stream and practicalities mean that it is not really feasible to divide the stream up and have different versions of the ad every 15 minutes.
2200 THE CHAIRPERSON: But on your IPTV site where Aliant is quite successful ‑‑
2201 MR. SMITH: It is very feasible and I would like to take advantage of that opportunity as the technology develops further.
2202 I would agree with Rogers, I think it is going to take some time to develop and it is not going to ‑‑ the first versions of this technology are going to be very simple. They are going to have one version of the ad in the west and one version of the ad in the east.
2203 But ultimately it could get down to the stage where you have 20 different versions of a particular advert and it is targeted by household in the way that I think Mike Lee was describing yesterday.
2204 THE CHAIRPERSON: And you share Rogers' view that this is one way to keep the advertising in the broadcasting system rather than having it migrate to the internet which obviously is much easier to target audiences?
2205 MR. SMITH: Yes. One of the reasons for the migration of advertising away from conventional television is because conventional television is only targeted to a certain extent and some of the alternative advertising methodologies that exist, particularly advertising on the Web, are much more highly targeted. So advertisers can get better bang for their buck by putting their adverts on different platforms.
2206 If we can increase the effectiveness of advertising on the television generally, then it is a good thing. It retains advertising value in the industry and we would encourage it.
2207 THE CHAIRPERSON: Okay. CBC yesterday ‑‑ at least that's how I understood them ‑‑ proposed a broad bargain: give us fee for carriage and let the distributors have advertising, so a quid pro quo.
2208 Now, we can talk about the amount of fee and the amount of advertising that the BDUs could do and where and on what programming, et cetera, but do you see this as sort of a logical way of balancing things out and having a win‑win situation?
2209 MR. SMITH: No. I think for our business, the majority of our customers being on ExpressVu and we don't have access to many of those advertising sources, it isn't a solution and it doesn't change the fact that we fundamentally disagree with the cause, the problem that is perceived to cause fee for carriage. We don't think fee for carriage is the right solution.
2210 THE CHAIRPERSON: Okay. And on distant signals, you just today said something categorically different from what Rogers said yesterday. Rogers said distant signal is a DTH problem. We pay for distant signals.
2211 Are you telling me you are paying for distant signals, too?
2212 MR. SMITH: Yes. We have a benefits package, and I will invite Chris to expand upon this.
2213 We have a benefits package that was negotiated with the Canadian Association of Broadcasters which provides some cash and services, and the combined value of that is 43 cents per subscriber per month.
2214 So that is the cost to us of carrying distant signals.
2215 I just wanted to correct Rogers, who are probably not particularly familiar with the commercial arrangements we have.
2216 THE CHAIRPERSON: Is that more or less than Rogers is paying?
2217 MR. SMITH: I would have to go back and study Rogers' testimony I'm afraid.
2218 Something I wish to point out, Mr. Chairman, is that the negotiations that have taken place in the past have been between ExpressVu and the CAB and one of the reasons for that, and one of the reasons ‑‑ and for the same reason we would encourage the Commission to ask us to go back to the negotiation table with the CAB and the broadcasters is that the solutions to this are technology specific.
2219 Rogers made the point yesterday, quite eloquently, that they have the opportunity to discuss with the broadcasters the use of their VOD platform to carry I think they called it companion channels to thereby avoid the distant signal issue.
2220 Clearly satellite doesn't have that capability. We have different alternatives and in fact we have negotiated those in the past. And therefore that makes the solution to this problem, such as it is, broadcaster specific ‑‑ sorry, distributor specific, and we think therefore that is best dealt with in a negotiated way rather than by the Commission trying to mandate one solution which is not going to work for maybe some or all of the distributors concerned.
2221 THE CHAIRPERSON: I entirely agree with you. If you can work it out and if we can stay out of it, that's fine by me.
‑‑‑ Laughter / Rires
2222 THE CHAIRPERSON: The CAB will be here and we will be talking to them about this very issue, et cetera.
2223 But, as I say, this was news to me when I heard you this morning saying that you are actually paying.
2224 MR. SMITH: Yes.
2225 THE CHAIRPERSON: This is an existing agreement?
2226 MR. SMITH: Yes. Could I ask Chris to perhaps ‑‑
2227 THE CHAIRPERSON: Are all existing carriers ‑‑ do all national stations benefit from this?
2228 MR. SMITH: Could I ask Chris to give us some history to this because I think it might be useful for the Commission.
2230 MR. FRANK: The agreement that you speak of, Mr. Chairman, is expired but it is still in effect and we are awaiting the opportunity to sit down and renegotiate this deal.
2231 As Gary said, we led the past negotiations and drove to a solution with the CAB. It is the second comprehensive arrangement for distant signals that we have entered into during our history. I think that we have been forthright and absolutely in earnest in these negotiations, and I think that the solutions that we have come up with are good for both sides.
2232 Ideal for both sides? Probably not. But in the ebb and flow of discussion, a reasonable deal.
2233 The issue of payment, the last deal required us to add some 25 new services. That is approximately 2‑1/2 transponders. Those are transponders that we cleared off specifically for these stations, and I think both parties agree that we wouldn't ordinarily carry those services. It included new services, stations from large groups and the majority from small, independent groups, which at the time the Commission was very, very concerned about.
2234 A companion piece of the deal set up a fund for local programming for those small independent services.
2235 So if you look at the costs associated with those specific transponders, which are dedicated to these incremental channels, if you look at the backhaul costs associated, the uplinking and encoding costs, you drive to the 43 cents that Gary was talking about.
2236 THE CHAIRPERSON: Is this agreement only between you and the CAB or does it also include Star Choice?
2237 MR. FRANK: The deal was originally struck, sir, between ExpressVu and the CAB. It came to the CRTC for approval and it was modified slightly by the CRTC. As a result, it was an arrangement that by regulatory requirement affected both DTH companies.
2238 THE CHAIRPERSON: Okay. Back to distant signal, not distant signal, fee for carriage. I know your dislike for it, and I also read your submission that you don't believe much in the studies, the economic studies done by CTV and Global.
2239 What would happen, do you think, if we did propose a fee for carriage? What would be the impact for ExpressVu?
2240 Let's say for argument sake, take any figure that has been floating around, 50 cents per signal, et cetera.
2241 MR. SMITH: Well, I would caveat my answer by hoping that we are talking about hypothetical situations here. But given that, if we were to be asked to pay a fee for carriage of the local services, we would need to pass that on to our subscribers in some form.
2242 The profitability of ExpressVu is not high. As I have mentioned in my opening statement, we still haven't reached the stage of being cash flow positive even after 10 years. So we have less capability to absorb any price increase or costs incurred upon us compared to any other distributor.
2243 We also don't have any offsetting interests in any broadcaster groups. Rogers yesterday, they have the Citytv services which would benefit from this, so they have some degree of offset whereas we have no such offset in ExpressVu.
2244 So we would have no choice but to pass this on to our subscribers, and we would think very long and hard about how to do that.
2245 I wanted to take an opportunity to expand upon some of the economic issues that Rogers were explaining yesterday, because if the fee were to be imposed at, say, $1.00, the total cost to ExpressVu was $1.00, that doesn't mean that we would only pass $1.00 through to customers.
2246 I wanted to explain why that is, because it is quite important. When we undertake a price increase for any reason, we expect a certain number of customers to churn from the platform, to leave the platform, and we also expect some customers to choose to subscribe to less programming of a discretionary nature. So they will spin down and consume less specialty services.
2247 We also expect to have to give some customers what we call satisfaction credits. They phone up, they complain about the price increase and we manage to persuade them to stay as a customer by perhaps giving them a small discount for a period of time.
2248 When you take into account the amount of the price increase times the number of customers that it applies to, but then take off the loss of revenue associated with churned customers, customers that you may be giving satisfaction credits to and customers that actually choose to spin down and buy less, the net effect of the price increase is significantly less than the actual headline price increase.
2249 Now, to reinforce this point, if you have looked at ExpressVu's financial results for the last two or three years, you will see that we have successfully grown our average revenue per user, our ARPU, every year, but the majority of that ‑‑ and we have also, if you have been following the market, you have seen that we have applied price increases. To an uninformed observer it would look like we generated those ARPU increases from the price increases.
2250 The reality is most of the ARPU increases that we generated have come from selling more programming to customers. We have been very successful about persuading customers to buy HD services and to buy movie services and all of the other discretionary theme packs we carry. That has accounted for the majority of our ARPU increase, and the price increases we have applied have only accounted for maybe a third of it.
2251 Now, that means that if we were to have a fee of, in my example, $1.00 applied by the Commission for fee for carriage, and then it is likely that we would have to look to a larger number than that to pass on to subscribers just to keep ourselves in the same position.
2252 I'm sure that given the opportunity, Rogers and the other distributors will tell you exactly the same. This is not unique to ExpressVu. This is just the economics of a distribution business.
2253 THE CHAIRPERSON: I understand the economics. I'm not too sure I think the consumer behaviour will necessarily be what you predict it is.
2254 I mean, you must have had price increases in the past and you must have churn rates and seen what has happened when you raised your fees in the past.
2255 MR. SMITH: We very much ‑‑
2256 THE CHAIRPERSON: Can you file those with us on a confidential basis? I would like to see where ‑‑ you know, it is one thing to say if we increase by $1.00 and we pass it on to consumers, we will lose 20 per cent, et cetera. Since you have empirical evidence in the past of what happened when you had price increases, you know, I would like to see in effect what the sensitivity of consumers is to that.
2257 MR. SMITH: We could certainly file some information on a confidential basis with the Commission. Obviously it is very commercially sensitive information.
2258 THE CHAIRPERSON: Obviously on a confidential basis.
2259 MR. SMITH: But yes, that would be possible and we can do that as part of the reply round.
2260 THE CHAIRPERSON: Okay. Thank you.
2261 Since I was the lead questioner for you, I think those are my key questions, but I'm sure my colleagues have a lot of other questions.
2263 COMMISSIONER ARPIN: Thank you very much, Mr. Chairman.
2264 While we are on the topic of distant signal, could you tell the Commission how you have arrived at 43 cents? Yesterday we heard the number 50 cents and now you say that the real number is 43 cents.
2265 Is it a matter of negotiation or was it based on some calculation of some sort?
2266 MR. SMITH: As Chris described, the 43 cents is the total cost to ExpressVu of a package of measures, which includes contribution to funds and expenditure on services that we provided as a result of the negotiation that took place last time with the CAB.
2267 The outcome of the current negotiation is likely to be different and I wouldn't like to prejudge what that outcome should be because there are many factors.
2268 Rogers, for example, would come to the table with companion channels on VOD. We would come to the table with the tools that we have in our armoury to discuss with the CAB and hopefully reach a resolution.
2269 COMMISSIONER ARPIN: But still looking forward, so what you are saying is that the 43 cents is the cost to ExpressVu. It is not necessarily ‑‑ the 43 cents is not necessarily the money that is paid to this CAB?
2270 MR. SMITH: No, it's a combination of funding for a fund and services which we provide.
2271 Chris, do you want to expand on that?
2272 MR. BIBIC: I believe, Vice‑Chair, it is a per‑subscriber equivalent of the totality of the compensation we provide to the broadcasters.
2273 COMMISSIONER ARPIN: Yes, that's what I understood. But at the end of the day, how much money will the CAB get on a per‑subscriber basis?
2274 MR. SMITH: I must say just before we answer that question, Mr. Commissioner, the way we think about this is we have a package of measures that adds up to several million dollars a year, and yesterday when Rogers were quoting numbers we did some back‑of‑the‑envelope calculations to get to the equivalent cost per subscriber to inform the Commission.
2275 I think we could take away the details and if the details of this arrangement aren't familiar to the Commission, we could file them as part of our reply round so that the Commission is fully informed.
2276 COMMISSIONER ARPIN: I think if you could file them, we would appreciate it because obviously we know that you are looking to have a ‑‑ I know that parties are awaiting the outcome of this public hearing before entering into renegotiation of these agreements.
2277 Am I right?
2278 MR. SMITH: Yes.
2279 MR. FRANK: The key feature, Commissioner Arpin, is that the costs that we ascribe to this per‑subscriber amount are 100 per cent causally related to the arrangement we conducted with the CAB, and I think that the decision which approved it acknowledged that these were additional costs over and above what we would typically do.
2280 So we are bringing in‑kind and cash to the table to solve a problem that is difficult for both sides.
2281 If I might just for a moment correct my boss, the fund was not included in that particular calculation. Very important to note because the fund of course is "public monies". It comes out of our 5 per cent and it was something that we offered to provide the small local independent broadcasters with an opportunity to create new local programming so they could be more competitive in their markets.
2282 COMMISSIONER ARPIN: But that is an existing fund to the 43 cents.
2283 MR. FRANK: Yes, it is. That is the operative point.
2284 COMMISSIONER ARPIN: Now, in reading your application and your submission, particularly when I reviewed the CMRI study, I noted that one of their conclusions was that:
"The proliferation of distant out of market stations has declined significantly in English Canada..." (As read)
2285 And it goes on saying that to some extent there is no significant impact of distant signal.
2286 Now, that is a contrary view to what is said by the broadcasters who are claiming that it is a big issue. They are unable to monetize their out of market tuning.
2287 Could you explain to me how you did arrive at a very, very different conclusion than the broadcasters are arriving at?
2288 MR. SMITH: Well, Commissioner Arpin, we have with us today Barry Kiefl who is very, very familiar with the subject matter, so I will hand over to Barry to respond in detail.
2289 I think my analysis of this as the sort of business owner of ExpressVu is that there is actually quite strong alignment between our assessments and the broadcasters' assessments, except for a few key differences, which I have reviewed in detail with Barry and I think we can summarize for you quickly, that will highlight why we feel that we are right and they are wrong, quite frankly.
2290 Barry, over to you.
2291 MR. KIEFL: Thanks very much, Gary.
2292 The CAB and CTV CanWest did two separate studies, Mr. Commissioner. The first study for CTV CanWest was a study which grossly exaggerated the impact. I think the reason why was that included in their measure of distant signal viewing was all of the old analog U.S. stations and old analog Canadian stations that allowed distribution across Canada.
2293 They came out with a number of ‑‑ before it was significantly reduced by a factor of sellout rates, their first number was over $400 million, which is roughly equivalent to about half of the total advertising revenue of CTV or CanWest.
2294 So it was a number which I couldn't understand and in fact the study didn't have any details. It didn't explain what markets were studied, what stations were actually analyzed. It didn't provide any information whatsoever as to how the study was conducted.
2295 The second study for CAB, also done by the same consulting firm, Armstrong Consulting, actually used a methodology that was very similar to the CMRI methodology. It looked at just viewing of distant signals in the digital environment; that is, in DTH homes or in digital cable homes. The previous study didn't seem to do that, the other CTV CanWest study.
2296 So that in effect the second study mirrored what was done by CMRI, by myself.
2297 The process was basically very simple. We take all of the markets in Canada, isolate out all of the distant signal viewing in DTH and digital cable homes and then apply a revenue equivalents of that based on some factors that have been well established in the industry.
2298 The revenue equivalents, basically if you looked at the CMRI study and the CAB Armstrong study, would come out to roughly the same number. There isn't that much of a difference. The only real difference is that Armstrong Consulting failed to recognize that there was indeed a great deal of monetization going on in distant signal viewing.
2299 I went to the ACA, the Association of Canadian Advertisers, and to representatives of the Canadian Media Directors Council, looked at TVB data, trends in network revenue and local revenue in television business and talked to a number of individual ad agencies, a number of outside sources.
2300 I will note, by the way, that in neither of the Armstrong Consulting studies is any outside source other than the broadcasters themselves referred to.
2301 I went to the industry representatives who are responsible for buying the airtime on conventional broadcasting and they confirmed that one key element of distant signal viewing was indeed being monetized. And that is what is called network advertising, pure network advertising.
2302 When an advertiser buys an ad in Desperate Housewives or the Super Bowl when they want to reach the entire country, they pay a network rate and that network advertising is in fact completely monetized for all intents and purposes in distant signal viewing.
2303 It doesn't matter to the advertiser or to the agency that has made the buy that a person has watched the Super Bowl on a distant signal or a local signal or watched Desperate Housewives on a distant signal or a local signal.
2304 I ran my study by Sunni Boot, who is probably the most noted advertising agency head in Canada, and she confirmed in correspondence with me that network buys of course have the entire audience in distant signal viewing. And the ACA said something quite similar in correspondence that they shared with me. Those viewers are being counted, credited, valued and paid for.
2305 So I think it is basically unequivocal. It is not just my opinion; it is the information gathered from all industry sources that there has been a monetization of distant signal viewing.
2306 The question becomes I guess how much distant signal viewing ‑‑ I'm sorry if I'm going on too long here, but please cut me off if it is too long.
2307 The question becomes: How much distant signal viewing is being monetized?
2308 I used a very low estimate of 30 per cent. That was based on a number of different sources. CBC have said that about 50 per cent of their advertising revenue is derived from network advertising. Armstrong Consulting in his study done two years ago claimed that it was somewhere between 22 and 44 per cent.
2309 By sheer coincidence ‑‑ well, maybe it is not just a coincidence, CTV indicated in their submission on January 25th, before my study was filed, or the same day my study was filed, that 30 per cent ‑‑ exactly the same number that I used as a minimum ‑‑ of their revenue is derived from network advertising.
2310 I think what the difference is therefore is that the CAB have failed to recognize that there is some monetization. And my interpretation of what they have been saying all along when they repeat in their submission and in the CTV CanWest submission that they are not monetizing, I think what they are trying to say is that the local station isn't monetizing some of this viewing, but in fact other operators ‑‑
2311 COMMISSIONER ARPIN: So what you are saying is the network is monetizing, at least through the network sales, and that represents 30 per cent of their total ‑‑ not the monetizing, but the network sales. It's a significant portion.
2312 So that allows you to conclude that it is marginal, it could even be positive.
2313 MR. KIEFL: It could even be positive and in fact I think it is probably very slightly negative. You know, my best guesstimate would be that maybe on the English side it is in the single‑digit million dollar figure and on the French side, because of the way the French broadcasters sell the Québec market, it is probably about zero.
2314 MR. SMITH: Mr. Commissioner, I mean clearly the broadcasters have a different position, but Barry's analysis is very thorough and, as he has pointed out, he has consulted external sources which the other broadcasters haven't. So we have a great deal of faith in Barry's position on this.
2315 But even given that, in the past settlements we have negotiated settlements when we have given the broadcasters pretty close to Barry's worst‑case in these cases, to give them benefits and give them services to compensate them for the worst case of the situation.
2316 What we would like out of this hearing is an instruction from the Commission to the parties involved in this dispute to go away and try to resolve it again, as we have done in the past, because it has worked in the past and it can work again.
2317 I just wanted to ‑‑
2318 COMMISSIONER ARPIN: I will say that if you want to initiate negotiations right now, we don't have any problem with that.
‑‑‑ Laughter / Rires
2319 COMMISSIONER ARPIN: We prefer negotiated settlements to a decision made by the Commission, and I'm sure the broadcasters do prefer a negotiated settlement as well.
2320 MR. SMITH: Well, I think certainly the broadcasters have deferred entering into negotiations pending this hearing, so I think they were hoping for a regulatory fix. But we would encourage you to avoid that and ask us to go back to the table.
2321 We do have one further suggestion relating to the negotiation, and that is that if the negotiations reach a point where we have not reached agreement, we would be happy, as one of the key distributors involved in this issue, to abide by the decision of arbitration, so effectively accept binding arbitration as an ultimate resolution to this issue, probably combined with a referral back to the Commission to ratify whatever the arbitrator decides.
2322 So the Commission gets an opportunity to comment.
2323 Mirko, do you want to expand on that point?
2324 MR. BIBIC: I was just going to add, Mr. Vice‑Chairman, that the direction in paragraph 38 of the TV Policy decision from last year seemed to us to make good sense, which is go negotiate and here are the principles that you should take into account with respect to the negotiation.
2325 I would add what Gary added to that, simply if we can't reach an agreement through those negotiations based on these principles, let's arbitrate.
2326 MR. SMITH: Our customers have been enjoying distant signals for 10 years and even the Chairman yesterday admitted that, you know, the Chairman likes distant signals and many of our customers do as well.
2327 So I don't think this is a case of us taking away access to distant signals. That would be a negative for our customers. This is all about the commercial negotiation of any compensation arrangements.
2328 COMMISSIONER ARPIN: I understand from an earlier reply that currently your distant signals are offered on basic to all your subscribers.
2329 What will happen if they were to be offered in a package for an extra cost? Will they still be as attractive?
2330 MR. SMITH: Well, I think because they are currently contained within basic, the customers that enjoy those services would see that as being a negative. We would have to take a judgment call as to how many customers would subscribe to distant signals and take into account the number of customers that would not like the change and churn or spin down as a result, and price those signals at a level which would keep us, you know, neutral.
2331 That would be unnecessary at the moment, as far as I ‑‑ it is an unnecessary encumbrance on my business model at the moment. So I would prefer to retain the ability to keep the signals in basic.
2332 COMMISSIONER ARPIN: In an earlier reply Mr. Frank told us that currently you are offering nine CBC, nine CTV and nine Global signals. On the French side how many signals you are offering to TVA, TQS? Radio‑Canada you said six already.
2333 MR. FRANK: Yes. It's five each for TVA and TQS to accompany the six for Radio‑Canada.
2334 I might add that these are owned and operated, owned by the individual networks. We do carry in addition a number of affiliates to CBC, Radio‑Canada and some of the privates.
2335 COMMISSIONER ARPIN: So those are the owned and operated?
2336 MR. FRANK: Yes.
2337 COMMISSIONER ARPIN: That also applies to Radio‑Canada?
2338 MR. FRANK: Yes, it does. We have private affiliates who operate it yes, sir.
2339 COMMISSIONER ARPIN: On top of that you have private affiliates.
2340 Now, I noted in your ‑‑ that is something Mr. Lafrance raised yesterday when he appeared on behalf of Radio‑Canada. I noted in your reply that while you are offering Radio‑Canada six signals from Radio‑Canada, you have none from Ontario. You don't have one neither from Toronto nor Ottawa.
2341 MR. FRANK: That's correct.
‑‑‑ Background noise / Bruit de fond
2342 MR. FRANK: Somebody is sending me a coded message. Not now, Scotty.
‑‑‑ Laughter / Rires
2343 MR. FRANK: Radio‑Canada was very keen to get an additional service in Quebec, as I said earlier, and we consulted with Radio‑Canada and effectively took their choice of Quebec City.
2344 Now, what we have offered Radio‑Canada in the Outaouais is the opportunity for them to have a dedicated channel, and on that dedicated channel on a part‑time basis we would carry all of their local and regional programming, including news, weather and sports.
2345 This is a concept that we originated a number of years ago. We applied to the Commission for permission to do this and the Commission embraced the idea, gave us permission. We have been attempting to sell this idea to broadcasters because, as Gary said, we simply can't carry all of the local services coast to coast, otherwise we would become a direct to home television system which was all about local TV and not about specialty and pay.
2346 I noted the Chairman's question a little while ago about the importance of local television, and our panel has acknowledged the importance of local television. But we need to emphasize the importance of specialty and pay as well. We have to be competitive in the Canadian marketplace. We don't have an infinite supply capacity and Canadians are, I think, indicating or are choosing with their wallets to buy more and more specialty and pay services. So if we don't have a balanced service, as I said, we won't be competitive.
2347 So back to this issue of partial channels, it is a rather innovative, I think, solution, a rather elegant solution to providing local TV from coast to coast, providing at least partial channel service for local TV that we simply don't have room for.
2348 COMMISSIONER ARPIN: The issue of capacity that you just described, will it be fixed down the road when you are going to be launching new satellites or is it...
2349 MR. SMITH: No. You will hear later I think from the satellite providers ‑‑ I believe Telesat are testifying at this hearing ‑‑ that Canada is in a fortunate position and has plenty of orbital locations and slots and spectrum, et cetera, for satellite distribution of television signals. But unfortunately the economics is such that it wouldn't make sense for a business like ExpressVu or Star Choice ‑‑ I'm sure they are in the same position although they can speak for themselves ‑‑ to carry all local signals in a market like Canada. The market is not big enough to carry the overhead of having to carry local into local on a satellite platform.
2350 Satellite businesses across the world generally become commercially viable at a scale of two or three million households, and the Canadian market just doesn't sustain that for satellite operators.
2351 So it is challenging, Mr. Commissioner, and I think what we have achieved in Canada through the good work that Chris has done over the last 10 years is we have achieved a good compromise. You know, we carry 75 signals out of the available local market of I think it is 130 in SD. Is that right, Chris?
2352 So we are about 50 or 60 signals we don't carry. But across those 75 signals that we do carry, we are probably serving ‑‑ giving local content to 85 per cent of our customers because, don't forget, there is enormous customer concentration in the big urban centers.
2353 So we are already providing a substantial local service within the economic constraints of the technology that we use, and we think it is healthy for Canada to have that service that we have ended up with.
2354 COMMISSIONER ARPIN: I have a few questions for you on satellite relay distribution licences.
2355 I heard Mr. Bibic saying in his principle one that basic service preponderance, relaxation of genre exclusivity, and then for the rest they rely increasingly on the marketplace.
2356 Are you suggesting that the Commission exempt totally or remove itself from the regulating SRDUs?
2357 MR. SMITH: My colleague tells me yes is the answer. I'm sorry, I am not prepared on that particular question, Mr. Commissioner.
2358 COMMISSIONER ARPIN: Well, I think if the answer is yes, there is no further questions.
‑‑‑ Laughter / Rires
2359 MR. ELDER: Well, I think the answer was yes in that we ‑‑ the way that the technology and the marketplace has evolved, that there was competition amongst SRDUs, that there was no real problem here, there was nothing that required Commission regulation.
2360 COMMISSIONER ARPIN: Thank you.
2361 Thank you very much, Mr. Chairman.
2362 THE CHAIRPERSON: Thank you.
2363 One little question I forgot to ask you.
2364 In your summary pages, which I think by the way was an excellent idea of putting in your submission where you stand on everything. On page 12 on "Community Channels" you say:
"DTH should have opportunity to provide a form of community programming."
2365 Can you elaborate on what you are hinting at here?
2366 MR. SMITH: Yes. Chris, who wants this one? Chris?
2367 MR. FRANK: The opportunity to have a Community Channel is one that we have wanted for some period of time. It offers a tremendous marketing opportunity. We watch our cable competitors with envy as they are able to basically push their brand through their Community Channel.
2368 It is a great opportunity so we would welcome that opportunity.
2369 In the alternative, and to your challenge of yesterday about what can we do for local programming, in the alternative you will note that cable currently spends about two points of its 5 per cent contribution to local programming to the Community Channel.
2370 We don't have that opportunity so in the alternative we would propose creating a fund for local broadcasters across the country for new incremental television programming, thereby allowing additional resources to be put into this very important part of the business.
2371 THE CHAIRPERSON: Okay. That I understand. But you are not thinking of ExpressVu‑owned community channels. When your community is the country, I don't see how you would do this.
2372 MR. FRANK: Well, we have ideas and we were hoping that we could come out of this hearing, following the Dunbar‑Leblanc recommendation, that you would accept proposals for Community Channel for DTH, let us explain to you why it is a good idea and basically endorse the principle and then leave it up to us to fill in the blanks.
2373 THE CHAIRPERSON: You have the technological capacity to do that?
2374 MR. FRANK: Well, I think you are right. At 10,000 feet, it would be a community of communities approach.
2375 THE CHAIRPERSON: Okay.
2376 MR. FRANK: It is a wonderful opportunity.
2377 But as I said, in the alternative, the opportunity as part of the negotiations with the broadcasters, if some of the value we might be able to bring to the table is this 2 per cent of our gross revenues into a fund, specifically earmarked for incremental new programming.
2378 THE CHAIRPERSON: Okay. Thank you.
2380 COMMISSIONER KATZ: I have a number of questions, Mr. Chairman. I'm just wondering whether you want to take a break now or just continue through?
2381 THE CHAIRPERSON: Okay. The consensus is we will take a 10‑minute break. Thank you.
2382 THE SECRETARY: Excuse me. I would ask that if there is a representative of Allarco Entertainment in the room, if they could please come and see me.
2383 Thank you.
‑‑‑ Upon recessing at 1038 / Suspension à 1038
‑‑‑ Upon resuming at 1054 / Reprise à 1054
2384 THE CHAIRPERSON: Okay, Len, you had a question.
2385 COMMISSIONER KATZ: Yes. Thank you, Mr. Chairman.
2386 I just want to follow up on one item that Vice Chairman Arpin had a response to before we broke, and that was the statement that Bell's position is that the SRDU business should be deregulated because it is competition.
2387 How many competitors are there in this business?
2388 MR. FRANK: In the SRDU business, there are two main players. Well, one main, one very large player, Shaw. And ExpressVu has a licence.
2389 We have a small chunk of the market.
2390 COMMISSIONER KATZ: And you are advocating that in light of that the market is sufficiently competitive to allow for no regulatory oversight or no approvals?
2391 MR. FRANK: I think we are asking for exemption, Commissioner Katz. And presumably that would come with certain conditions.
2392 COMMISSIONER KATZ: Okay.
2393 I am going to try to follow your submissions this morning, so that we can try to flow through this.
2394 And I think this question is to Mr. Bibic.
2395 In your principle one, you talk about the basic service. And then later on in that section you talk about the BDUs remaining free to customize their basic package, which I guess is a basic plus.
2396 Should there be a basic and a basic plus type of philosophy?
2397 MR. SMITH: Our proposition is that we believe that the Commission could regulate that basic must include a minimum of the services we proposed but it would be up to the discretion of the distributors to add whatever services they feel are appropriate to a basic package for their customers.
2398 We feel that the distributors in Canada have demonstrated through their actions that we are capable of bringing, you know, a healthy range of different basic packages to the market.
2399 We have a very different package to Rogers, to Star Choice and to our other competitors, and we are giving consumer choice.
2400 But we are also giving customers, you know, a low‑end entry point, which works for everybody.
2401 And we have to bear in mind that customers that don't wish to pay for a television service from one of the distributors will from 2011 have, you know, crystal‑clear digital, terrestrial, over‑the‑air services to enjoy.
2402 So, you know, there is no ‑‑ we don't think there is a market requirement for a low‑end regulated basic package that is constrained to a small amount of services.
2403 COMMISSIONER KATZ: So what is the significant of a basic service if, in fact, that basic service is not a package that is available in the open market to consumers?
2404 MR. BIBIC: The philosophy, Vice Chairman Katz, is that every BDU must have a basic. Every BDU would be free to customize its basic package as it sees fit to respond to consumer needs and respond to competition.
2405 Bud every basic package offered by every BDU would have to contain the minimum requirements imposed by the Commission which we outlined at the beginning of my portion of the opening statement.
2406 COMMISSIONER KATZ: So if the subscriber just wanted the basic package and one multi‑channel program because they are of ethnic origin, they couldn't get that. They would have to buy the basic, as you have defined it, and then buy from there?
2407 MR. SMITH: I would remind the Commissioner that the distributors like ourselves and the cable companies and the other satellite cable company, we are in the business of creating packages and creating a combination of services in a basic tier and then a series of optional extras, either tiers in the old analog world or theme packs in our world, which create a wide range of offerings to suit customer demand, but also meeting the business imperatives of the distributor itself.
2408 The way that the market has evolved, we think it has created a wide range of different options for customers to buy and it works for consumers. They voted with their wallets and with their feet by subscribing to our service and to our competitors' services.
2409 We are just not sure there is any reason for the Commission to try to shape the market any more than it is today because it is working.
2410 MR. BIBIC: A key point ‑‑ my apologies, Vice‑Chairman Katz. A key point to add to Gary's answer is that a very, very, very small number of Bell ExpressVu subscribers subscribe to our basic package only. So the way we have constructed our basic package has not been a problem for our customers and in fact they have used it as the launching pad into subscribing to discretionary services as well, the vast majority of them.
2411 COMMISSIONER KATZ: And I think that is good and I think that is healthy. The only question I have is there are two or three choices out in the marketplace, and if this basic package becomes a basic‑plus package ‑‑ and, as we heard yesterday, the Rogers basic package today is anywhere from 39 to 63 channels depending on how you count it, I guess. It is a bit more than just basic for the basic consumer and they are paying in the $30 range for service, for a package of services.
2412 The question is whether there is a need to sort or provide a more basic service for those people that need essentially local news, local sports, those things that we defined to be 9(1)(h) obligations, and then anything else that they won at their discretion.
2413 MR. SMITH: I think, you know, the Commissioner can be assured that if Rogers were to ‑‑ taking Rogers as an example and it would apply to any distributor. If Rogers were to increase the number of channels in their basic pack and increase the price such that it becomes less and less affordable and therefore create access restrictions, then you know that is an opportunity for other distributors such as ourselves and Star Choice to step in there with a lower priced package with a more limited range of channels.
2414 I think we would firmly recommend that the Commission rely on Mirko's principle number two, the marketplace, to ensure that there is a low‑priced package available within the market.
2415 I would also just come back to the point I have made already that from 2011 the OTA broadcasters, which are carrying a lot of this local news content that you are referring to, will be carried in digital terrestrial, you know, digital, crystal‑clear quality and it will be increasingly competitive for our services.
2416 So I would envisage that distributors are going to be forced to provide smaller and smaller basic packages.
2417 MR. BIBIC: I would add two parts to that.
2418 One is that certainly there is no evidence that I can see that indicates there is a problem that needs to be fixed here with this form of regulation which we don't have today.
2419 And two, a fix like the one we are debating now would have an impact on the economics of the BDU business. So as the Commission, you would have to kind of consider that part of the equation as well.
2420 COMMISSIONER KATZ: No, certainly. I'm just questioning, I guess, the fact that there are three of you in the marketplace right now, two DTH and one local BDU in any market. What incentive do any one of you have to provide a more basic lower‑priced package to consumers unless there is increased demand and the business economics works for you?
2421 If the business economics doesn't work for you, as you have correctly said, then it is not going to be done.
2422 And I'm just questioning from a consumer perspective, if consumers need to have a more basic entry‑level package than a 39 or 63‑channel package?
2423 MR. SMITH: I think we need subscribers so consumers will determine. And if we find that we can't win enough subscribers in the market without offering lower‑end packages, then that would drive us to offer those low‑end packages. At the moment that isn't a problem.
2424 As I have said to this hearing earlier on, the majority of our customers ‑‑ you know, we have been very successful about up‑selling our customers to buy more Canadian programming and more programming of all types, and our ARPU is not similar to Rogers, which they stated yesterday was $56, which is way higher than the sort of minimum services that you were describing.
2425 When in the past we have had very low‑priced services we have very, very few subscribers to those packages, very, very few. We're talking 10 to 50,000 subscribers out of 1.8 million.
2426 I just don't see the market need for a low‑end package, particularly bearing in mind that there is a terrestrial alternative for people who really don't want to pay.
2427 MR. BIBIC: There is a premise in the question as well which relates to the fact that there are three distributors in each local market. I think three is good. I wouldn't measure competition by virtue of just counting how many competitors there are. The market is competitive and we are always seeking to differentiate ourselves. So I think there is an issue there with the premise of the question as well.
2428 MR. SMITH: I think you also have to consider the addition of telco TV. The telcos in Canada, including ourselves, are launching telecommunications‑based, wireline‑based distributors as well which are adding a third or fourth competitor into the market.
2429 COMMISSIONER KATZ: Point well taken.
2430 THE CHAIRPERSON: I only asked you about Freesat. If I understood you, your Freesat would be, in effect, local TV past 2011 via your services.
2431 Does a Freesat customer have to buy the basic package too or could he just say I am in Moose Jaw. In Moose Jaw what I got over my rabbit ears in the past I will now get it via your equipment?
2432 MR. SMITH: Correct. There is no requirement for any purchase, for any purchase of a subscription. They do have to buy reception equipment, but that's a one‑off purchase.
2433 THE CHAIRPERSON: So that will be a partial answer to Mr. Katz' question, somebody who basically just wants his local TV could get it from you without buying your basic package?
2434 MR. SMITH: Yes. We think it is a particularly good solution for distribution of high definition services because they are hugely bandwidth intensive, and I think the industry as a whole is facing a huge bill for upgrading and developing digital terrestrial transmission towers to carry HD services across the whole of Canada. And satellite is a perfect solution.
2435 So we are happy to bring that to the table. It is not free. We have to enter into commercial arrangements with the broadcasters to carry some of the cost. It is a good solution for the industry to give the consumers in Canada that lifeline service without being forced to subscribe to a TV provider.
2436 COMMISSIONER KATZ: Would there be any limits to where Freesat would be offered or is it urban and rural across Canada?
2437 MR. SMITH: I mean the technology is nationwide. So it would be very much up to, you know, the discussions with the broadcasters to see what they want to achieve.
2438 We think it is quite likely that the broadcasters will want to build terrestrial distribution technology in the major urban centers because it is economic to do so. They get very good bang for their buck by putting a transmission tower in the middle of Toronto, but they don't get very good bang for their buck by putting a transmission tower in many of the smaller communities. And that is where satellite really, really does deliver a good added value service.
2439 MR. FRANK: Gary, could I just add to reinforce something that you said a few minutes ago?
2440 We, in our 10‑year experience, have had a lifeline basic service, just essentially all Canadian and focused on the OTA networks. The pick‑up we had for that service alone was very, very small, de minimis.
2441 MR. SMITH: Do you remember the numbers?
2442 MR. FRANK: I don't, no, but it was ‑‑ the idea was to provide a quick jump‑off point, but nobody seized on it per se.
2443 COMMISSIONER KATZ: Okay. Thank you.
2444 In the subsequent bullet, still on that page 2, principle one, the last sentence says:
"The reality is that BDUs are motivated to carry a broad range of Canadian services to meet consumer demand."
2445 I have no doubt that they are motivated to do it, but I'm sure that there are some checks and balances and some economics in the process as well.
2446 How do you decide who you carry and who you drop? You have some experience in the past, I think, where you have dropped a couple of programmers as well.
2447 MR. SMITH: Over the last two or three years ‑‑ we could get the exact data for the Commission ‑‑ I think we have launched probably 50 or 60 services and we have probably dropped three or four.
2448 So I wouldn't want to Commission to go away with the impression that we are, you know, slashing and burning at the Canadian broadcasters because that certainly is not true.
2449 The way we do this is we assess the attractiveness of the signals to our subscribers. We take a view as to whether it is a known brand, whether it is a good quality programming, whether it is going to generate reasonable viewership, whether it is going to attract new subscribers into the system, whether it is going to attract new opportunities for us to up‑sell, to persuade existing customers to buy this new product we are adding. And then we offset that against the costs of carriage of that service; so the cost of the bandwidth that they absorb, the cost of servicing and the costs associated with, you know, developing the theme packs, et cetera, to cover that service.
2450 We make a decision, you know, taking into account available capacity, as to whether to launch that service. And as a result of those sorts of calculations we have launched services like the high fidelity channels.
2451 As the gentleman from Rogers said yesterday, we have taken the lead in carrying all four high fidelity channels and that is causing our competitors to carry those as well.
2452 We were at the forefront of the Commission's hearings relating to the introduction of a new pay‑TV service in Canada, as a result of which the Allarco licence was granted. We promoted that because we believe in adding content.
2453 That is the reason, you know, we have ended up with the business model we have.
2454 COMMISSIONER KATZ: Do prospective Category 2 providers understand what you are looking for and what the obligations that you are seeking from them are, or are they somewhat discretionary; that you do them on a case‑by‑case basis?
2455 MR. SMITH: Yes, we do it on a case‑by‑case basis, Commissioner, because the circumstances are continuously changing. We encourage broadcasters to come up with, you know, innovative programming proposals that fill gaps in the market or provided competition where there was no competition or bring added value to the system, because that is where we generate benefit, by having something new on the shelves to sell which isn't just duplicative or isn't just substitution for something that already exists.
2456 So it is very much, you know, there is a willing audience here for broadcasters to bring new services to us. There are real constraints. We have capacity constraints and we have capacity growth steps, which mean that sometimes we have greater capability to carry new services than we do at other times because of the capacity constraints.
2457 COMMISSIONER KATZ: But they have to go through a couple of gates themselves before they approach you, and then you on a case‑by‑case basis decide whether you will or will not carry them.
2458 MR. SMITH: Yes. I think in some cases we have gone further and we have actually partnered with people who we think have particularly strong proposals, as in the pay‑TV licensing hearing, and helped those businesses create that opportunity and helped those businesses get through the CRTC licensing procedure because we felt so strongly about the need for that piece of programming.
2459 So sometimes we are passive and people come to us and sometimes we would engage much more enthusiastically when we think there is a real gap in the market to fill, as we did with pay‑TV.
2460 MR. FRANK: Gary, if I might just add to that, we encourage people to come to see us before they apply for a licence so that we can discuss with them what their plans are and we can give them an indication of where we are in terms of budget, in terms of bandwidth, in terms of interest about a particular genre or not.
2461 That way expectations are set early on both sides. A very active meeting, prospective broadcasters.
2462 COMMISSIONER KATZ: How do you respond ‑‑ and I am not suggesting in any way that you are at issue here.
2463 How do you respond to the questions that come to the CRTC with regard to the gatekeeping role that is occupied by BDUs?
2464 MR. SMITH: Well, I think we naturally have a position in the market where we have to, you know, believe that there is a business model behind carrying a new service. I think where those sorts of complaints have been levelled at the distribution community is probably by the services which haven't established that they have a solid business model, haven't established that they are going to serve a new niche in the market that is currently served, perhaps seeking to get mandatory carriage status because, you know, they must get that; that is the only way the business model can exist.
2465 We think those are all distortions in the market that the market doesn't need to worry about, because there is a healthy range of Canadian services today as opposed to the situation 13 years ago or 14 years ago when the current regulations were established.
2466 So we think the marketplace has gotten to the stage now where the Commission can be comfortable that the market will create opportunities for worthy applicants for new services and the market will naturally prevent services which are less worthy from launching.
2467 I think that is where we need to be, because we don't want a situation where anybody can launch any channel into any segment and get mandatory carriage on distributors because that creates huge competition fragmentation of the audiences and everybody's business model suffers. I think there is a balance to be struck here.
2468 There is a natural balance certainly for ExpressVu in the terms of our capacity. We are always going to put up the most worthy services for our customers because those are the ones that make money for us.
2469 COMMISSIONER KATZ: Where you have had occasion to disconnect somebody, how has that manifested itself? Was there notice? Was there a relationship there as well or was it sort of in 60 days you are off the air type thing?
2470 MR. SMITH: Well, it has happened in different ways, but essentially what we do is we regularly assess the value of each service on our platform to our business. We do that by reference to the viewing figures that the service is generating ‑‑ that's a key factor ‑‑ the cost of that service to us, and the degree to which that service may be driving customer satisfaction.
2471 This is the phenomenon where customers like the idea of subscribing to worthy perhaps educational services, but they don't actually watch them very much. That doesn't mean that an educational service might not be a worthy service for the platform because it does drive consumer behaviour and customers are satisfied when they deliver good educational services, even though they don't actually watch them that much.
2472 So we take those factors into account and we maintain merit orders within each theme pack that we operate, and the services at the bottom of the merit order, the ones that are the weakest or delivering the least value to our subscribers and to of our business, they would typically be advised of that status and they would be encouraged to improve their performance. We would help them to do that by joint marketing initiatives and those sorts of things.
2473 And ultimately, for those services that just don't step up and don't achieve any improvement in viewing figures, don't improve the quality of their product, those are the services which I would want to perhaps consider removing from the platform in order to make space for more worthy services.
2474 But I must emphasize it has happened very, very few times, probably three or four times over the last two or three years. It is not something ‑‑ we don't cut services every week. For the same reason that Rogers was describing yesterday, even small services can create significant customer reaction if you do either drop them from the platform or repackage them.
2475 So we work on a forward‑looking timeframe and we try to give broadcasters lots of opportunities to improve to keep the quality of their service where it needs to be.
2476 COMMISSIONER KATZ: Okay. Thank you.
2477 With regard to principle three, the suggestion that we recognize differences between cable and DTH distributors, we have always worked hard to be technologically neutral and I know that in other sectors that you operate in there is a strong belief that regulation should be symmetrical as well.
2478 What you are suggesting here is that we look at these two sectors of this industry differently simply because of the technology that is being deployed and I guess some other good and valid reasons, one of which I will go back and find out what the government's 1995 Order in Council actually said and if it provided some flexibility and some latitude there.
2479 If you can comment on that I would appreciate it.
2480 MR. BIBIC: You will see when you refer to the 1995 Order‑in‑Council that it does give the required flexibility and our comment here is entirely consistent with the Order‑in‑Council. It doesn't talk about regulation that's the same. It talks about regulation that's substantially the same.
2481 Symmetry is an important concept and of course you have heard us talk about symmetry in other contexts. Of course symmetry doesn't mean that things need to be identical. We simply asked for reasonable accommodation given the technological platforms, and there is significant benefit to the industry as a result.
2482 So we think we are certainly entirely consistent in this principle with the Order‑in‑Council which governs and we are certainly consistent in our arguments and our positions across our various lines of business.
2483 MR. SMITH: From a business perspective I think, you know, we would stress that we are not asking the Commission to grant any special favours whatsoever. We are simply asking the Commission to acknowledge the real practical, technical details between platforms.
2484 Satellite doesn't do VOD. We can't ‑‑ there is no point in creating a regulatory solution that is based around VOD because it doesn't work on satellite, full stop. Equally, satellite is great at distributing signals across the whole of Canada. It's a very, very efficient way. It's a hugely efficient way. It's probably the most efficient way that exists to get high bandwidth services into a wide range of households across a wide geography.
2485 You know, what we encourage the Commission to do is create a regulatory environment which applies equally to all distributors except where there is good justification from a technological means to differentiate. And the example of distant signals is a prime one, is that our solution to distant signals is different to Rogers. That means the most appropriate way to resolve that issue is not through policy regulation but through negotiation, and that's what we propose.
2486 MR. FRANK: Commissioner Katz, if I can just add, the CRTC has recognized certainty differences too, both in our original licensing decision and in our renewal in terms of distant signals and one or two other things.
2487 If you look at in our evidence you will see that the differences between satellite and cable in terms of regulatory requirements are very small. Yesterday we heard that our cable competitors feel that we get a break. I think if you look at our analysis you will see that it's neutral at worst and at best case advantage them, not us.
2488 COMMISSIONER KATZ: Are there any situations where you are looking for symmetry, if I can call it that, to the DTH model ‑‑ to the terrestrial model where you believe they are being favoured in any way?
2489 MR. FRANK: I think the community channel opportunities is the only one that jumps to my mind.
2490 COMMISSIONER KATZ: M'hm.
2491 MR. FRANK: And we proposed earlier today an alternative to that which I think might be helpful.
2492 MR. BIBIC: With respect to our terrestrial television distribution businesses, I mean, certainly we have no issue with the same rules applying as they do to other terrestrial distribution businesses; in other words, cable. At the end of the day we are not saying in one case deregulate on the DTH side and regulate on the cable BDU side. That's not what we are saying. We are saying uphold the same objectives.
2493 But you have got to realize there is different ways to get there when you are talking about cable versus DTH; that's all. So there is consistency and symmetry in terms of the ultimate objectives but there may be differences in the way you get there.
2494 And the default position as we expressed in the opening statement is that, you know, the framework needs to be the same. So that's default except where technology and DTH and the national footprint dictate otherwise.
2495 MR. ELDER: And Commissioner Katz, if I can just jump in, you made a reference to the direction. I mean, I point in particular to section four of the direction. There is some very clear language that was used by the government. You know, it talks about regulation by appropriate means that substantially the same rules should apply to DTH as to terrestrial, that the Commission or that the undertaking should be subject to equitable obligations, not necessarily equal.
2496 It is very clearly contemplated in this direction that it will not be a cookie cutter approach to regulation and that it will recognize the apparent differences and the underlying technologies and economic models.
2497 COMMISSIONER KATZ: Thank you.
2498 And not to beat a dead horse, because I think my colleagues have already talked about the equivalent of the 43 cents per subscriber, but if I wanted to calculate the value of what that is do I simply take the equivalent 43 cents times 12 months, times the number of customers you have, and that would be in simplistic terms the value of this?
2499 MR. SMITH: That's how we derive the 43 cents, Commissioner, when we did the back of the envelope calculation yesterday.
2500 I am not sure whether we made this offer but if you would like us to table the details in reply we would be happy to do so.
2501 COMMISSIONER KATZ: Yes, I actually would because some of the components I'm sure that you have put in here, the backhaul cost, the encoding cost, whatever else as well of having a background in costing, one comes up with very logical ‑‑ with very innovative ways of costing things out; opportunity costs, returns and whatever else as well.
2502 I would be interested to see how that number manifested itself so I would appreciate seeing that.
2503 MR. SMITH: We will be happy to provide the details.
2504 COMMISSIONER KATZ: Those are all my questions.
2505 THE CHAIRPERSON: Thank you.
2507 COMMISSIONER CUGINI: Thank you. I too just have a couple of follow‑up questions. And I did hear you on the reasoning for eliminating the access rules.
2508 The specialty world has become a healthy and mature business but some might argue that it is thanks to the access rules that it is such a healthy and mature business and that services can stand on their own.
2509 So now, going forward, in the absence of access rules, how do we ensure that start‑ups, or you know some have called them the independents, continue to provide the kind of programming diversity in the Canadian broadcasting system in the absence of access rules?
2510 Some have become so successful that they have just sold for hundreds of millions of dollars so how do ‑‑ going forward how do we ensure that that continues?
2511 MR. SMITH: Well, I think I will invite Mirko and Chris to comment on this one as well because I'm sure they have got useful contributions to make.
2512 In my opinion the route we proposed where we maintain a predominance requirement, where we eliminate genre protection between Canadian services to allow Canadian services to compete with each other, and we eliminate must carry so all services have to ‑‑ apart from the ones in basic of course, have to continue to earn their position on distributor's platforms; those three measures when combined with starting off now in 2008 with a healthy industry, not one ‑‑ the industry that existed 13 years ago where there were no specialities; they were all yet to launch ‑‑ I think that's sufficient, Commissioner.
2513 You know, the time for leg ups because it was a valid requirement in the years gone by when we had a significant growth of the industry. The access requirements fulfilled a need. But I think that time is gone now.
2514 Another point I would raise is that our consumers are increasingly facing choices. They are able to consume, you know, the episode of House that they missed on a service by going to the web and just downloading it or buying a DVD or whatever, and the distributors in Canada are equally facing matters of threat. It's not just the broadcasters. It's the distributors that are facing that threat of fragmentation of the distribution audience.
2515 Now, the more rules we have to give Canadian broadcasters a leg up in this new world, they are actually also creating constraints on a distributor's ability to compete with alternative distribution mechanisms. And I think that the essence of success here for the Commission is to take away a lot of these access restrictions because I don't think they are needed long term. But perhaps, and I think is part of our proposal, is to allow for a period of time when the industry can get used to this new regime. And we previously proposed that two or three years is the right sort of period to tell the industry the rules are changing and from 2011 or 2012 onwards this is the way it's going to work. That gives people time to adjust to the new reality and it allows people like us to compete with alternative distribution mechanisms.
2516 So I think that's where the solution lies; a signal to the industry that it's only preponderance, no genre protection. Those two key things which will protect Canadian services going forward but they have got three years to get there. And that will be a good solution for this ‑‑ a good outcome from this hearing.
2517 MR. FRANK: Could I simply add that I think we heard yesterday from the Rogers panel that one of the by products of competition generally is excellence. One way of guaranteeing a knock on the door from all of the distributors in Canada is to have an excellent program and product. I know of no Canadian programming product that isn't valued by our customers that we don't have and we will continue to have simply because we need to be competitive.
2518 COMMISSIONER CUGINI: Thank you.
2519 THE CHAIRPERSON: But surely that last point begs the question how do the customers know that they are not on any system?
2520 MR. FRANK: There is unregulated competition. There is also illegal competition we face and the chances of those services ‑‑ those distribution media having a similar type of programming product is pretty good. If we don't have it we will hear about it.
2521 MR. SMITH: We often see products launching or services seeking carriage which have business models which are actually proven in other markets, Mr. Chairman. So you know there are many, many services in the U.S. and the U.K. which are used as case studies to say, "Well, that worked there. It should work in Canada as well."
2522 So you know, generally when a service comes to us like the pay TV services or like the HiFi services, you know, which are going to add value and be attractive to consumers they are pretty obvious and it's pretty easy to determine it.
2523 THE CHAIRPERSON: But surely you are not talking about copycat for foreign programs. You are talking about original Canadian ones. And are you suggesting either that you ‑‑ go onto the internet to get known before they get ‑‑ I mean, I don't understand your answer.
2524 MR. SMITH: No, but to expand upon my answer, things like you know pay TV services, we are very vocal supporters of the need for an additional competition in the pay TV movie world in Canada and we supported the licence application. And it was a different licensee that I see approved but we still achieved our objective of getting competition in that market with Allarco's licence.
2525 Now, those types of services you know they are ‑‑ they are Canadian services but there are other markets with many movie services which demonstrate that it can work. And in that case I think the applicants were citing the U.S. as being a good piece of evidence that multiple movie services can be sustained in the market. We have now got Allarco as a good licensee providing good quality content.
2526 THE CHAIRPERSON: Okay.
2527 MR. SMITH: And we are pleased to continue to support them.
2528 THE CHAIRPERSON: What do I do if I am a Canadian programmer of specialty; I have a hot idea, nobody else has done it, et cetera? You say, "Well, if the customers demand it we will show it." How do I prove to you that customers demand it?
2529 MR. SMITH: Well, for example issues of ‑‑ there are many, many niche services available on the internet these days; things like extreme sports, et cetera, there is a lot of coverage of those types of services on the internet. And you know broadcasters are coming to us saying it would be good to bring that into a broadcast world because clearly there is a demand from the alternative distribution mechanisms.
2530 So it's going to go the other way as well, Mr. Chairman, from the internet back into the broadcast world.
2531 THE CHAIRPERSON: I am just picking up the contradictions here. You told my colleague you are not gatekeepers but here you are telling me, you know somebody who has got it ‑‑ you will put on what the customers will demand. But how does a customer know what to demand if he hasn't had a chance to show it or to exhibit it?
2532 MR. SMITH: But Mr. Chairman, we are not proposing that existing viewership is the only criteria. I think it's the business model that the broadcaster brings is the important thing, and the likely viewing of that service is one factor that we would look at and I'm sure the Commission would look at when licensing a new service.
2533 And the more evidence that a broadcaster can bring to say there is definitely going to be an audience for this service because of this, that and the other, that's going to help us ‑‑ help persuade us to carry the service. It's not the only factor. Price and brand and other things are all major factors.
2534 One of the biggest factors which I'm sure is an issue for the Commission is, well, it's duplicative? Is it just going to take the place of an existing service? Because that doesn't add value either.
2535 THE CHAIRPERSON: The idea that I floated yesterday with Rogers of having an initial leg up maybe for the first licence period or something and after that you are on your own, you either made it or not it doesn't appeal to you?
2536 MR. SMITH: No, it doesn't. We don't think there is a need for a leg up at all. We think the market is healthy and good competition will drive healthy new entrants. And certainly the term of the licence period at seven years I think it is, that's a long period in the context of the next regulation period and it simply wouldn't work.
2537 I do support a grandfathering period for the existing services as I described to Commissioner Cugini ‑‑ in response to Commissioner Cugini's question that the existing services need a time period to get used to the different Cancon obligations, the different CPE and the fact that they may be losing must carry status. So you know a good grandfathering period of two or three years would be appropriate.
2538 THE CHAIRPERSON: (off microphone)
2539 COMMISSIONER CUGINI: No, that's fine because that also brings to mind what your current ‑‑ what you are asking potential applicants or potential licensees to do is almost fill out the old application form to the Commission where it showed proof of demand, and market research and demographic research to prove that there is in fact a market for such a service when the Commission has streamlined the whole licensing approach, certainly of Category 2 services.
2540 MR. SMITH: Yes.
2541 COMMISSIONER CUGINI: Now, you are asking people to go back to the old ‑‑
2542 MR. SMITH: Well, I don't think we are.
2543 COMMISSIONER CUGINI: ‑‑ you know three‑inch binder of legal size paper.
2544 MR. SMITH: I'm not sure we are, Commissioner. I think commercial reality just says that if we are asked to carry a new service we are going to ask those questions regardless of whatever regulation exists, et cetera, and obviously regulation can overturn it. It can force us to carry services at the moment which wouldn't pass the test. And that's the area we think needs to be relaxed.
2545 You know there is a business reality in every television market in the world. You know, I think the services generally have to justify their existence and those sorts of criteria are the ones that we would expect to use.
2546 I would also point out that over the last, I think, three years or so the Commission has licensed many services into the discretionary category of not ‑‑ without giving them must carry status. And a large number of those services have been picked up and carried by distributors.
2547 I think the Commission can draw a lot of comfort from that history over the last few years that a lot of services have been licensed. A lot of them have been carried by distributors, and that's just market forces which are giving us that result and it's a good result.
2548 COMMISSIONER CUGINI: The bottom line if it's worth it you will carry it?
2549 MR. SMITH: Yes.
2550 MR. FRANK: If I might add that at a more granular level there is obviously a dialogue we encourage between existing and prospective programmers and our company. As well, we are continuously monitoring our customers through focus groups and other information pieces to take their pulse, to see what they want.
2551 You know, through that sort of triangulation of information I think we have got a pretty good idea of what our programming is going to look at in the immediate to near term future.
2552 COMMISSIONER CUGINI: Well, thank you for that additional information.
2553 I too have a follow‑up question on the SRDU discussion and your position that they should be exempt from licensing. I need a little bit more information as to how your uplink equalization formula works.
2554 If we were to exempt SRDUs what assurances do we have that this will in fact continue to be as competitive as you say it is and be fair to all services who must use your uplink facilities in order to have their services carried?
2555 MR. SMITH: Chris is much more familiar with the details of this than I am so I will ask Chris to respond.
2556 But let me just give the Commission some context here, is that the SRDU business in Canada is already quite competitive. We offer SRDU services as does Cancon and we are quite regularly approached by broadcasters wishing to gain SRDU carriage to the cable headends to give them quotes, and sometimes we win a business and sometimes we don't.
2557 The issue we have ‑‑
2558 COMMISSIONER CUGINI: I'm sorry to interrupt you. And when you don't get the business they go to Cancon?
2559 MR. SMITH: Frequently, yes. I think they also can go to Telesat.
2560 Is that right, Chris?
2561 MR. FRANK: That's correct.
2562 And also, one element we are missing here is terrestrial distribution ‑‑ I think they are called TRUs. More and more now we are seeing build out of cost‑effective fibre distribution, of multiple signals. I think most of Quebec is covered. I know Rogers has told us they intend to cover all of their territory so there is both terrestrial and satellite competition for this market.
2563 MR. SMITH: Thank you, Chris.
2564 I wanted to expand upon the answer because our issue about what we call equalization fees is due to a slightly different issue, and that is that when broadcasters contract with one or other of the satellite distributors, either Star Choice or Cancon or other than ourselves, there is a decision to make as to whether that carriage is ‑‑ that signal is made available not only for SRDU purposes to cable headends, but also to the ends' DTH customers of the platforms carrying them.
2565 Now, the challenge we face is a commercial one and that is when a broadcaster contracts with our competitor to carry an SRDU service, which we have no problem with, but then makes that service available to the DTH business associated with our competitor. And again, that's not necessarily an issue if the benefit that our giving that DTH business is taken account of in the commercial arrangements for the fees, that in this case Star Choice may pay for carriage of that signal or for the subscribers onto our signal.
2566 Now, we find too many occasions quite frankly, Commissioner, where we are asked to pay exactly the same rates to the broadcaster as we believe are applied to our competitor and, yet, our competitor also gets the benefit of being able to reuse the signal that is carried by the SRDU business for their DTH customers and, essentially, that means the broadcaster is giving them a better deal than we are getting.
2567 So we have a construct that we have designed to encourage the broadcasters to level the playing field. And that's the entire purpose of this equalization fee arrangement, whereby if that happens then we would see an equivalent benefit to the value of the bandwidth being credited to us in some way through the commercial arrangements we have for that broadcaster, such that we narrow the commercial disadvantage to our competitor.
2568 COMMISSIONER CUGINI: So if the service agrees to have its services distributed by Cancon to Star Choice without a fee that programming service must pay you the uplink fee?
2569 I am looking at your footnote 40 here and I was just a little bit ‑‑
2570 MR. SMITH: That's essentially how it works. I mean it's really intended not so much to cause broadcasters extra costs to pay us. It's really intended as a way to ensure that Star Choice is treated equitably by broadcasters to the way the broadcaster is treating us. So if we have to pay for our bandwidth we think Star Choice should have to pay for their own bandwidth as well and to the extent they don't then you know they shouldn't have to ‑‑ they should have to pay potentially higher fees to the broadcasters.
2571 But there are a variety of solutions, Commissioner, to this. It's not always that satellite equalization fees are the solution. Sometimes there are other ‑‑ you know, perhaps we get a different rate or whatever.
2572 But it's an important concept to us and we have been very firm with broadcasters that we want a level playing field with our competitors. That hasn't yet to the best of my knowledge reached the Commission in terms of any dispute resolution. There remains a possibility that it will do at some point.
2573 MR. FRANK: Can I just add that I think it's instructive to look at the way the HD business is unfolding. I think all of the new specialty and pay HD services with one or two possible exceptions are saying to the two DTH companies, "Come and get our signal. We are not going to favour one or the other. We are not" ‑‑ we are talking about a lot of bandwidth here, a lot of very expensive bandwidth.
2574 And so the way we are getting around this subsidy issue is by both companies coming and getting the signal and delivering it at their cost. This is essentially what we have been trying to do for the last five or six years in the standard definition business as well.
2575 There is no need ‑‑ satellite equalization does not come into play if there is no subsidy of our competitors' direct‑to‑home, direct to the subscriber distribution cost. So it could be the issue will disappear when that subsidy disappears.
2576 COMMISSIONER CUGINI: Okay.
2577 MR. FRANK: If I could just take a moment too to clarify our position on SRDU, we are just asking for exemption here and I guess to us the way to look at is what is the Commission gaining right now from formal licensing? And we feel there isn't a significant contribution to the objectives of the Broadcasting Act by actually licensing as opposed to exempting these services. That doesn't mean that the exemptions couldn't have conditions in it that would satisfy the Commission on an ongoing basis or allow them to come in on an ex‑post basis and look at an undue preference claim, for example, but we just don't see the need for the licensing.
2578 And I think, as we noted in our original comments, on our last SRDU I don't think there were any substantive issues that were part of that licence renewal hearing.
2579 COMMISSIONER CUGINI: Safeguards are what we do best.
2580 MR. FRANK: Could I just add ‑‑
2581 COMMISSIONER CUGINI: Sure.
2582 MR. FRANK: ‑‑ one thought on this SE, satellite equalization issue?
2583 This was well canvassed in our licence renewal and I think the record is quite complete both in terms of our explanation and the Commission's take of that point on the problem.
2584 COMMISSIONER CUGINI: And because, Mr. Frank, you did bring up the issue of HD services and the capacity and the bandwidth that they do eat up and will continue to eat up as more HD services launch, will that have any impact on the distribution of your freesat concept?
2585 MR. FRANK: I think the two are mutually exclusive.
2586 COMMISSIONER CUGINI: Okay.
2587 MR. SMITH: If I can just ‑‑ I may have misunderstood the Commission's question but I think that freesat involves the use of a significant chunk of bandwidth in addition to what we would otherwise do and that bandwidth has a cost associated with it. So it's one of the costs that we would need to consider as part of an all encompassing arranging with the broadcasters should we arrange into an arrangement with the broadcasters.
2588 We are willing to bring that bandwidth to the table at the moment but it does depend on the outcome of this hearing and other issues like if our business gets impacted by fee‑for‑carriage or if the Commission decides against our advice to adopt a regulated solution to distant signals that disadvantages us, then we may not be able to afford to help the industry in the freesat world.
2589 COMMISSIONER CUGINI: And what may therefore come off the table if all of that were to come true is in fact freesat?
2590 MR. SMITH: It's only one of the factors. I wouldn't to put it out there as, you know, the sacred cow.
2591 COMMISSIONER CUGINI: I see.
2592 MR. SMITH: It's very much one of the factors in the negotiation but there are many others.
2593 COMMISSIONER ARPIN: I don't understand why you are saying it requires more bandwidth to offer freesat because you are offering already a signal that is on your satellite. Obviously, it may need more bandwidth if you were to add more Canadian services but when the Chairman asked you questions about freesat you said that it was a matter of negotiation and more than likely you will be picking up one of the network existing stations on your satellite.
2594 MR. SMITH: That's ‑‑
2595 COMMISSIONER ARPIN: So why are you claiming that it will require more bandwidth?
2596 MR. SMITH: Well, we think one of the opportunities that we have here is to ‑‑ if we don't implement freesat then we would carry one or two signals from each of the networks nationwide. And I think in our submission we said two services, one east, one west. So we would have a CTV East and a CTV West and that would be our proposal.
2597 If we do launch freesat one of the things that we are willing to bring to the table is additional capacity to carry, for example, an HD service from CTV in each major time zone. So there will be more CTV services so they will be more localized with freesat. It's not ‑‑ the cost of doing that would be completely uneconomic for a satellite platform to do on its own as part of its service in Canada. It just doesn't work.
2598 But when you take into account the avoidance of costs that broadcasters will face with the savings that they won't have to incur building distribution towers in so many communities, we think we can bring a much more economic solution to the industry. And it's not free but it's much more economic and it still gives, you know, maybe one signal from each of the major networks in each time zone as being the service that will be available from freesat.
2599 It's a pretty exciting, you know, opportunity I think for the industry if the industry wishes to grasp onto it.
2600 Does that answer the Commissioner's question?
2601 MR. FRANK: So in a nutshell, Commissioner Arpin, it's like the discussion we just had with Commissioner Katz. We are bringing to the table a bandwidth which we wouldn't ordinarily in a normal course of our business allocate to that kind of service.
2602 COMMISSIONER ARPIN: But you will eventually, I am sure, if it's not already what you are doing, carrying the major networks already in HD. I will guess that you have already the Toronto signal and the Montreal ‑‑ the Montreal HD signal of the over‑the‑air broadcasters.
2603 MR. SMITH: We certainly don't have the number of signals that we would envisage potentially carrying on freesat, Mr. Commissioner. As I have suggested, we think that our packaging going forward we would be able to sustain one east, one west from each of the networks. I think that's pretty much what we have got today but Chris may have more detail.
2604 MR. FRANK: We are moving in that direction for English‑language HD OTA signals, signals from Toronto and Vancouver and for our Quebec French‑language networks from Montreal.
2605 THE CHAIRPERSON: But that's a different freesat than you and I talked earlier. I thought freesat was to avoid the OTA broadcaster to have to build a new HD antenna. And now you are talking Innovex, some sort of homogenization, aren't you, one signal per province?
2606 You say you will have for each major carrier one signal per province, et cetera. That is not a local signal necessarily, that will be a Montreal signal or something? You know, in Quebec there is a big concern about the Montrealisation of Quebec in the broadcasting, et cetera.
2607 I thought freesat, the whole idea was that you would offer to local communities ‑‑ other than building an antenna, you can get the same programming over our dish and black box and you don't even have to be an ExpressVu customer. You can just get that station which before you got the over‑the‑air, you can now get it through us if you buy the equipment.
2608 MR. SMITH: I think the Chairman has correctly understood the proposition to the consumer. They don't have to pay any subscription, they only have to pay for the receiving equipment.
2609 With regard to the signals they gain access to, this is a matter for discussion with the relevant broadcasters. Our position is that if we do not carry freesat, we will be able to carry one east and one west for each of the networks.
2610 If we do carry freesats, we could see a good solution which would involve one signal from each major time zone. So that would increase it from two signals from each network across Canada to maybe six, I think ‑‑ five or six, I am not sure.
2611 If the broadcasters wanted to go further, you will hear from Telesat later on that there is a lot of bandwidth available if somebody is prepared to pay for it. So I think our involvement in this, we can volunteer the use of our platform technology and we can bring a certain amount of bandwidth to the table to help this solution work.
2612 If the broadcasters wanted local/interlocal using satellite and are prepared to pay the hundreds of millions or billions of dollars that are required for the satellite bandwidth, then it is technically possible and I am sure Telesat would appreciate the business.
2613 THE CHAIRPERSON: Well, within limits, everything but I mean when you say per time zone, et cetera, it would be to the detriment of the existing local signal?
2614 MR. SMITH: I think the broadcasters would need to ‑‑ part of their proposal would be that they would be consolidating in some way or perhaps things like the partial channel solution that Chris described, that would also work in HD.
2615 It is not a perfect solution, Mr. Chairman, because it is not going to deliver 130 different variants in HD to HD communities, but quite frankly, I don't think the Canadian industry can afford to deliver 130 local variants in HD. The cost of doing it, either via satellite or via terrestrial, is just too high.
2616 THE CHAIRPERSON: Okay, thank you.
2617 COMMISSIONER CUGINI: Thank you. Just a couple more questions.
2618 Did I hear you correctly when you estimated that the value of local avails is about $20 million?
2619 MR. SMITH: That is my understanding. Mr. Kiefl was the author of that estimate, so you could ask Mr. Kiefl to comment.
2620 MR. KIEFL: Yes, Commissioner, I was asked by the CCTA about three years ago ‑‑ I think it was actually three years ago last month when the local avails issue last came up before the Commission and they asked me to review a study that the CAB had conducted. The CAB study equated ads in the stations such as A&E and CNN and so forth as equivalent in relative value to local TV station ads. I went to the States and reviewed how local avails were being sold there.
2621 I heard you say yesterday that your impression was that it was all local advertising. In fact, that is not the case. About three or four years ago, a major effort was made on the part of the cable companies there to sell ads on a joint basis and in fact you can buy an ad today in the States on 20 or 30 different specialty channels at the same time on multiple cable outlets.
2622 So effectively, it has turned into a national service or a near‑national service. So it is a combination of national ads and local ads.
2623 The local ads themselves, the expression I remember from the research was "dollar a holler," that local ads were being sold to local pizzerias and so forth for just a fraction of what a local TV station would charge for the same advertisement.
2624 There are some logical reasons for that but the bottom line is that the relative value of local avails seems to be much lower than it would be for the rest of the industry, probably equivalent to something along the lines of what radio ads are being sold for, at a much lower level.
2625 The CAB, if memory serves me, estimated it was going to be $87‑90 million worth of revenue that would be taken out of the system, which is a complicated question as to whether it would be actually taken out.
2626 In running the same numbers but with more conservative estimates as to what the value really was of these local avails, it came out at something like $20 million.
2627 COMMISSIONER CUGINI: So that is for the whole industry?
2628 MR. KIEFL: It is for the whole industry.
2629 COMMISSIONER CUGINI: It is not just what Bell ExpressVu's share would be if we did allow ‑‑
2630 MR. KIEFL: Exactly.
2631 COMMISSIONER CUGINI: ‑‑ the sale of local ads?
2632 MR. KIEFL: I assume, although Rogers would have to correct me, that when Rogers said $60 million yesterday that it was likely the whole industry, not Rogers itself.
2633 COMMISSIONER CUGINI: Okay. Those are all my questions. Thank you very much.
2634 Thank you, Mr. Chairman.
2635 THE CHAIRPERSON: Michel, you had a question?
2636 CONSEILLER MORIN : Oui. Je voudrais revenir au service de base.
2637 Dans votre définition tout à l'heure, Monsieur Bibic, vous avez dit, en fait, dans le fond, qu'il n'y a plus de place pour... vous n'avez pas dit ça comme ça, mais il n'y a plus de place pour les canaux spécialisés, sauf ceux dont vous décidez qu'ils sont sur le service de base. Il n'y a plus vraiment de règles pour dire, bon bien, c'est un accès garantit, sauf la clause grand‑père dont a parlé le président tout à l'heure.
2638 Est‑ce que c'est bien ça?
2639 M. BIBIC : C'est bien ça, il n'y aurait plus d'accès garantit pour les services spécialisés.
2640 Néanmoins, des services spécialisés pourraient être offerts par Bell ExpressVu sur le service de base, parce qu'un concept dans notre proposition, c'est qu'on aurait la flexibilité d'offrir le service de base qu'on voudrait, en respectant les normes garanties, ou un service spécialisé serait offert sur une base discrétionnaire.
2641 Et en bout de ligne, dans les cas très, très, très minoritaires, ça se pourrait qu'un service ne serait pas offert par Bell ExpressVu du tout.
2642 CONSEILLER MORIN : Donc, il n'y a plus de règle d'assemblage, il n'y a plus de règle d'accès dans le fond, vous êtes le nouveau CRTC en ce qui concerne les canaux spécialisés, c'est un peu ça?
2643 M. BIBIC : Non, je ne crois pas que c'est ça. En bout de ligne, quelqu'un doit décider, et on croit que c'est le marché qui doit décider.
2644 Si on veut une règle absolue, on a vraiment deux choix, hein.
2645 Un choix, c'est qu'il n'y a pas de règle, et dans ce cas‑là, on laisse les parties négocier et s'arranger, ou c'est le CRTC qui pourrait prendre la place des participants de décider, mais ça, c'est la réglementation qu'on croit qui n'est pas nécessaire.
2646 L'autre choix si on veut une règle absolue, c'est de dire que tout le monde a accès garanti, et on croit que ça serait étouffant, et il n'y a pas de preuve... le marché fonctionne très bien aujourd'hui, et on ne croit pas qu'on a besoin d'une règle absolue qui exigerait que tous les services auraient un accès garanti.
2647 CONSEILLER MORIN : Mais est‑ce qu'il n'y aurait pas ‑‑ et c'est un peu là où je veux vous amener ‑‑ un certain compromis à faire?
2648 On s'entend qu'il n'y a plus de règle d'assemblage. On s'entend qu'il n'y a plus de règle d'accès. On s'entend que vous ajoutez les canaux spécialisés que vous voulez, parce que c'est dans votre plan d'affaires et que vous voulez vous distinguer des entreprises de distribution. On s'entend là‑dessus.
2649 Mais nous, on a été nommé comme conseillers pour faciliter, augmenter, bonifier la production canadienne d'émissions, et on a vu au cours des dernières années la contribution extrêmement importante des canaux spécialisés, et là, on les laisse complètement dépourvus de quelque chose où ils pourraient s'accrocher pour être sur votre service de base.
2650 Évidemment, ils peuvent négocier, mais vous savez très bien que les petits producteurs indépendants n'ont pas le poids des grands qui ont plusieurs canaux spécialisés, comme CTV, comme Astral, et là, ils n'ont rien dans le fond pour s'accrocher, pour innover, pour présenter quelque chose.
2651 Moi, j'ai pensé et je pense à un modèle qui se baserait historiquement sur les facteurs qu'a toujours considérés le CRTC, le Cancon et le CPE, et je voudrais les numériser, c'est‑à‑dire qu'ils ont des valeurs.
2652 Sportsnet, c'est 60 pour cent Cancon, puis c'est 54 pour cent programmation canadienne. Mais Sportsnet est un... je vous donne cet exemple‑là. Sportsnet est très coûteux au consommateur. Il coûte 78 cents, et TCN, c'est $1.07. Dans mon plan, ces deux‑là, ils ne seront jamais sur le service de base parce qu'ils coûtent trop chers au consommateur.
2653 Par contre, si on avait un modèle ‑‑ et je reviens là‑dessus ‑‑ une espèce de framework où on pourrait encourager la production canadienne par le CPE, par le Cancon, qui font un nombre de points, mais on soustrairait de ce nombre de points le taux officiel du CRTC.
2654 Et nous, la seule ‑‑ et ça ferait l'objet d'audience ‑‑ la seule décision qu'on aurait à prendre, nous commissaires, ce serait d'établir une espèce de niveau, threshold, une espèce de barre où on dirait : Tous les canaux spécialisés qui ont, disons, 100 points, bien, eux, ils font partie du service de base.
2655 Ceux qui n'ont pas ce 100 points‑là, bien, ils peuvent essayer de l'avoir. Comment? Soit en augmentant leur Cancon, soit en augmentant leur CPE, soit en diminuant le coût au consommateur, parce que la condition d'avoir de ces services‑là sur le service de base, c'est de minimiser le coût au consommateur. Tout le monde s'entend ici.
2656 Mais là, tous les joueurs seraient dans la même patinoire, et pour reprendre vos expressions depuis le début, tous pourraient jouer selon les règles du marché.
2657 La seule décision que nous, nous prendrions, la seule décision, ce serait d'établir ce niveau, qui pourrait être différent selon le marché québécois ou le marché ontarien, où, d'après les chiffres que j'ai ici, le nombre est moins important. Mais disons, grosso modo, que du côté anglophone, pour le marché de Toronto, j'en ai trouvé à peu près sept ou huit qui ont plus que 100 points.
2658 Mais à ce moment‑là, l'indépendant n'est pas dans une condition de négocier avec vous. Il peut faire son plan d'affaires et décider qu'il sera sur le service de base ou, inversement, comme TSN, dire, moi, je suis tellement populaire, le service de base, je m'en fous, et je vais charger peut‑être dans cinq ans non pas $1.00 mais $2.00, et, de toute façon, vous le transporterez, il sera vu.
2659 Alors, voyez‑vous, c'est un peu ce genre de modèle, auquel je pense, qui pourrait donner une impulsion et une direction, une direction à la programmation canadienne qui aille au‑delà de la règle de prépondérance que vous évoquez, qui est bien, mais c'est juste une règle de prépondérance.
2660 Alors, je ne sais pas si vous avez des réactions à cela.
2661 MR. SMITH: I think the Commissioner raises an interesting model and we had the chance to listen to the Commissioner's model when Rogers were presenting yesterday.
2662 I think the point system does have a potential function. If the Commission were to not agree with Bell's position of eliminating this core group of services that get must‑carry status and if the Commission decides that there is still a role for a core group of services to have some must‑carry status ‑‑ and I am not talking about basic here, I am just talking about must carry ‑‑ then I think a point system of the type that the Commissioner outlines is a potentially suitable way to assess which services achieve that status.
2663 It does create some problems for distributors and particularly for ExpressVu because one of the things that distributors need is we need certainty. We need to know whether the number of must‑carrys outside of basic are going to be 10, 15, 20, 30, 40, 50, whatever the number is, and a point system theoretically would be unlimited.
2664 So if the Commission goes in that direction, and our other evidence is recommending that you do not need to, but if you do decide to go in that direction, then we would appreciate a cap on the number of services that are going to be put into that category, and presumably, the thresholds that Commissioner Morin refers to would need to be adjusted such that the quantities are maintained.
2665 CONSEILLER MORIN : Oui. Je pense que, à la rigueur, ce threshold pourrait être révisé à tous les trois ans, par exemple.
2666 Et j'ajouterais une condition. C'est évident que dans ma tête, ce n'est pas un accès illimité. Au contraire, on pose des conditions, et on aurait à discuter du niveau, du threshold, à tous les trois ans.
2667 Mais vous parlez de predictability, de prévisibilité. Ça vaut pour vous, mais ça vaut pour les canaux spécialisés aussi. Avec un plan comme celui‑là, ils pourraient voir évaluer leur plan d'affaires et dire, voici où on s'en va, et on a l'assurance que ce niveau ne sera révisé qu'à tous les trois ans.
2668 Ce serait une double assurance, et pour vous, et pour les canaux spécialisés, qui prennent une importance de plus en plus grande dans votre offre.
2669 MR. SMITH: Yes, I take the Commissioner's point. I would go back to the earlier statements that we made in our evidence that we just feel that the marketplace doesn't need such a system.
2670 In essence, whichever services were licensed as must‑carrys through such a system, we think we will probably be carrying anyway because they will be of a nature that will be picked up by other distributors. So either customers will demand the services or the competitive situation will demand that we carry them to have a product competing with our competitors. So I am not that worried that the services will not gain access to Canadians.
2671 I think that the problem with either putting these services through such a formula into basic or using this as a way to force a favourable commercial negotiation by giving a broadcaster must‑carry status ultimately will become damaging to the industry.
2672 Now, I don't think it is damaging in the short term, so such a service would work for the next two, three, four years.
2673 But I think looking forward, and we have to look forward because this hearing is about potentially the next 10 or 15 years, I think we will be competing with the internet as a distribution mechanism and the internet will not have these rules ‑‑ potentially or pending the Chairman's hearing in September, of course ‑‑ and you would be restricting distributors in their ability to compete effectively with alternative distribution means.
2674 So I am not sure it is necessary and I am not sure it is in the long‑term interest of the industry.
2675 CONSEILLER MORIN : Comme je l'ai dit tout à l'heure, pour moi, c'est un compromis, et c'est certain que, à moyen terme, on pourrait abandonner cette règle‑là. C'est un compromis entre toutes les règles que nous avons ici : le gros livre rouge et une seule règle et une patinoire pour les joueurs.
2676 Et j'ajouterais une chose à laquelle j'ai pensé. Pour éviter que vous ayez trop de gens qui auraient le bon contenu canadien et la bonne programmation canadienne mais qui ne seraient pas écoutés, il y aurait un test commercial.
2677 Autrement dit, il faudrait que, disons, 30 pour cent des revenus proviennent de sources commerciales, et s'il y a un test commercial, ça veut dire que le canal en question est écouté parce qu'ils peuvent vendre de la publicité.
2678 MR. SMITH: I think we would be happy to take these ideas away and see if we can develop them further and put a more thorough response in reply around, Commissioner.
2679 It is somewhat difficult to see how our views as to the relaxation of regulation and the elimination of any of the access rules, our position on genre exclusivity or removal of it, and our position on must‑carry status only being accorded to the minimum of the basic service, is to see how those views can be reconciled with such a scheme.
2680 So think we are probably at odds with the Commission to some extent but we will take it away and we will put some material in in our reply round to try to find a way forward for that.
2681 COMMISSIONER MORIN: Thank you.
2682 MR. SMITH: Any of my colleagues have anything to add on that?
2683 THE CHAIRPERSON: Okay, those are our questions for you. Thank you very much.
2684 MR. BIBIC: Mr. Chairman, just before we step down.
2685 Peter Grant raised an issue yesterday with respect to CBC. We are ready and prepared to comment to his response to us or not but I did not want to leave without putting it out there.
2686 THE CHAIRPERSON: I assume you don't agree with Mr. Grant.
2687 MR. BIBIC: No.
‑‑‑ Laughter / Rires
2688 THE CHAIRPERSON: Why don't you make that a part of your written reply?
2689 MR. BIBIC: That is fine.
2690 THE CHAIRPERSON: Okay. Thank you very much.
2691 So we will break for an hour.
2692 THE SECRETARY: We will return at 1:05. Thank you.
‑‑‑ Upon recessing at 1205 / Suspension à 1205
‑‑‑ Upon resuming at 1329 / Reprise à 1329
2693 THE SECRETARY: Good afternoon.
2694 We will now proceed with the next presentation by Allarco Entertainment. Mr. Chuck Allard will be introducing his colleagues, after which you will have 15 minutes for your presentation.
2695 Mr. Allard...?
PRESENTATION / PRÉSENTATION
2696 MR. ALLARD: Mr. Chairman, Members of the Commission and staff, my name is Chuck Allard and I am the Chairman of the Board of Allarco Entertainment Inc.
2697 Before we begin our presentation this morning, I would like to introduce our team.
2698 With me today, on my immediate right, is Malcolm Knox, Super Channel's President and COO; and Mark Lewis, our legal advisor. On my left is Thom Eggertson, Super Channel's Vice‑President, Finance and Administration; and Darrell Atherley, who is responsible for Affiliate Relations.
2699 Allarco Entertainment, which officially launched Super Channel, Canada's newest English‑language general interest national pay television licence in November 2007, thanks the Commission for this opportunity to participate in this highly important policy review of BDU and discretionary programming services.
2700 As the Commission knows, Allarco Entertainment launched Super Channel in a market with strong incumbents in the pay television sector, increasing competition from specialty services, downloading from websites and, more importantly, an apparent scarcity of channel availability at BDUs.
2701 It is precisely because of those market considerations that we felt it was important to be here today.
2702 Let me begin by sharing with you some insights about our own recent experience as a new start‑up national pay television service in a Canadian broadcasting system and our attempt to reach audiences by the BDUs. My colleague, Malcolm Knox, will address the Commission's more specific questions in the second part of our presentation.
2703 As the Commission knows, the distribution sector reaches over 90 per cent of Canadian households and six BDUs ‑‑ Rogers, Shaw, Bell ExpressVu, Star Choice, Vidéotron and Cogeco ‑‑ control access to over 91 per cent of cable DTH subscribers. In essence, the small number of BDUs has the capacity of life or death over new services such as ours, not to mention existing services as well.
2704 Let me be clear with the Commission. Even with the CRTC's present must carry rules, spectrum availability with these few BDUs is not easily accessible. These six companies, which are often vertically integrated, find themselves in a very powerful position in negotiating with independent programming services such as ours and can draw out discussions about carriage for months without any impact on their double‑digit profit margins.
2705 Before I go any further on this question, I do want to recognize one of the BDUs for its exemplary attitude in our case and that is Bell ExpressVu. This BDU was ready and willing to provide our service with full HD and SD capacity for all six channels and have been actively marketing the service since launch.
2706 Let me get back to the other situations.
2707 In the Commission's decision licensing Super Channel, the Commission clearly stipulated we had mandatory carriage for Class 1 systems with comparable carriage of the incumbents. We are now close to six months since the launch of Super Channel and in many cases we have been negotiating with some BDUs for 10 months or longer, yet on day one of our operations we committed to both a national advertising campaign and a very expensive programming offering.
2708 During this time we have had to face the obvious conflicts of BDUs who allocate significant bandwidth for their own VOD, pay‑per‑view and other partially owned television interests before respecting mandatory carriage requirements of the Commission.
2709 We estimate the delays we have had to bear for comparable carriage by BDUs in full contempt and disregard for the Commission's decisions will have cost us over $12 million in the start‑up year alone. We have also noted that many BDUs asked the Commission to eliminate all access rules in favour of a preponderance formula.
2710 Needless to say, we vehemently reject this proposal for the following reasons.
2711 In Phase I of this proceeding BDUs have cited channel capacity limitations prior to full digital transition in 2013 as a key factor limiting the launch of additional Canadian services. Allarco Entertainment's application for a pay television licence was predicated on providing multiple channels of high definition programming at launch.
2712 However, after consultation with BDUs we determined only two fully dedicated HD channels were feasible at launch in light of channel capacity concerns. In many cases, we found BDUs were unwilling to dedicate one or two HD channels to our service, even though this is a key selling point to consumers. It seems offering Super Channel in a manner comparable to the incumbent pay television service means the same retail price, but not necessarily all the multiplex channels.
2713 Yet during this same period of time, despite claims of a lack of channel capacity, BDUs launched HD versions of U.S. channels which provide primarily up converted programming content. Those U.S. channels include U.S. Cable News Network, U.S. independent over the air stations, Speed and other foreign discretionary services.
2714 Such examples ‑‑ and there are many more ‑‑ demonstrate the blatant self‑serving attitude the BDUs have demonstrated in dealing with licensed Canadian services and foreign satellite services. Close to six months after launch, and having a national licence which states "must carry", Super Channel is still not available on Star Choice, Shaw Cable, Vidéotron, EastLink, Telus, MTS and a number of Class 1 CCSA members, almost 50 per cent of potential customers across the country.
2715 On the key question of dispute resolution, we totally disagree with the proposals of BDUs who want to eliminate this procedure. We are well placed to understand firsthand why they would prefer this. We recently had to use a dispute resolution process with two of the BDUs to have them respect the Commission's regulations about must carry. This process has proven to be laborious and time‑consuming, but we have to ask ourselves what recourse would we and the Commission have if such a dispute resolution process did not exist. Licensees would be even more at the mercy of a handful of BDU gatekeepers.
2716 Based on our recent experience we strongly recommend the Commission ask the government to revise the present broadcast legislation to give the CRTC more powers, not less, in the area of dispute resolutions. The Commission should have the powers much like the FCC in the United States and Ofcom in Britain which both can impose heavy fines on parties that do not respect regulations.
2717 In addition, the Commission should have the means to determine monetary compensation for the losses of licensees which face BDUs that don't respect Commission decisions.
2718 Furthermore, we strongly recommend the Commission carefully examine many of the provisions of BDU contracts. It is not uncommon for a BDU to impose a variety of onerous obligations on a programming service which is seeking carriage, marketing subsidies, transmission costs and other obligations which have the potential of seriously impeding the entry of Canadian services.
2719 To our knowledge, foreign services have not been subjected to similar provisions in their contracts. In addition, BDUs will use most‑favoured‑nation provisions in their contracts with Canadian services to ensure they don't miss an opportunity to extract extra revenues from programming services.
2720 In addition, we would like the Commission to review the question of audit rights with the BDUs. In Broadcasting Notice 2005‑34, the Commission commented on audit rights, stating:
"The Commission expects future agreements negotiated between programming services and BDUs either to incorporate the audit terms set out above or to negotiate mutually agreed terms on the matters covered in this Notice."
2721 In our negotiations with a number of BDUs, they have refused to include audit rights and agreements, which leads us to suggest the Commission amend the existing BDU regulations to provide programming services with unequivocal audit rights to subscriber information.
2722 I would now like to ask Malcolm Knox to go through some of the homework the Commission gave us in preparing for this public hearing.
2723 MR. KNOX: Thank you, Chuck.
2724 We spent quite some time examining the distribution model the Commission proposed for discussion at this hearing and we would have the following comments to make.
2725 We agree with the Commission's proposed regulatory provision on a minimum preponderance 50 per cent plus one of both services offered by distributors and services received by distributors must be Canadian.
2726 We also agree with the Commission's proposal for the composition of the basic service and the provision to offer no guaranteed access to foreign services.
2727 On the critical question of guaranteed access to a limited number of core Canadian services, we would also agree to the extent that the Commission consider Canadian pay television services as core services, providing value diversity to the broadcasting system. In our view, one of the key elements to consider in defining core Canadian services should be the level of expenditures on Canadian programming and the exposure provided to such programming by the licensees.
2728 In the case of Super Channel, we are planning on spending more than $100 million on developing and licensing Canadian programming in our first five‑year licence period, which comes to an end in 2012.
2729 We consider this to be the kind of level of commitment that places a service in the core services category.
2730 We disagree with the BDU proposals for the elimination of genre protection. In such a situation we would anticipate that specialty channels which are controlled by companies related to the BDUs would broaden the categories of their programming offerings and would be engaged in outfitting smaller broadcasting groups for programming rights.
2731 Alternatively, BDU‑controlled companies could obtain licences to compete with analog specialty and Category 1 services. Here again we have an example of what could result from the elimination of must carry obligations.
2732 In our view, such a situation would result in the potential removal of Canadian programming services not owned by or aligned with BDUs, thus reducing diversity of ownership in Canadian broadcasting.
2733 Concerning the possibility of increasing the number of authorized non‑Canadian satellite services, particularly in the pay television sector, we clearly oppose such a move. We believe the Commission should continue to be vigilant regarding requests for authorizing foreign specialty and pay services and maintain as its priority question in such cases: What are the net benefits to the Canadian system by allowing the entry of such services and what will be the impact on the programming rights for Canadian services?
2734 Letting in such services could ultimately reduce our overall capacity to sustain a dynamic Canadian programming production industry.
2735 For example, Canadian pay television services commission, invest in and acquire in excess of $80 million a year of independent Canadian content programming primarily in drama. The removal of the competitiveness test for entry of foreign satellite services would place Canadian services operating within those genres at an undue disadvantage.
2736 All pay and specialty and most Category 1 digital services are required to adhere to significant Canadian programming expenditures and exhibition requirements as conditions of their licence. Canadian pay and specialty services acquire exclusive Canadian exhibition rights to non‑Canadian programming. Most of that foreign programming is currently exhibited on U.S. services which do not presently qualify for entry into the Canadian market.
2737 In the event the Commission was to lessen or totally eliminate entry barriers to non‑Canadian services, we foresee a profound redirection of programming exhibition rights away from Canadian pay and specialty services. Such a redirection of programming exhibition rights would be accompanied by significant audience fragmentation from Canadian services over to non‑regulated foreign programming services. This in turn would seriously threaten both the viability of Canadian services and the livelihood of Canadian actors, producers and writers who are direct beneficiaries of Canadian programming expenditures and exhibition requirements.
2738 With regard to undue preference rules, we do not agree with proposals of the BDUs to either remove or retain existing rules which place the burden of proof with the complainant.
2739 The Commission had to call a public hearing in 2007 because it was alleged one of the BDUs was not respecting carriage rules. We fully agree with the Commission's proposal to reverse the onus in this area and reiterate that we recommend stronger regulatory power for the Commission to deal with undue preference situations.
2740 MR. ALLARD: Mr. Chairman and Commissioners, as I said earlier, we believe it is critical to the future success of our broadcasting system that the Commission use this hearing to set down new rules for the relationship between Canadian programming undertakings and the BDUs.
2741 The BDU providers have evolved rapidly over the years, becoming not only very profitable but also very concentrated in ownership and increasingly involved in distributing their own programming services. We have said it before and I will repeat it again: BDUs have the power of life or death over Canadian programming services.
2742 This should not be the case in a broadcasting system that is supposed to be regulated in the public interest, not in the interest of a small group of BDUs. We believe it is imperative that the Commission not only continue to regulate the system but more so strengthen regulations with mandated consequences for non‑compliance, including compensation for BDUs who refuse to comply with Commission's decisions.
2743 It is our view that the Commission has to retain a strong access regime with teeth to ensure Canadian services can reach Canadian audiences as a priority over offering foreign services.
2744 The recent success of Category 1 digital networks is in large part due to the Commission's clear access policies.
2745 Deregulation is a popular term in many circles, but we have to remember that the success of our Canadian broadcasting system, which is the envy of many countries, has been built on ensuring Canadian programming services could compete within our own market while showing an openness to the world. We caution the Commission to not jeopardize a system that is very fragile in the sole interest of further increasing the power and profit margins of BDUs.
2746 The U.S. Treasury Secretary and former Goldman Sachs CEO, Henry Paulson, was quoted in Market Watch a few weeks ago calling for more regulation, not less, of the financial markets. In his view, the excesses of deregulation in the U.S. have now created the worst financial crisis in a generation, threatening the health of the U.S. economy, the savings of millions of Americans and the survival of some of the biggest financial institutions in the world. Such statement should give us the shivers.
2747 Let us remember our Canadian broadcasting industry is only healthy today because of years of careful crafting of regulations which balance the diverse interest of all industrial sectors involved.
2748 This completes our oral presentation and we look forward to responding to any questions you may have.
2749 THE CHAIRPERSON: Thank you very much for your presentation.
2750 On page 9 you say:
"In the event the Commission was to lessen or totally eliminate entry to non‑Canadian services, we foresee a powerful redirection of program exhibition rights away from Canadian pay and specialty services."
2751 Has anybody put that idea forward?
2752 I mean, isn't this a bit of a smokescreen? I'm not aware of anybody suggesting that we eliminate entry barriers for non‑Canadian services, not even the BDUs.
2753 MR. KNOX: Well, I'm sure the BDUs wouldn't be promoting that, particularly if they want to bring in more U.S. services.
2754 In our view, Canadian programmers license programming from program suppliers in the United States. Those program suppliers also license programming to U.S. services who buy U.S. rights which are of much greater value than Canadian and, as a result, Canadian broadcasters acquire programming that is produced in the States, and the U.S. services have similar programming.
2755 If we were to allow unbridled entry without any oversight, the concern is the U.S. services could start to come in and in the early years while there would be an issue with the programming rights, over time the U.S. services could start to acquire that programming from the U.S. program suppliers. They could buy U.S. and Canadian rights and then this programming would just not be available for some services in Canada.
2756 THE CHAIRPERSON: I understand that point, but I mean my whole point was you are raising this here. I have read most of the submission and I don't believe I have seen anybody suggesting that we eliminate any kind of entry barrier to foreign services.
2757 MR. KNOX: Well, I guess this is in the area of the genre protection and just our interest in making sure that this ‑‑
2758 THE CHAIRPERSON: So you are just anticipating that this might lead us to the situation. Is that the idea?
2759 MR. KNOX: Well, that's true. And then there are some other areas ‑‑ there are some programming services that seem to be creeping into Canada. For instance, the service Setanta seems to be a foreign service ‑‑
2760 THE CHAIRPERSON: Which service?
2761 MR. KNOX: Setanta.
2762 THE CHAIRPERSON: Yes...?
2763 MR. KNOX: It's a foreign service I believe from ‑‑
2764 MR. LEWIS: I believe it's based ‑‑ I will comment on that.
2765 It's a service that I believe originates in Great Britain. It is a soccer/football channel. There already are Category 2 services in Canada that are Gold TV, and I believe there is another one, which occupy that genre, and yet these services are starting to creep in via VOD and yet there are linear services in the U.S.
2766 Setanta is a good example because we have just encountered a couple of situations where it has leapfrogged over Super Channel in being launched on VOD in the U.S. It is a satellite service. It is a monthly subscription service, and it appears 100 per cent of the programming is identical on VOD. So it doesn't even seem to be a VOD service.
2767 THE CHAIRPERSON: How is it creeping into Canada?
2768 MR. LEWIS: I believe that it is being pulled off a U.S. satellite. It is being sold by several BDUs on a monthly subscription basis under the guise of being video on demand.
2769 THE CHAIRPERSON: I see. Okay.
2770 The other thing I notice, after two days of hearing, nothing about fee for service. You haven't even mentioned the word.
2771 What is your view on fee for service?
2772 MR. KNOX: Thank you. Fee for service for the over the air broadcasters is, frankly, a much bigger issue for them than it is for us.
2773 From our perspective, our concern as a pay service that is purchased after consumers purchase the basics, or basic tier, our concern is that over the air fees could increase the cost of the basic service and make it more expensive to eventually buy through and purchase our service.
2774 So our concern about basic and over the air is that it not be too large a service and not too expensive and create somewhat of a barrier to entry for purchasing pay and specialty.
2775 THE CHAIRPERSON: So is this a yes or a no or a modified no or what?
2776 MR. KNOX: A modified no.
2777 THE CHAIRPERSON: Okay. Thank you.
2778 Rita, I believe you have some questions.
2779 COMMISSIONER CUGINI: Thank you.
2780 Good afternoon, gentlemen. I'm going to indulge for just a moment and make a bit of an editorial comment, which I don't normally do.
2781 I think you provide us with a very interesting case going forward, and I guess in doing so I am putting on notice those BDUs who currently aren't carrying you that we may ask this question when they are before us, because if it is true that the relaxation of genre exclusivity will provide the BDUs with more of an opportunity to carry competing services and let the consumers decide which ones will thrive or not, then here is a perfect case where they could provide that competition to what is currently on their dial and let the Canadian consumer, their subscriber, decide which will flourish and which will not.
2782 So like I say, I just think it is an interesting case and if you care to comment on that little editorial, please go ahead.
2783 MR. KNOX: Well, I think there is an interesting consideration when we have the BDUs suggesting that the market should decide, the marketplace should prevail. There is a very fragile time in the life of a new service, and that is between getting the licence and getting carriage and actually having the BDUs fully engaged in marketing the service.
2784 So on the one hand for the BDUs to say we should let the market prevail, well, that is assuming that you are in the marketplace, you have the shelf space, the BDU has fully engaged, they are working at selling you, they have briefed their CSRs on your service and you are truly ready to go.
2785 Until you are at that stage you are incredibly vulnerable; you are not in any position to talk about success in the marketplace.
2786 So it's fine to talk about success or having the marketplace prevail once you have been around, once you are there. You know, after three years or five years or some period of time it is easy to evaluate that. But in the beginning a service like ours, trying to get the shelf space, trying to get launched and equally important trying to get the BDUs engaged.
2787 We have some BDUs that picked us up early on and they are now just getting engaged five to six months later.
2788 COMMISSIONER CUGINI: If we were to go back to the future and if ‑‑ I mean, you were here this morning I know when Bell was in front of us and you heard what ExpressVu said in terms of the kind of information absent access rules that they would require from services launching.
2789 So if we went back to the future, how would your approach have been different in the absence of the must carry designation that you did receive when you would go to the BDUs and say here's the service I am proposing? What other information would you have provided them to convince them that you were worthwhile service to carry?
2790 MR. KNOX: Two thoughts on that.
2791 One, must carry. If we didn't have the must carry provision, we wouldn't have launched a service of this magnitude, of this many channels and of this size of programming investment.
2792 But dealing with the BDUs and our circumstance with must carry has been quite similar to what many other services have had to deal with.
2793 When we arrived on many of the BDUs' doorsteps, they might as well have been treating us as if we were Category 2. They really didn't give much consideration to must carry. We are six months in and we are only on 48 per cent of distribution across Canada.
2794 So when we went in, we had to go in and pitch them on our programming and explain what our programming is. Not only that, we had the regional pay services spend some time trying to convince the marketplace that they had all the programming. There was no programming available. So we had a tougher sell to go in and explain to them yes, there is programming.
2795 So we had to convince the BDUs that we are real service, we have real programming or access to real programming.
2796 And then, once we got them over that hurdle, we then got into the bandwidth discussion. The bandwidth discussion was, well, we can launch one channel and that's all we have to do under the regs. Well, if you pay attention to our licence decision, it says comparable carriage and that is the expectation.
2797 So there are still some BDUs who are resisting on that front today and frankly, we have had to sort of claw our way along with each BDU.
2798 I will point out that it is interesting the impact that this hearing and perhaps our appearance today has had on some BDUs. Within the last 24 hours we have received two affiliation agreements for signature. We have been notified another one is in the mail, and we received a letter this morning that a BDU in question is prepared to ‑‑ has found some technical innovations that will allow them to carry us in the near future.
2799 COMMISSIONER CUGINI: Is the bottom line you would not have applied for this service if you knew you couldn't get must carry status?
2800 MR. KNOX: I think I will let Chuck answer that.
2801 MR. ALLARD: Well, when we applied, I think our business plan called for a deficit going up to $15 million because we had non‑exclusivity and we knew we had to have must carry. If we didn't have those two things, we probably wouldn't have gone.
2802 But we said okay, we have this decision from the CRTC that gives us must carry. And boy, were we mistaken. We rolled the dice, spent a lot of money to try to launch, and if we didn't have must carry we wouldn't have started.
2803 COMMISSIONER CUGINI: Thank you.
2804 Both in your written and your oral presentation you talk about the fact that the BDUs did launch HD versions of U.S. channels as well as the up ‑‑ in some cases they are only up converted versions.
2805 Are you suggesting to us that the CRTC should impose a rule that says that BDUs should carry all available Canadian HD channels before they launch any additional U.S. HD channels?
2806 MR. KNOX: Our comment was really directed more towards the fact that as a must carry, we believe that we have standing over those services and that we should have had preference over those services.
2807 I guess the fact that those services were predominantly uprez'd programming was just salt in the wound to us. But no, we are not advocating that.
2808 We're just saying that if we are must carry, there are certain rules and obligations that go along with that. That is the basis upon which we came into the marketplace and made all these big investments and we are just looking for the quid pro quo.
2809 COMMISSIONER CUGINI: Okay. Did you want to add something, Mr. Lewis?
2810 MR. LEWIS: I wanted to add to that, what is particularly troubling in the last five or six months has been I would call it a bit of a gold rush by certain U.S. services.
2811 I am not privy and we are not privy to the negotiations that have gone on, but if I could cite one particular instance, yesterday during the discussion with the people from the Rogers Group there was a discussion whether they were carrying all of the HD services that Bell ExpressVu was carrying, and they said that they were currently I guess in negotiations with the high fidelity group for their suite of, I believe it is, four or five HD services.
2812 What they didn't mention is the fact that they are not currently carrying Super Channel in HD, and HD is a very significant component for the consumer market.
2813 Now, what is troubling ‑‑ and I go back to the gold rush ‑‑ is well after we were licensed, and in fact after we were launched last winter, or this past winter, CNN started an HD service which is identical to their standard definition service, but CNN only has one production studio and only a few hours a day of, I believe, the Anderson Cooper show is shot in HD, and yet the same BDU who currently doesn't have capacity for a mandated Canadian service has capacity for an uprez'd CNN.
2814 That is the thing that we are very concerned about.
2815 We have also seen across the landscape of BDUs ‑‑ and I will use the PBS example ‑‑ a number of situations where BDUs have said they don't have capacity. They are running KCTS from, I believe, it is Seattle and WGBH Boston. Both are PBS HD channels.
2816 Approximately 98 percent of both schedules are identical. They are not time‑ shifted stations. They are the same. They are the same signal. And so again we come back to the fact that we have this problem of distant signals in HD appearing, occupying massive amounts of bandwidth of U.S. services again in priority, it seems, over Canadian services.
2817 Sorry for a longwinded answer.
2818 COMMISSIONER CUGINI: No, as much information as we have is always a good thing.
2819 Again, you heard Bell ExpressVu's suggestion that perhaps in the transition we should retain the must carry rules for the next two or three years. Others have suggested for the first licence term just so broadcasters are, I guess, put on notice that these will eventually disappear.
2820 Do you have a reaction to either of those suggestions or both, or should there be a sunset period to the must carry rules?
2821 MR. KNOX: Well, from our perspective we would like it as long as possible of course.
2822 There is no question. Once you reach a certain threshold of subscription level you are safe and we anticipate being there, absolutely being there by the end of our first licence term. In fact we better be to hit our business plan. So we will have other issues if we don't have those subscription levels but probably the first term.
2823 COMMISSIONER CUGINI: Okay.
2824 Now, another area of your submission that quite frankly surprised me a little bit, and that is your position on genre exclusivity and that it be maintained, and the reason I say it surprised me is because we know the record of when you were first licensed and we know that there were interventions that said that you were competitive with existing services and that it was contrary to our one‑per‑genre policy. And, therefore, it could be argued that you have benefited by being licensed by the "relaxation" of the one‑per‑genre policy in your case.
2825 So why do you maintain absolutely that one‑per‑genre policy continue going forward?
2826 MR. KNOX: Well, certainly for one reason is our concern about foreign programming, foreign services coming into Canada.
2827 COMMISSIONER CUGINI: Then let's put the argument into two sections; that is, the one‑per‑genre amongst the Canadian services and then how do we apply that with the entry of U.S. services? Because there are those who have said to us, "Yes, you can relax within the Canadian services but you have to ensure that the entry of foreign services doesn't compete with Canadian".
2828 So there really is two sides to the argument.
2829 MR. KNOX: M'hm.
2830 COMMISSIONER CUGINI: So let's start with just the competition between Canadian services.
2831 MR. KNOX: With Canadian services I guess one of our concerns, and perhaps we are a little cynical after being through the BDU wars, is our concern about companies that are affiliated with the BDUs and their potential for access and the deep pockets. So we are speaking as a small independent company. I mean if we were CTV or something I guess we wouldn't be saying this.
2832 But as a small independent we are really concerned about the market clout that some of these giant companies have and potential control or access they may have or they may grant themselves. That just causes us some concerns. So therefore we are interested in the CRTC maintaining some kind of oversight in this.
2833 COMMISSIONER CUGINI: And we have heard or read suggestions ranging from a moratorium on the entry of foreign services to complete unfettered entry of foreign services.
2834 Where do you think we should land?
2835 MR. KNOX: Well, I think the BDUs have ‑‑ I will backup.
2836 I think there is some value in some foreign services coming into Canada if they can make sense in the context of the Canadian broadcasting system. So to just say absolutely "No opportunity for them to come in" I don't think is quite right.
2837 But I think it has to be adjudicated based on what they contribute to Canadian broadcasting. We have got some of the U.S. system in Canada now and we have got a great Canadian system so there may be some interesting broadcasting opportunities or programming that can come into Canada that is really worthwhile and should. But we also at the same time recognize that those U.S. services don't make the contribution to the Canadian system the way the Canadian system does.
2838 So I think that there is a potential for some programming if it's of significant value to the system, and that needs to be adjudicated. I don't think there is a hard and fast rule.
2839 COMMISSIONER CUGINI: And what tests should we apply to adjudicate whether or not that service would contribute?
2840 MR. LEWIS: If I could jump in for a second one of the things that concerns us, and I don't want to go over old ground, but the USA network situation is not unique. There are a number of intervenors who wrote in.
2841 And many of the programs were bought and spoken for in the Canadian system and they were programs that were generating revenue, and those revenues certainly contribute to the bottom line and therefore the production and exhibition of Canadian programming.
2842 We see very often in this discussion about taking away genre protection vis‑à‑vis U.S. services; the suggestion that there are a whole raft of very popular services that Canadians are not getting access to and with Super Channel in particular we were able to acquire a number of series unique to Canada. They hadn't been exhibited in Canada. And we would see those series and those program rights vanish very quickly.
2843 Now, we can't go and argue because we are a general interest pay television service. We can't argue that if, for example, TNT came in it's within our genre, but we do have programs that are licensed that are currently running on TNT and we would likely lose those rights. And that's part of our whole service.
2844 So that is the difficulty with certain approaches to the genre test because TNT is a general interest service. We are a general interest pay service. Do we have standing to keep them out? It's debatable.
2845 I haven't seen a framework that's very clear as to what the test may devolve to. But we certainly know we have program rights of programming that's exhibited on FX and TNT, two services that we think would be naturals to come into Canada if there were no rules.
2846 COMMISSIONER CUGINI: So in the absence of any new framework just keep the rules that we ‑‑ or keep the process that we currently employ?
2847 MR. LEWIS: Yes, Commissioner, because it's difficult to see what actual contribution FX or TNT would make to the Canadian broadcasting system relative to the contribution that this company will make over the next five years.
2848 COMMISSIONER CUGINI: One final question on my part. My colleagues may have others.
2849 As you know, the BDUs are asking us to eliminate not only all the access rules but the distribution and linkage rules as well. Should they be allowed to put you on basic if they so chose to?
‑‑‑ Laughter / Rires
2850 COMMISSIONER CUGINI: It's not a trick question. It really is ‑‑
2851 MR. EGGERTSON: If I can just ‑‑ I'm the accountant for the company.
2852 COMMISSIONER CUGINI: Okay.
‑‑‑ Laughter / Rires
2853 MR. EGGERTSON: And I think, to be quite honest ‑‑ I listened to some of the discussion yesterday, with our ‑‑ sorry ‑‑ with our retail costs the suggestion yesterday by a gentleman from the CBC is what a basic cost of basic could be if it was skinnyed down. You would look at a basic that would be very expensive which would probably discourage people or prevent certain people from getting the basic package.
2854 But however, as the accountant if we were part of the basic, our sub‑numbers presumably would be very large and the business would be phenomenally successful. But I don't think it's fair to impose that upon the general Canadian public that we should be something that they choose to take because they like our programming and not forced to take.
2855 COMMISSIONER CUGINI: Well, thank you very much. Like I said, that was my final question.
2856 Thank you, Mr. Chairman.
2857 THE CHAIRPERSON: Anybody have some questions?
2858 Commissioner Katz.
2859 COMMISSIONER KATZ: I just have one quick question.
2860 I think I heard you say that foreign aside, foreign services aside your concern with allowing competition by genre in Canada is because of the risk of potential self‑dealing by the vertically‑integrated BDUs. Is that the only reason?
2861 MR. KNOX: Yes.
2862 COMMISSIONER KATZ: Okay, thank you.
2863 THE CHAIRPERSON: Michel.
2864 COMMISSIONER ARPIN: I'm only seeking your comments on two or three different issues. One is ‑‑ and it's something we didn't hear so far at least in this hearing but we may hear it, is the fact that I have heard a couple of times that it's much easier to get a CRTC licence than to get a distribution agreement with the BDUs.
2865 I was hearing what you were saying in your oral presentation, Mr. Allard, and that's something that crossed my mind. Will you agree with such a statement it's easier ‑‑ and I know it was competitive. It was fairly hard to get the licence. You were going against a few already established policies by the Commission, notably the one‑per‑genre.
2866 MR. ALLARD: Well, I think that's true. It's sometimes easy to get the licence and very difficult to launch and I didn't think it would be quite this painful, especially when we had a licence decision that said mandatory carriage and comparable. So we thought, oh, you know, we have ‑‑ our business plan has tripled in budget but we have got this licence that says mandatory carriage. And I didn't think it was going to be this painful.
2867 It wasn't this painful 20 years to get a BDU. But now they have become so concentrated and so difficult to deal with sometimes that, yes, it's sometimes quite easy to get a licence and very difficult to execute.
2868 COMMISSIONER ARPIN: And even, as you say, for a must carry service. So if you are a Category 2 who has no access ‑‑ doesn't benefit of any access rules it could be totally impossible?
2869 MR. ALLARD: I guess we are the wrong ones to ask that, but I would assume that if we are having difficulties they are having much more difficulty.
2870 COMMISSIONER ARPIN: Yes.
2871 In your presentation, oral presentation, it is suggesting ‑‑ and I think it was Mr. Knox who addressed the issue of preponderance and you said that you were ‑‑ you agreed to a preponderance rule of 50 plus 1. We heard the CBC yesterday saying that preponderance should be at least two‑thirds and I don't know if you have any comment.
2872 MR. KNOX: We think the more Canadian the better. So that would be of interest to us as well at that level. We were just accepting of what was in the proposed model but we appreciate their position and see value in it.
2873 COMMISSIONER ARPIN: Thank you.
2874 Thank you, Mr. Chair.
2875 THE CHAIRPERSON: One question on dispute settlement.
2876 There is a dispute settlement mechanism right now. You are having trouble getting carriage, notwithstanding that you enjoy a mandatory carriage licence from us. Have you invoked it? What is ‑‑ does it work or do you have a suggestion as to how we should improve it to make it work better in cases like yours?
2877 MR. ALLARD: Well, Mr. Chairman, I think one of the easy things you could do before ‑‑ with somebody who has got mandatory carriage in his licence is when they are ready to go ‑‑ and we do this with our creative development people across the country ‑‑ we tie them in by a videoconference call. And it would be very easy for the Chairman or someone else to say, "Okay, these guys are ready to go. How many of you are ready to carry them?" You don't have to get into the exact terms.
2878 And that would give an impetus for some of the BDUs to react, because sometimes they don't react until the CRTC is engaging them or until we exercise the dispute resolution which is we shouldn't get into a quasi‑judicial process or administration process. That should be the last thing we should have to do.
2879 THE CHAIRPERSON: I can't do both.
2880 MR. ALLARD: What's that?
2881 THE CHAIRPERSON: I can't do both. I can't be ‑‑ on the one hand, you know, exercise suasion as you suggest to get together and then if it doesn't work also be an arbitrator. So I mean it's one or the other.
2882 MR. ALLARD: Well, Mr. Chairman, I remember 20 years ago I was in the business. I got a call from the chairman a couple of times and I was taken offside by somebody else and he told me, "Deal with the situation" and I dealt with it.
2883 THE CHAIRPERSON: Well, that maybe is the way that this ‑‑
2884 MR. ALLARD: Okay, no.
2885 THE CHAIRPERSON: ‑‑ was done 20 years ago. It's not the way business is done now. And also we have ‑‑ I'm under the scrutiny of a Federal Court of Appeal which takes a very different view on due process than what it did 20 years ago. So I mean let's deal with the situation today.
2886 You have a problem. Have you invoked the dispute settlement?
2887 MR. KNOX: Yes, we did. We ‑‑
2888 THE CHAIRPERSON: And did it resolve the issue?
2889 MR. KNOX: It had ‑‑ it seemed to have had some impact. We didn't take it to the decision stage because we were able at the eleventh hour to make a deal last week. It dragged on from December until last week. It took many months. It was very slow. The parties in question didn't really demonstrate that they were ‑‑ they were moved by it. They chose to ignore it; it would appear, until the eleventh hour.
2890 THE CHAIRPERSON: And do you have any suggestion for us of how to improve the dispute settlement process in light of your personal experience?
2891 MR. KNOX: Well, if the Commission had the ability to invoke some fines or if the Commission had the ability to assess compensation when a party is aggrieved. In our situation we have lost five to six months of revenue because a party ‑‑ some of the BDUs just chose to drag their feet and not work with us.
2892 THE CHAIRPERSON: What I'm trying to figure out, to what extent is the issue one of your unwillingness to confront the BDU and to what extent it is an issue of a defective process because we haven't expedited proceedings, et cetera. Now, I understand for business reasons and for ongoing commercialization you don't want to be confrontational right away but what I have ‑‑ that's a decision you have to make and you have to live with that.
2893 But I am talking about our process. Does it work? Does it need improvement and if so where?
2894 MR. KNOX: Well, I felt as we were going through the process that the folks I was dealing with at the CRTC felt that they didn't really have a lot of clout to move it along until we got to the actual formal process of setting it up with the hearing which is going to take months.
2895 So if there is some way to have some sort of expedited intervention that didn't take months and months and didn't have to wait for the hearing schedule to open up to accommodate the hearing that would be very significant.
2896 THE CHAIRPERSON: Some parties have suggested we should adopt what I think of sort of baseball rules, best‑offer arbitration, you know you both put an offer on the table and we just select between the two of them. We can't do something else.
2897 What do you think of such a suggestion?
2898 MR. KNOX: In many cases that can work.
2899 THE CHAIRPERSON: Okay.
2900 MR. LEWIS: But Mr. Chair, I just want to ‑‑
‑‑‑ Laughter / Rires
2901 MR. LEWIS: The lawyer in me says one of the difficulties ‑‑
2902 THE CHAIRPERSON: Your client has spoken, councillor.
2903 MR. LEWIS: Sorry?
‑‑‑ Laughter / Rires
2904 MR. LEWIS: The devil here that we have been concerned about in that process, because we certainly canvassed it with Commission staff, is this series of MFN requirements of certain BDUs and in a ‑‑ I would suggest that what we are seeking or what we have been seeking all along is carriage rather than ‑‑ the issue is not really hedged on wholesale price.
2905 And so this particular circumstance might be unique, Mr. Chair, because we were seeking to be carried. We were seeking to be marketed and the price wasn't the thing that was really holding it up. But if the Commission ‑‑ if the other parties for example said, "Well, we will offer $5.00 now" and we say, "Well, we have got" ‑‑ "We are according you MFN pricing" that would be another snowball that would start to run down a hill.
2906 THE CHAIRPERSON: But surely you could do the best offer arbitration in terms of both price and conditions?
2907 MR. LEWIS: The price hasn't been the issue, though. That's the ‑‑
2908 THE CHAIRPERSON: ‑‑ conditions.
2909 MR. LEWIS: It's the carriage and it's the issue of access to systems and whether there is channel capacity. That's been more of what the issue has been about.
2910 And also, if I could put it bluntly it's the ‑‑ in our particular situations with BDUs thus far, it's been issues of finding channel capacity to launch U.S. services and other services and not respecting the mandatory order or mandatory carriage issue.
2911 And that's something that I think is beyond our determination and a last offer doesn't work. It's really a fact finding perhaps by the Commission as to who is right, were services added.
2912 THE CHAIRPERSON: Okay. Well, thank you very much for your presentation.
2913 Madam Boulet, do we want to take a five‑minute break so you can reassess the panels?
2914 THE SECRETARY: Yes, thank you. That would be appreciated.
2915 And I would ask for the Canadian Film and Television Production Association and ‑‑ l'Association des producteurs de films et de télévision du Québec de venir à la table des intervenants, s'il vous plaît, dans cinq minutes.
‑‑‑ Upon recessing at 1420 / Suspension à 1420
‑‑‑ Upon resuming at 1429 / Suspension à 1429
2917 THE CHAIRPERSON: Okay, Madam Secretary, let's go.
2918 THE SECRETARY: Merci, Monsieur le Président.
2919 We will now proceed with a presentation of the Canadian Film and Television Production Association. Mr. Guy Mayson will be introducing his colleagues, after which you will have 15 minutes.
2920 And we will continue avec l'Association des producteurs de films et de télévision.
2921 Mr. Mayson.
PRESENTATION / PRESENTATION
2922 MR. MAYSON: Good day, Mr. Chair, Vice‑Chairs, Commissioners and CRTC staff. My name is Guy Mayson and I am the President and CEO of the Canadian Film and Television Production Association.
2923 With me today are to my right, Julia Keatley, President of Keatley Entertainment of Vancouver, Co‑Creator and Executive Producer of the drama series "Cold Squad" and "Godiva's". Julia co‑chairs our Broadcast Relations Committee.
2924 To my left, John Barrack, the CFPTA's National Executive Vice‑President and Counsel.
2925 And to John's left, Mario Mota, the Association's Senior Director of Broadcast Relations and Research.
2926 The CFTPA represents almost 400 companies that create, finance, produce, distribute and market feature films, television programs and interactive content for new digital platforms.
2927 Through the content we produce, independent producers help foster Canadian cultural choices and reflect the rich diversity of this country. As such, the independent production sector plays a vital role in the Canadian broadcasting system, as recognized in the Broadcasting Act.
2928 Mr. Chair, you have expressed the view on several occasions that the Broadcasting Act has two overriding objectives: the provision of Canadian content to Canadians and access to the system.
2929 We agree with you and believe that these must be central to the discussions in this proceeding.
2930 We fundamentally believe that the Commission can only address the five key questions noted in the Chair's opening remarks yesterday by first addressing the appropriate contribution to the creation of Canadian programs of all sectors of the broadcasting system, one of the issues which you initially asked intervenors to speak to at this hearing.
2931 In fact, we believe that this is not only the most important question that should be answered in this proceeding but the prism through which virtually all other issues, including the five key questions, should be addressed.
2932 Canadians want quality programming and, as you heard yesterday, recognize that the CRTC plays a key public interest role in assuring that they receive it.
2933 The notion put forward by BDUs in this process, that the current BDU regulatory framework is fundamentally flawed, is not forward‑looking and does not give Canadians the greatest possible choice of services at affordable prices, appears to have been taken as a given and that the consequence of this is a need to compromise, to step back from Canadian programming as a primary objective for the system.
2934 And yet, that is not what the evidence before you suggests. The Canadian broadcasting system today remains strong and healthy. Viewing levels and revenues are at all‑time highs. Canadians have more choices of television channels than people in most other countries around the world. Shifting consumer habits and patterns are being accommodated within the system with no evidence of abandonment.
2935 In particular, technological developments, rather than hurting the BDU business, are enhancing it. It is BDUs who participate fully in the new subscription revenues that come from the internet and other new technologies and they who have used their regulated businesses as a basis for providing these unregulated services.
2936 The notion that BDUs face imminent technological consumer or economic threats that warrant fundamental regulatory change is, we think, false.
2937 This means there is no need to step back from Canadian programming as a primary objective for the system, there is no need to compromise the fundamental Broadcasting Act objective that undertakings maximize their contributions to Canadian programming, and there is no need to make changes to current regulation that would have the effect of reducing support for Canadian programming.
2938 In fact, quite the contrary. This hearing presents perhaps the Commission's best opportunity to lay the groundwork necessary for a redoubling of efforts in support of Canadian programming.
2940 MS KEATLEY: Thank you, Guy.
2941 A primary purpose of the Canadian broadcasting system must be to generate sufficient dollars to produce high‑quality priority programming such as Canadian drama that Canadians want to watch on whichever platforms they choose now and in future.
2942 Unfortunately, in English Canada we are falling well short in this regard. We believe there are two major reasons for this.
2943 Firstly, broadcasters' promises that led to the 1999 TV Policy have proven to be false. A primetime exhibition commitment alone is not enough to ensure private conventional broadcasters spend the money necessary for high‑quality priority programming.
2944 Secondly, the promised benefits of consolidation since the late 1990s in terms of sustainable and significant incremental increases in support of Canadian programming have been neither assured for appropriate conditions of licence nor realized through broadcasters' conduct in the marketplace.
2945 The major English private conventional television broadcasting groups are spending more and more on U.S. programming, as we have heard over the last day and a half, with the inevitable consequence that spending on Canadian programming and particularly drama is getting squeezed.
2946 In the last decade, the battles for primetime supremacy between CTV and Global have caused Canadian English private conventional television spending on U.S. programming to go from 27 percent of revenues in 1999 to 37 percent of revenues in 2006, with no minimum Canadian programming expenditure requirements.
2947 Increased foreign programming costs resulting from relentless outbidding for top U.S. shows have come at the expense of Canadian shows, in particular drama.
2948 Hence, the precipitous drop in Canadian drama spending by English private conventional television broadcasters from 5.1 percent in revenues in 1998 to 2.3 percent in 2006, and ultimately and equally inevitable, the drop in the percentage of revenues spent on Canadian programming, 27 percent of revenues in 1999 to 25 percent in 2006.
2949 Had CP stayed at 1998 percentage levels, private conventional broadcasters would be spending almost $50 million more on English‑language Canadian drama today, rather than shifting their emphasis to lower‑cost game and magazine shows.
2950 All of the evidence suggests that these negative trends will continue without some form of intervention. There should be no doubt that getting back on the right path will require new regulatory approaches but it also requires a sense of what we are trying to achieve, of what the goal is or ought to be.
2951 We believe that the Commission should set the foundation for a new systemwide goal for high‑quality English Canadian drama and other priority programming.
2952 We would propose that the goal have three key elements:
2953 first, a doubling of the number of hours of original first‑run high‑quality Canadian English drama available to the Canadian public from private broadcasters;
2954 second, a doubling of the private system's contribution to high‑quality documentary, children, youth, variety and performing arts programming; and
2955 thirdly, a phased‑in move towards predominance of Canadian priority programming in peak primetime, applicable to large multi‑station conventional television broadcast groups.
2956 Today, all English private TV broadcasters combined air under 200 hours of original first‑run quality Canadian drama per year, with major broadcasters like CTV and Global airing as little as, on average, one hour per week.
2957 This compares, for example, with Australia where the three private conventional television networks broadcast approximately 550 hours per year combined, original drama in the U.K. where conventional broadcasters including the public broadcaster air close to 1,500 hours per year.
2958 Based on current private TV spending in English‑language drama cost, an additional 200 hours of original drama would require roughly $200 million in additional monies generated by the broadcasting system.
2959 Needs for other high‑quality priority programming categories are harder to assess. However, we believe that a total increase of $300 million would be an appropriate overall target.
2960 These become our proposed financial targets, our view of the appropriate incremental contribution to the creation of Canadian programs of all sectors of the broadcasting system.
2961 Now, the question is how we can achieve it and how does each sector of the system appropriate contribute to it.
2963 MR. BARRACK: Thank you, Julia.
2964 To address the Commission's specific question on the appropriate contributions by BDUs to the system, one must start with the BDUs' indirect contribution, that resulting from an appropriate regulatory framework.
2965 Today, those indirect contributions mean that Canadians are offered and receive Canadian services at levels closer to 75 percent of total services, far higher than a simple preponderance of 50 percent plus one.
2966 Today, those indirect contributions mean that of the over $2 billion BDUs collect from Canadians in affiliation claim payments, fully 88 percent goes to Canadian pay and specialty services.
2967 High levels of distribution have in turn translated into specialty advertising of close to $1 billion for a total pay in specialty revenues of over $2.7 billion and Canadian programming expenditures of more than $900 million annually.
2968 No single easily identifiable subset of rules is responsible for this achievement. It is the culmination of over two decades of discretionary service licensing and renewal with an intertwined regulatory framework that has attempted to maximize contributions to Canadian programming while also ensuring Canadians have access to popular foreign programming.
2969 Mr. Chairman and fellow commissioners, BDUs are at the top of the food chain. If the BDU regulatory framework is right, the Commission has the opportunity to maximize contribution from both BDUs and all the downstream players but if the BDU framework is not designed to maximize contribution, nothing the Commission does in terms of determining and assessing direct contributions down the line can possibly make up the difference.
2970 The question you have asked is what is the minimum regulation necessary.
2971 We believe it is that which maintains current levels of support for pay and specialty services and hence their support for Canadian programming. Satisfying itself that the unintended consequences of regulatory change will not be a reduction in this support must be the Commission's bottom line in this proceeding.
2972 How can you actually do that while at the same time reinventing the regulatory wheel is something that gravely concerns us.
2973 It means, among other things, that if a new distribution model is deemed necessary, simple preponderance is not enough.
2974 Maintaining our achievements to date requires at least a double‑double preponderance of 66 percent discretionary Canadian programming services offered and received. Anything less risks the loss of hundreds of millions of dollars in pay and specialty CPEs.
2975 It means maintained genre protection, access rules and rules against entry of competitive foreign programming services but most of all it means a collective mindset that says: We are not prepared to accept an outcome that means less support for Canadian programming and fewer Canadian programming choices for Canadian consumers, only more.
2976 Fortunately, the evidence before you suggests that of all the players in the system, BDUs are in the best position to increase their total contribution to the creation of Canadian programs. BDU revenue growth is not only the highest of any sector but the most immune from the threats of a new digital media.
2977 The latest preliminary CRTC statistics reveal that from 2006 to 2007 BDU revenues from programming services increased by 9 percent to $6.1 billion while revenues from all BDU services combined increased by 15 percent to $8.8 billion.
2978 Now yesterday we heard a lot about the pros and cons of fee‑for‑carriage for over‑the‑air broadcasters.
2979 The CFTPA respectfully suggests that there may be a better, more efficient option that strikes at the heart of what the system really needs. That is increasing the direct BDU contributions to Canadian priority programming.
2980 In addition to maintaining indirect BDU support, we have a two‑part recommendation to achieve this objective.
2981 First, we believe the time has come for the Commission to make whole, as originally proposed, the full 5 percent BDU contribution to Canadian independent production funds. This would add approximately $100 million in new funding for priority programming and recognize the value of community channels to Class 1 BDUs as competitive assets that do not merit regulated subsidy.
2982 Second, we believe that BDUs should be required to make an even greater financial contribution to the creation of high‑quality independently produced programming by raising the BDU contribution level to 6 percent. This would add approximately $55 million in new funding initially.
2983 Together these two measures would roughly double BDU contributions to high‑quality Canadian priority programming from about $150 million to $300 million annually.
2985 MR. MOTA: Thank you, John.
2986 Given the increasing importance of VoD and/or pay‑per‑view services to BDUs and given that such services have morphed in ways never initially expected, in direct competition with linear services, we believe the time has come to increased VoD and pay‑per‑view licensees' regulatory obligations with respect to Canadian content.
2987 This should include greater shelf space for Canadian programming as well as higher contributions to Canadian independent production funds, at least double the current level.
2988 For paying specialty services, we believe the Commission should continue to use PBIT margins in excess of 20 percent as an opportunity to increase contributions to Canadian programming at licence renewal time.
2989 We also believe that Category 2 services, especially those owned by large broadcasting groups or those affiliated with a BDU, should have contribution levels commensurate with their distribution and profitability. A CP in the 30 percent range would appear appropriate in this regard.
2990 For conventional television, we firmly believe that regardless of what you decide on fee‑for‑carriage and distant signals, some form of broad Canadian program expenditure requirement on the major conventional television groups is essential.
2991 In the 2006 Conventional Television Policy proceeding, the CFTPA recommended the imposition of an overall priority programming CPE on major private conventional television broadcasters of 12 percent of revenues, growing to 15 percent by the end of the next licence term. We believe this level of commitment from private broadcasters would roughly double their baseline spending on high‑quality drama and other priority programming.
2993 MR. MAYSON: Mr. Chair, Vice‑Chairs and Commissioners, we believe this hearing may present our last, best chance perhaps, at advancing the cause of Canadian programming across the whole broadcasting system.
2994 Surely, the most successful outcome of this proceeding would be a regulatory framework that maintains and increases the health of the Canadian broadcasting system and establishes greater and stable funding for high‑quality Canadian programming that Canadians want to watch.
2995 Canadian television viewers deserve and expect no less. That is why we urge you to carefully consider the consequences, unintended or otherwise, of decisions you make in this proceeding and:
2996 (1) refuse to implement regulatory changes that will ultimately lead to a reduction in support for Canadian programming and the number of programming choices available to Canadians; and
2997 (2) double direct BDU and major broadcast group funding of Canadian priority programming and increase support from other elements of the system, as appropriate.
2998 Thank you for your attention today and we look forward to answering any questions you may have.
2999 THE SECRETARY: Thank you, Mr. Mayson.
3000 Nous allons procéder avec la présentation de l'Association des producteurs de films et de télévision du Québec. Madame Claire Samson nous présentera ses collègues. Après quoi vous aurez 15 minutes.
3001 J'aimerais, pour les fins du dossier, indiquer que l'ADISQ qui avait présenté un mémoire conjoint avec l'APFTQ nous a avisés qu'ils ne seraient pas présents à l'audience.
3002 Madame Samson.
PRÉSENTATION / PRESENTATION
3003 Mme SAMSON: Merci.
3004 Bonjour Monsieur le Président, messieurs les vice‑présidents, madame et messieurs les conseillers, membres du personnel.
3005 Mon nom est Claire Samson, Je suis présidente directrice générale de l'Association des producteurs de films et de télévision du Québec.
3006 Je suis accompagnée de monsieur Vincent Leduc, vice‑président production chez ZONE3 et président du conseil d'administration de l'APFTQ.
3007 Nous accompagnent également aujourd'hui madame Suzanne D'Amour, consultante pour l'industrie du cinéma, de la télévision, du disque et du spectacle.
3008 Les producteurs indépendants membres de l'APFTQ considèrent que ces audiences sont d'une extrême importance. Les demandes et les attentes des EDR qui souhaitent que le Conseil procède à une déréglementation dans l'industrie de la radiodiffusion inquiètent énormément les créateurs et les producteurs de contenu canadien.
3009 Comme nous l'avons exprimé dans tous nos documents transmis au cours de ce processus, L'APFTQ demande au Conseil de mettre le contenu canadien au cour des discussions lors des présentes audiences.
3010 C'est dans cet esprit que L'APFTQ a analysé l'hypothèse du modèle de distribution proposé par le Conseil, à savoir une prépondérance de 50 pour cent plus 1 de services canadiens, à la fois dans les services offerts par les distributeurs et dans les services reçus par les abonnés.
3011 L'APFTQ accepterait ce niveau de prépondérance en autant que tous les autres éléments qui suivent soient intégrés au modèle de distribution.
3012 Deuxièmement, un modèle conçu dans un environnement numérique, le modèle comporterait trois éléments de distribution distincts.
3013 Tout d'abord un bloc de services canadiens de base limité aux services de télévision en direct locale, à des services de programmation éducative et à des services obligatoires, ce bloc serait offert au plus bas tarif possible.
3014 Deuxièmement, un accès garanti à un nombre restreint de services canadiens formant le noyau du système parce qu'il contribue de manière exceptionnelle à sa diversité.
3015 Nous sommes inquiets quand on lit que l'accès garanti devra être accessible à un nombre restreint de services canadiens. D'entrée de jeu, mentionnons que le Conseil a déjà considéré que certains services contribuaient à la diversité de contenu canadien et nous pensons que ce sont ces services qui doivent continuer de constituer le noyau du système de radiodiffusion, nous y reviendrons.
3016 Et enfin, d'autres services canadiens et étrangers sans garantie d'accès.
3017 Comme vous le savez, L'APFTQ avait suggéré, dans son document déposé en Phase II, que le Conseil accueille favorablement la proposition d'Astral visant à trouver un point d'équilibre entre loi du marché et encadrement réglementaire qui permettrait d'atteindre de façon effective et au moindre fardeau réglementaire possible les objectifs que le législateur a assignés à la politique canadienne de radiodiffusion.
3019 M. LEDUC: Monsieur le Président, bonjour.
3020 Sur le service de base, le Conseil se questionne à savoir si les distributeurs doivent être autorisés à ajouter des services au service de base canadien en exigeant un tarif plus élevé.
3021 A cette question nous répondons non. Le Conseil doit s'assurer que le consommateur recevra un service de base au coût le plus bas possible et qu'il soit limité aux services de télévision en direct locale, à des services de programmation éducative et à des services obligatoires déterminés par le Conseil.
3022 A notre avis, le service de base canadien devrait être identique pour tous les distributeurs par marchés linguistiques.
3023 De plus, si le Conseil permettait aux distributeurs d'ajouter des services additionnels au service de base canadien, il faudrait probablement prévoir encore une réglementation pour s'assurer que le distributeur ne privilégie pas des services auxquels il est lié.
3024 Nous sommes d'avis que le service de base est un service essentiel, qu'il doit être établi par le Conseil et dont le tarif de base doit être réglementé en fonction des marchés linguistiques.
3025 Pour ce qui est des garanties d'accès, comme nous le mentionnions précédemment, une de nos préoccupations est l'accès garanti de certains services qui formeront le noyau du système.
3026 Le Conseil a déjà jugé que certains services contribuaient à la diversité de l'offre au consommateur, il devait obtenir un accès garanti à la distribution. Il s'agit des services de télévision spécialisée et payante, analogique et numérique de catégorie 1 qui devraient, selon nous, conserver un droit d'accès garanti dans un univers numérique.
3027 Comme le proposait Astral Media dans son scénario d'assouplissement de la réglementation, ces services doivent, a) démontrer qu'ils apportent une nette contribution à la diversité de la programmation offerte aux auditoires canadiens; démontrer qu'il y a une demande du public pour ce service; soumettre des engagements en matière de diffusion de contenu canadien ou de dépenses d'émissions canadiennes adaptées à la nature de ce service; finalement, proposer d'entrée de jeu un pourcentage significatif d'émissions en haute définition.
3028 Voilà, selon nous, ce que le Conseil devrait retenir comme critères pour définir les services canadiens devant former le noyau du système et leur garantissant un accès à la distribution.
3029 Nous croyons qu'avec ces obligations il ne serait plus nécessaire de maintenir une protection relative aux genres de programmation et que celle‑ci devrait être abandonnée.
3030 Ainsi on élimine la protection par genres applicables à des services individuels au profit d'un principe général et simple de contribution à la diversité de la programmation offerte au public canadien.
3031 Ce sera donc aux services spécialisés ou payants de démontrer au Conseil qu'ils apportent une nette contribution à la diversité de la programmation offerte aux auditoires canadiens.
3032 Ce scénario a l'avantage de simplifier les règles d'accès et de les harmoniser entre les diverses catégories d'EDR qui seraient toutes assujetties aux exigences exposées à l'article 38 du règlement sur la distribution et de la radiodiffusion.
3034 Mme SAMSON: Merci.
3035 Pour ce qui est des services étrangers, le Conseil se questionne s'il est approprié d'interdire les services dont la programmation chevauche de manière importante la programmation d'un service canadien dont l'accès est garanti.
3036 A cette question, évidemment nous répondons oui, il faut les interdire.
3037 Si nous exigeons des services qui auront un accès garanti à la distribution, un engagement envers la programmation canadienne, une nette contribution à la diversité de la programmation offerte aux auditoires canadiens et un pourcentage d'émissions en haute définition, nous devons nous assurer qu'ils seront en mesure de rencontrer ces obligations.
3038 Il nous apparaît qu'un service étranger dont la programmation chevaucherait de manière importante la programmation d'un service canadien n'apporte rien à la diversité de programmation que nous recherchons tous.
3039 C'est sans doute pourquoi le Conseil cherche à établir des critères pour déterminer un chevauchement important dans la programmation d'un service étranger.
3040 Nous pensons que le Conseil devrait juger au cas par cas les demandes qui lui seront présentées. Nous n'avons pas analysé particulièrement cette question, mais nous pensons que si le Conseil tient à établir des critères spécifiques, il pourrait reconnaître que lorsqu'un service étranger propose une programmation dont 60 pour cent est déjà offert par un service canadien, ce service étranger ne contribue certainement pas à la diversité de l'offre et ne devra pas être autorisé.
3041 Quant aux services exemptés, nous aimerions obtenir une précision du Conseil sur le point suivant. Vous écriviez dans vos points pour discussion pour l'audience actuelle, et je cite :
* Le besoin de simplifier les cadres d'attribution de licences et d'exemption aux entreprises de distribution, par exemple, le Conseil établirait une classe d'entreprises titulaires de licences et les autres entreprises seraient exemptées. + (Tel que lu)
3042 Mme SAMSON: Nous avions compris que si nous procédions à un assouplissement de la réglementation actuelle, la nouvelle réglementation s'appliquerait à tous les détenteurs de licences et de distribution. A tout le moins à ceux des catégories 1 et 2 de même qu'aux SRD.
3043 M. LEDUC: L'APFTQ comprendrait cependant que les détenteurs de licences de distribution de catégorie 3 puissent être exemptés, compte tenu de la taille de leur marché et du retard souvent qu'ils accusent dans l'évolution technologique de leurs équipements.
3044 Pour nous, un assouplissement de la réglementation implique une réglementation applicable à toutes les EDR.
3045 Quant au cadre d'attribution de licences VSD, VSDA et télévision à la carte, sur ce point nous n'avons aucune observation à faire.
3046 Le fait d'autoriser les services VSD, VSDA et de télévision à la carte à vendre des blocs d'émissions risque de mener à des situations où ceux‑ci feraient directement concurrence aux services existants ou à de nouveaux services autorisés.
3047 Soulignons aussi que cette liberté leur permettrait d'envisager la création de grilles d'émissions semblables à celles des télévisions conventionnelles.
3048 Étant donné que les services VSD et de télévision à la carte ne sont pas tenus aux mêmes exigences en matière de contenu canadien ou de dépenses aux titres des émissions canadiennes, l'APFTQ ne peut souscrire à une proposition qui aurait pour effet de fragiliser la programmation d'entreprise de radiodiffusion qui programme un fort contenu d'émissions canadiennes.
3049 De plus, tant que les titulaires de VSD n'auront pas trouvé un modèle d'affaires acceptable avec les producteurs indépendants et les diffuseurs, nous pensions qu'il n'y a pas lieu de modifier les conditions actuelles d'attribution des licences de VSD.
3050 L'industrie doit travailler ensemble pour établir un modèle économique viable pour permettre à tous les partenaires de bénéficier des revenus de la VSD.
3051 M. LEDUC: Finalement vous abordiez le point de la divulgation des données financières. Alors, nous considérons qu'en matière d'obligation de rapports et de divulgation de résultats financiers, la règle qui doit prévaloir est celle de l'équité de traitement entre toutes les catégories d'entreprise et entre les composantes privées et publiques du système.
3052 Nous pensions qu'il est d'intérêt public de continuer de divulguer les résultats financiers et les dépenses d'émissions canadiennes de chaque service facultatif individuel, comme c'est le cas actuellement.
3053 Nous sommes aussi d'avis que les données de même nature doivent être publiées pour chaque entreprise individuelle de télévision en direct, privée et publique et pour chaque entreprise de distribution de radiodiffusion.
3054 Nous sommes d'avis que le Conseil a un rôle crucial à jouer dans l'établissement des tarifs ou dans le règlement des différends entre les distributeurs et les entreprises de programmation.
3055 Dans l'univers entièrement numérique qui s'annonce, alors que cesseraient de s'appliquer les dernières règles de distribution et d'assemblage, la nécessité de rétablir un minimum d'équilibre dans les rapports de force et les relations commerciales entre EDR et services facultatifs deviendra criante.
3056 C'est pourquoi nous pensons que des mesures doivent être intégrées au nouveau cadre de réglementation visant à favoriser des relations commerciales saines et équitables entre les parties.
3057 La capacité des EDR de s'accorder une préférence indue ou d'assujettir un service non affilié à un désavantage indu, que ce soit en termes de tarification, d'assemblage ou de promotion, demeurera grande dans un contexte de fort niveau d'intégration verticale distribution, programmation et de contrôle des EDR sur un nombre grandissant de plateformes de diffusion.
3058 L'APFTQ appuie donc la proposition du Conseil d'incorporer une disposition de renversement de preuves pour les règles applicables au traitement des questions de préférences indues ou de désavantages indus.
3059 Ainsi il incombera à l'entreprise qui est présumée s'être accordé une préférence ou avoir fait subir un désavantage à autrui d'établir devant le Conseil qu'ils ne sont pas indus.
3060 Nous sommes toutefois étonnés de lire que le Conseil se questionne sur la pertinence d'un processus rapide d'établissement des tarifs permettant de déterminer le tarif de gros pour les services de programmation avec garantie d'accès.
3061 Est‑ce que nous devrions comprendre que le Conseil envisage l'idée de revenir sur sa décision de ne plus réglementer les tarifs de gros dans un univers numérique?
3062 L'APFTQ est intervenue lors des audiences portant sur les services obligatoires, ceux de l'article 9.1h, afin que le Conseil maintienne son pouvoir de réglementer les services déjà autorisés qui bénéficiaient d'un double statut.
3063 Le Conseil a rejeté notre demande et de plusieurs autres intervenants en déléguant que dans un univers numérique, le Conseil n'interviendrait qu'au niveau des services de base et que seuls les services obligatoires reconnus par le Conseil seraient réglementés.
3064 Comme nous l'avons indiqué précédemment, l'APFTQ tient à ce qu'il y ait un accès garanti des services canadiens qui formeront le noyau du système.
3065 Si le Conseil croit qu'il doit déterminer les tarifs de gros pour ces services, l'APFTQ ne peut être contre une telle décision qui assurerait un financement stable pour ces services, diminuerait la pression de la négociation avec les différentes EDR tout en contribuant à établir des relations harmonieuses entre les parties.
3066 A la limite, le Conseil pourrait décider de maintenir les tarifs établis par les ententes contractuelles entre les parties.
3067 Par ailleurs, il est certain que l'APFTQ s'attend à ce que le Conseil détermine les tarifs et la composition du service de base qui sera offert aux abonnés.
3068 De même si le Conseil décidait dans sa grande sagesse d'accorder une redevance de distribution aux entreprises de radiodiffusion en direct, l'APFTQ s'attend à ce que le Conseil établisse le niveau de ces redevances en fonction des besoins de chacune de ces entreprises et cela en fonction du marché linguistique.
3069 L'APFTQ a expliqué spécifiquement la façon dont elle souhaiterait que le Conseil agisse dans le cas où des redevances de distribution seraient accordées aux entreprises de radiodiffusion en direct.
3070 Il nous fera plaisir d'en rediscuter avec vous dans la période de questions qui suivra cette présentation.
3071 Madame Samson.
3072 Mme SAMSON: Nous terminerons notre présentation sur la question de la création et la contribution à la programmation canadienne puisqu'elle est primordial pour nous.
3073 Si nous pensons que la programmation canadienne doit être au cour du système de radiodiffusion, nous sommes convaincus que chacun des secteurs du système de radiodiffusion doit contribuer à sa diffusion et à son financement.
3074 Le CRTC a exigé depuis plus de 15 ans déjà que les EDR contribuent à même leurs revenus au financement de la programmation canadienne. Cette décision découlait d'une analyse pertinente qui démontrait que les revenus des EDR dépendaient uniquement du contenu que ces entreprises acheminaient aux consommateurs.
3075 Il était donc tout à fait pertinent qu'elles contribuent au financement de productions canadiennes difficiles à financer et considérées sous‑représentées à l'antenne des radiodiffuseurs.
3076 Entre parenthèses, rappelons que ce sont les consommateurs qui ont toujours payé pour le financement du fonds des câblos et du fonds canadien de télévision.
3077 Si le Conseil le souhaite, nous pourrons rappeler la petite histoire de la création du fonds des câblos pendant la période de questions.
3078 Donc, vous ne serez pas surpris d'apprendre que l'APFTQ demande au Conseil de maintenir les obligations des EDR de contribuer au financement de la production canadienne sous‑représentée, et cela à partir de leurs revenus bruts, comme elles le font actuellement.
3079 L'APFTQ s'attend à ce que les entreprises de programmation contribuent de façon notable à la création d'émissions canadiennes comme le prévoit la loi.
3080 Conséquemment, nous souhaitons que le Conseil réglemente à la fois le temps dévolu à la programmation canadienne, les dépenses de programmation canadienne en fonction des revenus bruts de chacune des titulaires et continue d'exiger des grandes entreprises qu'elles consacrent une part importante de leur programmation aux émissions prioritaires étant entendu que 75 pour cent de la production des émissions prioritaires doit être confié à la production indépendante.
3081 En terminant, nous réitérons que les relevés statistiques et financiers produits par le CRTC au fil des ans démontrent hors de tout doute que malgré ou peut‑être grâce à la réglementation, les entreprises de services facultatifs et les entreprises de distribution de radiodiffusion sont en très bonne santé financière et sont en mesure de faire face aux défis auxquels elles pourraient être confrontées dans le futur.
3082 Nous comprenons que le Conseil veuille rajeunir et alléger la réglementation pour lui permettre d'agir rapidement dans l'octroi ou le renouvellement de licences. Nous souhaitons cependant que cela se fasse dans l'intérêt de l'ensemble de l'industrie de la radiodiffusion et surtout dans l'intérêt des Canadiens.
3083 Nous vous remercions de votre attention et sommes, bien entendu, tout à fait disposés à répondre à vos questions ou à discuter de points plus précisément avec vous.
3084 THE CHAIRPERSON: Thank you very much for your two presentations.
3085 First of all, CFTPA, on page 12 you say:
"For conventional television we firmly believe that regardless of what you decide on fee‑for‑carriage and distant signals some form of broad Canadian expenditure requirement on the major conventional television groups is essential." (As read)
3086 THE CHAIRPERSON: Does that mean you don't have a position on fee‑for‑carriage?
3087 MR. MAYSON: We have a position on fee‑for‑carriage. We put it in writing, I think done in part of the process.
3088 THE CHAIRPERSON: For the benefit of our audience do you want to repeat what your position is?
3089 MR. MAYSON: We just think fee‑for‑carriage should ‑‑ whatever you decide on fee‑for‑carriage I think it needs to be linked back to programming and increasing programming expenditure. We have been, I think, a bit discouraged at how the discussion around fee‑for‑carriage from the broadcasting side has made very little if any reference to making ‑‑ putting any of that money into program expenditures. So we think that's a fundamental of that whole discussion. There needs to be some linkage there.
3090 MR. BARRACK: I think ‑‑ sorry. Go ahead.
3091 THE CHAIRPERSON: So I take this to mean that you support a fee‑for‑carriage if it has strings attached to it?
3092 MR. MAYSON: I think we would see fee‑for‑carriage as being ‑‑ any decision on fee‑for‑carriage needs to be linked to program expenditure and the imposition, ideally, of program expenditure requirements.
3093 THE CHAIRPERSON: Thank you.
3094 MR. BARRACK: I think also what we are trying to propose to you is we have seen a real polarized view, obviously, that's been brought before you. I mean we are ‑‑ one can't miss that. And I think what we are trying to do is to find a way through that and that's really what our proposal is going to attempt to do, to get more money into the system and at the same time have minimal impact on consumers.
3095 And so I think you may well go down the road of fee‑for‑carriage. If you do, yes, strings but let's make sure those strings are identifiable strings, that those are tangible strings, that they are quantifiable and that they result in positively impacting on that area of the system that is most under represented, that is most at risk. I think our concern is this notion that somehow if there is fee‑for‑carriage that this money is going to be channelled primarily towards or in any significant way towards local programming.
3096 I think what we have to really do is take a serious look at what is the evidence before you with respect to local and you heard Rael Merson yesterday saying that that is core to ‑‑ their local is core to the business.
3097 There isn't evidence before you at this point and one would think that if CTV and CanWest really were of the belief that local was under threat you would have seen a great deal of evidence coming into this hearing.
3098 So if you go to fee‑for‑carriage here, yes, absolutely strings. Those strings should take the form at a minimum of the CPE and making sure that there is something really real, trackable and quantifiable for priority programming.
3099 THE CHAIRPERSON: And I notice, contrary to your Quebec colleagues, you don't say anything at all about financial disclosure by the various broadcasting enterprises. What is your position on that?
3100 MR. MAYSON: We were clear in our written submissions, again, Mr. Chair. I think it's extremely important. I think, you know, Mr. Mota could probably address that more directly.
3101 But there is a number of important areas where financial disclosure, I think, is critical going forward and has been problematic in the past in terms of intervening effectively on a number of different ‑‑ in a number of different transactions.
3102 Do you want to comment on that, Mario?
3103 MR. MOTA: Yes, sure, just to add. We have already put in our original submission back in October is the fact that we have made the point on several occasions on the public record that the information that the Commission releases on the pay and specialty side by individual service is hugely important for stakeholders such as ourselves to track the performance of these services and make sure they are living up to their promises and obligations under their conditions of licence.
3104 And it is ‑‑ you know it's only fair that the same level of disclosure be released on the BDU side because those pay and specialty services have argued, and rightfully so, that they are put at a competitive disadvantage in that negotiation dynamic. And we just heard Allarco give you a very interesting case study as to what they face everyday. So we think that equal level of disclosure and more, a greater level of disclosure is in the public interest.
3105 LE PRÉSIDENT: Et l'APFTQ, vous dites dans votre mémoire à la page 9 :
* L'APFTQ s'attend à ce que le Conseil établisse le niveau de ces redevances en fonction des besoins de chacune de ces entreprises et cela en fonction du marché linguistique. + (Tel que lu)
3106 LE PRÉSIDENT: Je comprends la référence au marché linguistique, mais les besoins de chacune, est‑ce que ça ne veut pas dire qu'on pénalise ceux qui ont réussi et on aide ceux qui n'ont pas réussi?
3107 Mme SAMSON: Non. Le concept qu'on met de l'avant ici, c'est si le Conseil décide de donner un revenu d'abonnement aux chaînes traditionnelles conventionnelles, et prenons un modèle que c'est un dollar par mois, que le CRTC puisse, à partie de ce dollar‑là, le répartir entre les différents détenteurs de licence avec un certain nombre de critères qui pourraient être leur contribution à des émissions canadiennes, à la haute définition, et puisque les diffuseurs demandent d'avoir des redevances parce que le marché publicitaire est en régression, peut‑être que la redevance devrait être inversement proportionnelle aux revenus publicitaires des détenteurs de licence aussi.
3108 Alors, ceux qui sont les plus éprouvés par la baisse des revenus publicitaires pourraient être mieux rémunérés par l'abonnement.
3109 LE PRÉSIDENT: Ça veut dire que ce n'est pas en relation à leurs états financiers sinon à leur contribution au système que...
3110 Mme SAMSON: Leur contribution au système, mais aussi le Conseil pourrait prendre en compte une donnée financière qui est effectivement l'apport où ce que chacun peut aller chercher en revenus publicitaire pourrait être pris en compte dans la redistribution de l'abonnement.
3112 Richard, tu avais des questions?
3113 CONSEILLER MORIN: Oui.
3114 J'aimerais avoir, justement, peut‑être plus de détails sur la question du président. Est‑ce que vous avez testé ce modèle de distribution? Est‑ce qu'il y a des facteurs qui entrent en ligne de compte?
3115 Mme SAMSON: Dans notre mémoire on en propose quelques‑uns dont possiblement un engagement de la part des diffuseurs à augmenter leur production en haute définition au contenu canadien des émissions qui sont sous‑représentées.
3116 CONSEILLER MORIN: Mais ce que je veux dire, chacun de ces facteurs‑là, quelle importance il a pour déterminer?
3117 Mme SAMSON: Nous n'avons pas élaboré. Nous avons élaboré un concept, mais je pense que ça mériterait certainement une consultation plus large avec l'Association des producteurs. C'est pour ça qu'on a donné des indications quant à leur contribution à la programmation canadienne, les émissions sous‑représentées.
3118 Et c'est pour ça qu'on a introduit la notion de revenus publicitaires puisque les diffuseurs qui demandent des revenus d'abonnement prétextent la majorité du temps que c'est pour compenser la perte de revenus publicitaires.
3119 CONSEILLER MORIN: Autrement dit on devrait intervenir encore plus dans le marché.
3120 Mme SAMSON: Je ne pense pas que ce soit une intervention supplémentaire. A partir du moment où si le Conseil décide de donner des redevances d'abonnement aux chaînes traditionnelles, ce sera une intervention.
3121 Alors, il s'agit de voir quel serait le moyen le plus adéquat, le plus juste et le plus équitable pour tout le monde pour redistribuer.
3122 Bien sûr, si on demande à chacun, tout le monde dira qu'il mérite le dollar par mois à lui tout seul, mais c'est pour ça que...
3123 CONSEILLER MORIN: Mais si je prends ce critère‑là précisément, ça voudrait dire que la redevance irait davantage ou, enfin, ce serait un avantage de ne pas faire trop de profits.
3124 Mme SAMSON: J'ai parlé des revenus publicitaires, je n'ai pas parlé des profits.
3125 CONSEILLER MORIN: Des revenus. Ce serait un avantage de ne pas trop en avoir, de revenus.
3126 Mme SAMSON: Bien, ce serait l'avantage, en tout cas, de ne pas...
3127 CONSEILLER MORIN: Pour avoir la redevance.
3128 Mme SAMSON: Ce serait le choix d'un diffuseur stratégique, ou bien le Conseil permet aux diffuseurs maintenant de faire de la publicité sans limite, alors un diffuseur qui préférerait réduire son inventaire commercial pourrait le faire et on peut penser que si un diffuseur réduit son inventaire commercial, c'est au bénéfice de l'autre à côté qui lui aura choisi d'extensionner le sien, donc chacun devra y trouver ce qu'il lui faut.
3129 COMMISSIONER MORIN: So first I will begin with some questions to CFTPA après APFTQ, but if you want to jump in do it any time.
3130 In your written presentation you strongly opposed the smaller basic package advocated by CBC Radio‑Canada. I presume that you think that the Cancon and the CPE numbers could be used as a gauge for big and little guys alike in deciding what channels have or do not have access to the basic service.
3131 Yesterday I don't know if you were there and today too. I thought ‑‑ I speak about a model about ‑‑ I'm thinking about this model which will take into account three variables; the CPE numbers, the Cancon numbers ‑‑ we all know these numbers. We can find them in the CRTC books and so on, but we have to take into account too the consumer ‑‑ the price for the consumer. So it's a point system.
3132 For example, a channel with a Cancon of 70 percent plus expenditures, CPE of 70 percent, for example two 70s, but the price ‑‑ the official rate of the CRTC will be ‑‑ for example it's Notarize(ph) channel ‑‑ will be 50 cents. So the first number means 140 less 40 cents. So if the CRTC put the threshold at 100 points this channel for an example will ‑‑ don't have the access to the basic service. So A plus B minus C equals the numbers of points.
3133 This model hasn't been tested but I am thinking about it, and I just want your opinion as far as the main variables are concerned. Will it make sense to you to offer to the players this kind of model? Everyone will be in the ice rink and will have to make up his mind about if he wants or not the access to the basic service.
3134 MR. MAYSON: It's a very interesting proposal, Commissioner Morin. I think ‑‑ and we were certainly here yesterday and I think that we are going to be, obviously, reviewing a lot of the ideas that will be proposed here and we will look at that very carefully.
3135 I think as a general comment, though, I think our concern with any sort of major revision to the basic right now is essentially the potential impact for discretionary services as well. So I think it all has to be studied as a whole if you like, not to say we would like to look at that as an approach which has been tabled but we are very concerned.
3136 We essentially see basic as being in a fairly good position right now, so if you start to play with that ‑‑ we like the relationship to the discretionary services. We really have to look at it as a whole.
3137 COMMISSIONER MORIN: Second ‑‑ yes.
3138 MR. MOTA: Commissioner Morin, if your ultimate objective with that model ‑‑ and we have to give it some more thought and we will be happy to give it some more thought in the final comment phase if you wish.
3139 But if your whole objective is to try to incent Canadian services to raise the bar, move the yardstick forward in terms of Canadian programming expenditures and Canadian content exhibition, in principle, great idea. We are all for that as producers. We want to see more, not less Canadian content.
3140 COMMISSIONER MORIN: But don't forget the third variable too.
3141 MR. MOTA: The price, certainly, and that is an important component with the consumer relationship. So in principle, yes, if that is the ultimate goal, I think it is laudable.
3142 I know the idea has been put out there, I think, by Dunbar‑Leblanc about linking, guaranteed access with CPEs, and the concept in theory makes a lot of sense to us in terms of ‑‑ in practice, you know, the devil's in the details, I am not really sure how it works out.
3143 I am not really sure it is a simplification of the process. If we are trying to move towards less regulation, I am not sure that is less.
3144 But in the overall grand scheme of things, I think the principle and the goal is certainly something we could support.
3145 COMMISSIONER MORIN: But in my mind, I scrap a lot of rules and just put this framework for all the players. But the young players or those who want to modify their business plan in order to increase the CPE and the Cancon numbers can do it and they have the incentive to do it because at last they can be on the basic service.
3146 MR. MOTA: And again, I think that is all something that makes a lot of sense to us as an ultimate goal and we will give that some more thought and perhaps put a little more thought in it to provide you some of our own thoughts and perspective on that in a written filing.
3147 COMMISSIONER MORIN: Yes.
3148 M. LEDUC : Monsieur le Commissaire, si vous permettez.
3149 COMMISSIONER MORIN: Yes. Oui.
3150 M. LEDUC : Je suis dans le 'jump right in' là.
3151 CONSEILLER MORIN : Oui, oui, allez‑y.
‑‑‑ Rires / Laughter
3152 M. LEDUC : Cette proposition, je pense que plusieurs parties y ont réfléchie, puis j'écoutais la brillante présentation de Bell ce matin, et lui aussi y a réfléchie.
3153 Est‑ce que dans ce service de base là que vous suggérez, ce pointage de service de base là serait uniquement canadien?
3154 CONSEILLER MORIN : Là, évidemment, ça dépend des... Il n'y aurait pas que ça, mais disons, oui. Dans ce sens‑là, oui, parce qu'on ne pourrait pas y arriver. Il faut être le plus Canadien possible.
3155 M. LEDUC : O.K.
3156 CONSEILLER MORIN : Il n'y a pas d'autre façon d'y arriver. Ça serait une autre façon d'atteindre le service de base.
3157 M. LEDUC : C'est ça. Puis il faut le maintenir au plus bas prix possible là.
3158 CONSEILLER MORIN : Voilà!
3159 Second, I would like to address the CRTC's genre policy.
3160 I understand that you are in favour of the status quo but as the industry is now mature, isn't it possible that the Canadian consumer will be better served by more competition or is the status quo a better method? In short, how does genre protection result in increased competitiveness for Canadian programming services?
3161 MS KEATLEY: Big, big question. I will let my other panelists comment as well.
3162 I think our own view on genre protection makes us sound like status quo, status quo. I think ultimately what we like about genre protection right now is it ensures diversity in the system and there is no reason why it really prohibits competition either. There is no reason why somebody couldn't develop a different type of channel in the same type of genre.
3163 We think the move to sort of a broader‑based genre approach where you maybe have a broad‑based definition of drama which includes any number of ‑‑ includes comedy, science fiction, you could end up with, I think, a number of specialty channels now all kind of rushing to the same kind of programming when you look at the current channels that are there.
3164 So the short answer to your question is I think what we like about genre protection is that it serves the interest of diversity in a major way and actually there is no reason why it can hinder competition.
3165 Do you want to comment, Julia?
3166 MS KEATLEY: I think this is one of the areas where we really ‑‑ because we have been asking for competition at other hearings and we are very well aware of that.
3167 But we really think that the genres as they have been set up, in fact, have been one of the huge success stories of the specialty system. I think if you look, for instance, in a drama category across the specialty channels, in the English language you have got Bravo!, Showcase, Comedy, Space, Mystery, and they are all doing drama but within a particular niche.
3168 Personally, I think, as a consumer, people like to go to those places if they are a science fiction fan and watch Space and there are ways of that working with the conventional broadcasters as well as a partner. So that has been the kind of approach that we have liked.
3169 And we aren't completely against, for instance, new foreign services coming in but we believe that when they have partnered and therefore have been part of the overall ‑‑ complementing the system and contributing to the system is a key part of that, obviously, for the CPE.
3170 COMMISSIONER MORIN: But the question also is: Could you demonstrate how genre protection rules enhance or further the objective of programming diversity?
3171 MR. BARRACK: What is very interesting about the way the system has been set up is that it really does provide a niche system. If you consider ‑‑ and I know that the Commission will be considering the effects of new media and the internet going forward.
3172 But if you really consider what is the great attraction of the new media, it is the idea of niche. It is the idea of consumers being able to find what really appeals to them and what the current system gives is a real wide variety in that respect.
3173 The concern you have is if you go to a category approach, which is being suggested by some players, is that I really do think and I think we are of the view that you get a more morphing to the middle and that morphing is going to mean less consumer choice ultimately, less diversity and ultimately could have a very negative impact in terms of the CPE as well. I think it really becomes a downward spiral to some extent.
3174 As Julia suggested, this is an area of our system that not only works and is profitable but is liked by viewers and this is a good thing. And I guess to some extent, again, it is that subtle matrix we were talking about earlier.
3175 We have to be very, very careful. We are not Luddites. We are not suggesting stick your head in the sand, do nothing. In our proposal, we see, for example, in our preponderance approach, there are avenues of flexibility in there but we have to be very, very careful not to kill a success story.
3176 MR. MOTA: Just to add to that, another very real concern from our part is a very real probability that it will simply just move to the middle, will simply bid up foreign program rights on the specialty side.
3177 We have got a serious problem on the conventional side. In '99 the ratio of spending on foreign drama versus Canadian drama was 5 to 1 in favour of foreign. Over time, today we are at 12 to 1, almost 13 to 1, and we fear without some kind of intervention of some sort, we are going to end up at 20 to 1 in the next three or four or five years.
3178 So our fear is that we do not go down this road on the pay and specialty side. It is certainly not the right direction to head into and if you increase that competition, while in theory all nice, it makes everyone feel warm and fuzzy inside, the reality is it is not going to be good for our system, in our view.
3179 MR. MAYSON: If I can just comment.
3180 Commissioner Morin, I think the short answer to your question is actually Julia's example about when she listed a number of ‑‑ the Space channel, the Comedy channel, Bravo!, Showcase. All generally could turn into kind of a generic drama and what happens to performing arts, what happens to comedy.
3181 Within each of those channels you have a distinct line of programming happening and if you move to a different definition which maybe is not so genre‑specific, I think you will find you will get a different kind of programming and a bit of a rush to the middle, as John said.
3182 MR. BARRACK: And perhaps a migration away from television too to other niche media.
3183 COMMISSIONER MORIN: Corus and TVA want to produce programs in‑house. They will probably be able to provide Cancon and CPE at a better price.
3184 Couldn't this be of benefit to the system as a whole because they are asking every time to get permission to produce more in‑house than they are doing now?
3185 MR. MAYSON: There are currently regulations for the production of ‑‑ independent programming requirements for independent programs. We have always supported those. We have never said that in‑house programming is a bad thing or you should not be doing that.
3186 I think because in‑house generally tends to be a lower budget form of production, I think we have always seen that certainly broadcasters ultimately and cable companies as well will reach out and work with the independent sector to access the funds that the independent producers can bring.
3187 So we have never really ruled out the concept of in‑house production. We just feel it is very important to maintain those kinds of minimum requirements for independents because this is the market we have to live in. There is a certain amount of financing we bring together ourselves. This is our business. They have other sources of revenue too which they can access for production.
3188 COMMISSIONER MORIN: But I am talking about the 75‑percent rule, they don't agree with this rule.
3189 MR. MAYSON: I am sorry, I didn't hear you.
3190 COMMISSIONER MORIN: The 75‑percent rule for the independent producers, they are against it.
3191 MR. MAYSON: Well, we would disagree with that.
‑‑‑ Laughter / Rires
3192 MS KEATLEY: I would like to comment on that as well.
3193 I know that at the Canadian Television Fund, there is actually access to the production funds and Corus has access based on their previous purchase of Nirvana, which was previously an independent company, and they were allowed independent access in terms of that. So they have had actually access to things like that within a historical context.
3194 But as a gatekeeper of all, primarily a lot of the, in particular, children's programming, it does concern our community of independent producers who have been quite successful in creating that programming but we have never said no and they currently produce a lot.
3195 MR. MOTA: Commissioner Morin, I have to question you or challenge you on the statement you made that ‑‑ and it is reflecting their opinion that it is cheaper for them to produce in‑house.
3196 The fact of the matter is they are putting up on average, the broadcasters, 30 percent of the cost of producing independently produced programming. So if they did it in‑house, they would have to come up with 100 percent. So we don't accept this myth that they keep perpetuating out there that it will be cheaper for them to produce in‑house.
3197 The fact of the matter is they put minimal licence fees into producing independently produced programming and we bring the other partners to the table to make it whole, tax credits, producer investment, CTF, other independent producers. So without those other elements, the 75‑70 percent of the dollars, those high‑quality shows just simply wouldn't be made.
3198 So when they are talking about making it cheaper, they are talking about making cheaper programming, they are talking about magazine shows and that is not good for our system because it is simply watering down the quality of our programming.
3199 COMMISSIONER ARPIN: Mr. Mota, that is not what they are saying. They are saying they want to keep access to CTF, they want to keep access to tax credits. You are not talking cheaper programming here. They want to do it, obviously ‑‑ I am sure that you know why.
3200 MR. BARRACK: And there is also a diversity issue though. There is a real diversity of voice issue there as well and it is, I think, fundamental, again. You have said this in previous decisions. I think that is what really underlies that independent role.
3201 MME SAMSON : Monsieur Arpin, essayez‑vous d'insinuer qu'ils veulent juste nous sortir du portrait?
‑‑‑ Rires / Laughter
3202 CONSEILLER ARPIN : Je n'ai rien dit.
3203 M. LEDUC : Jumping right in, le 75 pour cent, Monsieur Morin, je crois, s'adresse aux émissions prioritaires sous‑représentées, tel que défini par le CRTC.
3204 CONSEILLER MORIN : In your oral presentation you talk about the double‑double preponderance rule. Currently, nearly 75 percent of the services many consumers receive are Canadian.
3205 So why is it so important to adopt this rule you suggest?
3206 MR. MAYSON: I will let Mario comment on this as well because I think we have put a lot of thought into this and I think it is really our response to try to put a proposal forward really dealing with any sort of desire to replace of tiering and linkage rules and actually provide a new flexibility while still ensuring, as we said, like a one‑to‑two relationship for Canadian services vis‑à‑vis foreign services and ensuring as well that they are made available.
3207 So it has been thought out. I think it is a proposal ‑‑ we think the 50‑plus‑one is perhaps not strong enough.
3208 But, Mario, you should probably comment because we did do a lot of work on this.
3209 MR. MOTA: Well just, you know, if we take the proxy of the example that I think a couple of intervenors put out. I think it was CanWest and Stornoway that did some analysis of looking at Rogers Cable's channel line‑up in the Toronto market as being roughly in that 75 percent Canadian range.
3210 To go from 75 percent to potentially 51 would have a dramatic impact on the system in terms of revenue levels of specialty services and then ultimately to Canadian programming. So the unintended consequence of moving to that dramatic shift can be a quite severe shock for our system and we just want the Commission to be aware of that.
3211 So we tried to propose a middle ground on principle to say that BDUs offer two times more Canadian than foreign and that they ensure consumers receive two times more Canadian than foreign. For us it was no more complex than that.
3212 THE CHAIRPERSON: Why do you need the offering, why not just received? Take your two‑thirds, you say two‑thirds of programs received by subscribers have to be Canadian. Wouldn't that get you the desired effect? Why the double requirement?
3213 MR. MOTA: I guess in the end, Mr. Chair, you are probably right, it does ultimately give you the desired effect. For us it is just creating that shelf space for Canadian services.
3214 In theory, a reading of the Act would suggest that most BDUs should have more shelf space for Canadian services than for foreign. So it really just ‑‑ it is as simple as that, that there should be more shelf space available for Canadian than foreign regardless of how it ends up in the end.
3215 CONSEILLER MORIN : J'aimerais avoir vos commentaires sur cette question‑là aussi, parce que la prépondérance à 50‑plus‑un, je ne pense pas que vous êtes beaucoup d'accord, mais il y a quand même une offre, et les consommateurs choisissent plus de 70 pour cent de leur service de base.
3216 MME SAMSON : Oui. C'est pour ça, Monsieur Morin, que dans notre présentation on dit que le 50 pour cent plus 1 nous apparaît acceptable si les autres conditions sont rencontrées, c'est‑à‑dire une contribution à la production canadienne pour les émissions sous‑représentées, que 50 pour cent plus 1 qui serait retenu par le consommateur pourrait être acceptable.
3217 CONSEILLER MORIN : Mais est‑ce que ca représente un recul par rapport à votre ‑‑
3218 MME SAMSON : Ah, probablement ‑‑
3219 CONSEILLER MORIN : ‑‑ mémoire écrit ?
3220 MME SAMSON : Par rapport à notre mémoire écrit, oui.
3221 M. LEDUC : En ajustement.
3222 CONSEILLER MORIN : Et pourquoi ?
3223 M. LEDUC : Premièrement, je dois dire, Monsieur Morin, je ne sais pas si je vais répondre spécifiquement à votre question, mais à s'imprégner de l'ensemble des mémoires ou de beaucoup des mémoires qui ont été déposés devant le Conseil, on constate à quel point le Conseil a fait et a obtenu de ses intervenants un travail gigantesque de reflexion. Un travail d'une qualité, me semble‑t‑il, remarquable.
3224 Je suis vraiment loin d'etre un expert, mais ‑‑
3225 CONSEILLER MORIN : C'est 9 000 pages.
3226 M. LEDUC : Oui. Je ne sais pas à combien de mots par page, mais...
3227 Monsieur le Président faisait allusion qu'il en avait lu la vaste majorité, alors on l'en félicite.
3228 Ce n'est pas mon cas.
3229 Alors, à la lecture de ces choses‑là et puis en s'imprégnant de ca, on ajuste notre position.
3230 Mais on pense vraiment, et puis on l'a quand même spécifié, qu'on répondait à une question spécifique du Conseil.
3231 On a répondu oui, et en la qualifiant. En disant : * On répond oui si tout le reste de notre raisonnement s'applique également. +
3232 Et par ailleurs, l'ensemble de nos remarques pour ce qui est de l'APFTQ, pas de mes collègues du CFTPA, s'applique beaucoup au marché francophone.
3233 C'est dans ce marché‑là, plus spécifiquement celui du Québec, qu'on a réfléchi. Alors...
3234 On sait que l'écoute, au Québec, d'émissions canadiennes n'est pas en danger. Et ça faisait peut‑être partie de la réflexion aussi.
3236 CONSEILLER MORIN : Comment réagissez‑vous au modèle dont j'ai parlé tout à l'heure ?
3237 Est‑ce que ça vous semble quelque chose à laquelle vous pourriez vous accrocher ? Contenu canadien, plus dépenses de programmation, moins un prix pour le service de base, pour l'accès au service ?
3238 MME SAMSON : Bien, nous étions partis de la prémisse que les services de base devaient être le plus ‑‑
3239 CONSEILLER MORIN : Petit.
3240 MME SAMSON : ‑‑ minimal possible.
3241 CONSEILLER MORIN : Oui.
3242 MME SAMSON : Pour qu'il soit accessible au plus grand nombre de consommateurs possible dans l'environnement technologique dans lequel on évolue.
3243 Donc, on a essayé de le garder dans sa plus simple expression.
3244 Il faudrait voir la modélisation, le résultat de la modélisation de votre concept.
3245 Moi, j'aurais peur que ce soit un service de base assez gros qui finirait par être finalement assez dispendieux.
3246 CONSEILLER MORIN : Les consommateurs actuellement ont le choix de prendre un service plus petit.
3247 Ce que nous disent les entreprises de distribution, c'est qu'il y a très peu de gens qui prennent le service de base.
3248 MME SAMSON : Non.
3249 COMMISSIONER KATZ: At page 4 you say that:
"A prime time exhibition commitment alone is not enough to ensure private conventional broadcasters spend the money necessary for high quality priority programming." (As read)
3250 Je pose la même question a l'AFPTQ, as well.
3251 MR. MAYSON: Yes.
3252 COMMISSIONER KATZ: We heard yesterday one of the Rogers executives suggest that if in fact the Commission does intervene on the issue of Canadian spending and everything one scenario would be a tied spending commitment, whereby as you spend more on foreign programming there is a quid pro quo however you want to capture it as well.
3253 MR. MAYSON: Yes.
3254 COMMISSIONER KATZ: What are your views on this matter?
3255 MR. MAYSON: I will comment quickly and then I will let my colleagues comment as well.
3256 We actually find this a very interesting idea because I think when you look at the relationship between foreign and Canadian spending over the last decade it's a very discouraging situation. We recognize the need for foreign programming costs is an integral part of any broadcaster's scheduling, but there needs to be some relationship back to expenditure on Canadian programming.
3257 We have obviously traditionally looked at it as a combination of a percentage of revenue approach as in the specialty model and we have also said it should be linked in some way to an hourly requirement as well, but some kind of a ratio between the two is certainly a very interesting idea to be explored.
3258 COMMISSIONER KATZ: Okay.
3259 Mme SAMSON : La question de l'acquisition des productions étrangères est très certainement une situation qui est moins criante pour la production francophone au Québec, je pense que la majorité des diffuseurs réalise bien que la production originale canadienne, c'est celle qui remporte actuellement le plus de succès au chapitre des cotes d'écoute.
3260 Et on n'a pas vu, en tout cas au Québec, un gros débat quant à la diminution des acquisitions en émissions canadiennes qui seraient détournées au bénéfice des productions étrangères, donc la situation est beaucoup moins alarmante de notre côté.
3261 MR. MOTA: Commissioner Katz, if I could just add, I recall specifically a discussion the Chair had I believe at the Diversity of Voices hearing, I believe it was with APTN about potentially linking foreign program spending with Canadian spending, so for every dollar you spend on foreign say you have to spend the equivalent on Canadian.
3262 You know, we have been thinking about this, you know, is that a less interventionist way of trying to put the genie back in the bottle, because it is clearly out of the bottle. These are some of the kinds of ideas that I think we need to collectively discuss and debate because we do have to do something.
3263 I remember I heard Mr. Merson say yesterday about the whole issue of fee for carriage adding fuel to the fire of bidding up, constant bidding up of foreign program rights, his fear being that it will simply mean the broadcasters use the money to continue to overspend on foreign. From our perspective it is very, very true, we agree with that. It's adding fuel to, in our opinion, a blaze that is completely out of control.
3264 So anything that we can do to get a hold of that is beneficial, whether it's a linking, whether it's a luxury tax, whether it's a salary cap scenario, whether it's a direct percentage CPE so you know upfront you have to spend as much Canadian. So you are going to discipline yourself in the marketplace. The two times you go down to LA to buy foreign programming you know you have those commitments back home.
3265 So these kinds of ideas are certainly something that we need to get on the table.
3266 COMMISSIONER KATZ: So let me ask you a follow‑up question on that.
3267 If in fact there is such a model that comes to being, is there still a need for exhibition limits as well in hours? Given the money is being spent, the question is the quality and is it a trade‑off between quality and quantity?
3268 So if you can lock in on one, is there a need to lock in on the other or can we increase the flexibility to the programmers out there as well and give them a bit of freedom?
3269 MS KEATLEY: Actually it's interesting because we have been talking about a preponderance of choice and Canadian choices on a distribution level. Why are we having that in our Canadian prime time. Why isn't there at least sort of a 50 per cent choice of Canadian choices when you talk about that?
3270 So I think really when we look at how much the entire system has gone towards an audience funded system or, pardon me, driven system, we want we believe that what's happened on the specialty channels we think could happen on the conventional if those choices were there for them, for Canadians to choose.
3271 The issue of spending is more within looking at the various categories and of what it costs to actually make them. I mean that's why we proposed sort of the overall proposal of the 6 per cent, increasing that financing that would be available to the overall system not just, say, a fee for carriage system, where if that wasn't tied to Canadian expenditures it could technically be spent on increased foreign buys.
3272 COMMISSIONER KATZ: But aren't we forcing the broadcasters to make a choice between putting on quality programming with a fixed amount of dollars or spreading it across a number of hours and therefore diluting the quality because there's only so much money to go around?
3273 MR. MAYSON: It's a very good question. We traditionally have seen the hours and the spend is related. Our policy submission back in 2006 really took the position that it was very important ‑‑ particularly in English Canada with its particular issues that aren't shared in Québec where people watching Canadian shows ‑‑ in English Canada it's a real struggle.
3274 So I think an important objective is actually lets increase the prime time hours, let's try to reclaim prime time in some way. Probably an ambitious goal, but the spend ask we were going for there was really related to the hours in many ways.
3275 At the end of the day your question about, you know, is there one or the other, we think they are actually closely related.
3276 Has the specialty model worked, though, in our view, yes, it probably has much better than the conventional model where people have to spend money, they do it properly, they schedule properly, so there is maybe a better relationship there. But I think we would still feel that there needs to be an hourly requirement as well or you still won't get shows scheduled in the way that they should be, frankly.
3277 THE CHAIRPERSON: Thank you.
3279 COMMISSIONER ARPIN: Mr. Mayson and your team, it's a follow‑up question to what Vice Chairman Katz was discussing with you.
3280 I'm starting, say, from your page 5 of your oral remarks today and throughout I read that final ‑‑ and I think you admitted it, that your plea is for more money in the system, I think you have stated particularly for Canadian drama.
3281 My question is the following: What evidence do you have that Canadians want to have more Canadian drama than they currently have rather than ‑‑ I'm quoting here ‑‑ "game and magazine shows".
3282 Have you done any studies? Do you have any specific evidence that Canadians want to have more Canadian dramas?
3283 MR. MAYSON: We did initiate a study as part of our CTF submission in February, the Harris/Decima poll ‑‑ Mario can comment on it ‑‑ which really looked at public attitudes towards Canadian programming, priority programming.
3284 Specifically your drama question, I think it's something that ‑‑ can I point to a particular study? I think I'm sure they exist. Mario, you can correct me if I'm wrong on this, but our study in February was really looking at priority and do Canadians want to see Canadian shows and it was clear ‑‑ it was clear ‑‑
3285 COMMISSIONER ARPIN: No, I remember. I remember that survey ‑‑
3286 MR. MAYSON: Yes.
3287 COMMISSIONER ARPIN: ‑‑ but it was Canadian programming at large.
3288 MR. MAYSON: Yes.
3289 COMMISSIONER ARPIN: It was not a very specific genre.
3290 MR. MAYSON: To get to the heart of your question, I think we have always as a Association really looked at priority essentially, so the broader definition, documentaries, kids programming as well as drama. I think you can't ‑‑ people want to watch a range of shows including magazine shows.
3291 COMMISSIONER ARPIN: And I can understand that you have been looking that way because the main thrust of your membership are drama producers and documentaries I will say.
3292 MR. MAYSON: Absolutely. I mean, I think in some ways ‑‑ I think we can talk to the Writers' Guild or ACTRA, they are very focused on drama and we think drama is extremely important, don't get me wrong.
3293 COMMISSIONER ARPIN: Yes, sure. Actors and writers are mainly interested in doing drama, but my question is: Do you have any specific study that makes that demonstration? Because you are arguing that you need more money for drama.
3294 MR. MAYSON: I will let other people comment, but I think what we can say is the state of Canadian dramas is woeful right now, especially when you look at things internationally.
3295 I think we will certainly look at our past research and bring it forward and it's useful to this discussion, but I think in our view it's an important objective to increase Canadian drama in the Canadian prime time.
3296 MR. MOTA: Michel, Commissioner Arpin, the particular study that Guy was talking about was not specifically about any particular genre, but as my past life just before here I was the Vice President Broadcast Media Research at Decima Research and one of our big clients was Canadian Heritage. I know there were a lot of studies that were done looking at the importance of Canadian content for Canadians. I'm not going to give you specific results about those studies, but they consistently showed overwhelming Canadian support for Canadian content, for Canadian stories, for Canadian documentaries, all kinds of genres.
3297 Now, I take your question and I think at some future point you will probably see some studies from us that I think will show you quite clearly that Canadians do support the shelf space and the ability to watch these types of programming, Canadian programming.
3298 COMMISSIONER ARPIN: Make sure that particularly drama is identified, because all your requests are always aimed at putting more money into drama.
3299 MR. MAYSON: To be clear, our request is priority programming, including drama. I think we put an emphasis on drama absolutely, but it's priority programming in that definition.
3300 COMMISSIONER ARPIN: Thank you very much.
3301 THE CHAIRPERSON: Okay. Thank you very much. I think those are our questions.
3302 As you can hear, I am coming down with something, so we are going to close for today and hopefully I can cure myself overnight.
3303 So thank you very much.
3304 What time do we resume tomorrow morning?
3305 THE SECRETARY: Mr. Chairman, we will resume at 8:30 tomorrow morning with the Crossroads Television's presentation.
3306 THE CHAIRPERSON: Okay. Thank you.
3307 THE SECRETARY: Thank you.
3308 MR. MAYSON: Thank you.
‑‑‑ Whereupon the hearing adjourned 1556,
to resume on Thursday, April 10, 2008 at 0830 /
L'audience est ajournée à 1556, pour reprendre
le jeudi 10 avril 2008 à 0830
Johanne Morin Monique Mahoney
Jean Desaulniers Fiona Potvin
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